Accumulate This Midcap Refractory Sector Stock, Target Price Upgraded At Rs. 690: Monarch Networth

Stock To Buy: Target Price

The Current Market Price (CMP) of RHI Magnesita India Ltd. is Rs. 624. Monarch Networth has estimated a Target Price for the stock at Rs. 690. It is a mid-cap stock with a market capitalization of around Rs. 10,037 crore. This stock has the potential to give 10% return, in the upcoming 1 year.

Financials

The company's revenue in FY22 was recorded at Rs. 19,951 mn, which is expected to be at Rs. 23,919 mn in FY23. Their EBITDA in FY22 stood at Rs. 3,838 mn, which is expected to be at Rs. 4,370 mn in FY23. The company's adj. net profit in FY22 was recorded at Rs. 2,690 mn, which is expected to be at Rs. 5,845.5 mn in FY23.

Robust sales volumes

The company has reported upbeat set of financials with revenue staying elevated at Rs. 6bn; increased 40% yoy; and gained 2% qoq mainly led by robust sales volumes. Sales grew by 20% yoy; 3% qoq due to market share gains, better product, that is rise in sales of flow control refractories and robust inventory levels to service such demand. However, prices were largely at par with Q4FY22 quarter with the exception of absence of freight surcharge due to easing in freight cost.

Strong revenue growth

"RHIM is witnessing slowdown in demand from few export pockets like Europe which is being diverted to other countries and for domestic sales. However, this is a temporary phenomenon and strong volume growth is expected due to rising domestic steel demand, new product & customer additions and focus on ramping up exports to make India the manufacturing hub for East Asia and Africa markets. Therefore, we upgrade our estimates and expect RHIM to outperform peers on earnings growth (16.4% CAGR over FY22-25E) but lower multiple due to expectation of further decline in margins," Monarch Networth stated.

Stock Advantages: Monarch Networth

According to the brokerage firm, "We raise Target Price to Rs. 690 (previously Rs. 625) and maintain RHI Magnesita India's (RHIM) rating at Accumulate. We value RHIM at an average of 30x Jun'24 PE and 20x Jun'24 EV/EBITDA. Rise in Target Price is due to strong earnings upgrade and roll forward of valuations partially offset by reduction in target multiple. Although, we expect downward trajectory for margins in FY23E (18.4%) triggered by restocking of RM at higher cost and absence of freight surcharge, RHIM will still outperform peers on sustainable margin range, superior return ratios and robust earnings growth due to rising domestic steel demand, new product and customer additions and focus on ramping up exports."

However, failure to achieve aggressive growth due to Russia-Ukraine war and steel industry slowdown in Europe, RM cost inflation remain as key risks.

Valuation

"We believe that RHIM has the best business among the three listed players due to comprehensive product portfolio (Magnesia bricks, specialised refractories from Bhiwadi), strategy to expand domestic market share and also leverage its manufacturing and R&D expertise (from parent) to drive excellence in new product development, derive synergies from existing supply chain and expand to new geographies. Its presence in both, mini mills and large integrated steel plants will only grow larger in its pursuit for more Total Refractory Management contracts," the brokerage firm added.

Disclaimer

The above stock was picked from the brokerage report of Monarch Networth. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.