Buy This Multibagger Auto Ancillary Stock For A Target Price of Rs 720

Rajratan Global Wires (RGW) is India's top manufacturer and supplier of tyre bead wire and high-carbon steel wire, as well as Thailand's sole bead wire maker. The company's shares on the NSE have risen from Rs 184 to Rs 630 in the last year, representing a multibagger return of 241 per cent. Year-to-date (YTD), the stock has climbed by 52.44 per cent, and in the previous six months, it has gained by 31.09 per cent. The stock has generated a 12.64 per cent return in the past month and 8.27 per cent in the previous five trading days. Asian Markets Securities Private Ltd, a brokerage company, has issued a buy call on the stock with a target price of Rs 720.

4Q Result Update

As per the brokerage "RGW reported its quarterly revenues at Rs2.5bn, up 11.6% YoY (higher than our expectations). Margins though disappointed at 19.2% (21.7% expectation) led by lower gross margins. Due to higher steel prices in Feb-Mar'22, the company reported a 367bps QoQ decline in gross margins. The EBITDA came in at Rs476mn, up 14.6% YoY. The company reported its PAT at Rs370mn, up 13% QoQ."

Key investment rationale

The brokerage has claimed that "RGW is a major supplier to all tyre companies. RGW has already begun expanding its capacities (from the current 60,000 TPA) by setting up a green-field facility in Chennai (de-risking one location, expanding export feasibility, saving logistic costs). The new capacity of 60,000 TPA, will be achieved at a capex of Rs30bn over next three years. The first phase of 20,000 TPA should be up and running by FY23-end. We expect India bead wire tonnage sales to grow at a CAGR of 13% over FY22-24E period."

"The current capacity of ~40,000 TPA in Thailand has been enhanced to 60,000 TPA beginning of FY23 (expected to begin production in July'22). Having already garnered a ~20% share of local markets, the company is giving tough competition to global local peers like Kis Wires and Hyosung. With Chinese tyre companies setting up their manufacturing in the country, the Thailand market is nearly as big as the Indian market for bead wires (~100,000 TPA/annum versus ~120,000 TPA/annum in India) RGW is aptly poised to benefit from local growth. We expect its Thailand bead wire tonnage to grow at a CAGR of 23% over FY22-24E period," Asian Markets Securities has said.

Buy for a target price of Rs 720

According to the brokerage "Rajratan Global Wires (RGW) is the largest bead wire supplier to tyre OEMs in India (~42% market share) as well as continues to be the only local manufacturer in Thailand expanding its footprints in the local markets (~20% domestic share). Focused management, improving return ratios, good corporate governance and quality balance sheet make RGW a preferred bet (a quasi-auto ancillary play on tyre manufacturers) in India and Asia."

"Our revenue/EBITDA/adj. PAT CAGR projections stand at +16%/+14%/13% over FY22- 24E. We expect EBITDA margins of ~20%. We expect its strong operating performance to generate an RoCE and RoE of ~25% and 30% respectively by FY24e. We value the company at 23x FY24E EPS and maintain our price target of Rs720. Recommend BUY," Asian Markets Securities has highlighted.

Disclaimer

The stock has been picked from the brokerage report of Asian Markets Securities. 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.