Surged 14.71% YTD This Metal Stock Gets A Buy Call For A Target Price of Rs. 2,500

Ratnamani Metals & Tubes Ltd is a mid Cap company having a market cap of Rs 10,445.58 Cr. The company produces stainless steel tubes & pipes products. This company's shares have increased 33.91 percent in the last year and 14.71 percent year to date (YTD). The stock has risen 2.58 percent in the last six months, 13.35 percent in the last month, and 3.27 percent in the last five days as of 11 Feb, 10:30 am IST. Sharekhan Ltd, a brokerage company, has issued a buy call on the stock with a target price of Rs. 2,500.

Q3FY22 results of Ratnamani Metals & Tubes Limited (RMTL)

According to the brokerage "Ratnamani Metals & Tubes Limited (RMTL) reported mixed Q3FY22 results with stronger-than-expected revenue growth of 110% y-o-y but a miss in OPM at 14% (down 437 bps y-o-y) due to a change in revenue mix towards low-margin carbon steel. Revenue growth reflects improved order execution in Q3FY22 with a robust 223% y-o-y rise in revenue from carbon steel to Rs. 684 crore but revenue from stainless steel segment declined by 7.6% y-o-y to Rs. 207 crore. OPM contraction could be attributed to a higher revenue share of low-margin carbon steel at 77% versus only 49% in Q3FY21. Consequently, operating profit/ PAT at Rs. 130 crore/Rs. 89 crore, 60%/48% y-o-y missed our estimate of Rs. 144 crore/Rs. 96 crore by 9.6%/7.5% as margin contraction offsets revenue beat."

The brokerage’s take on Ratnamani Metals & Tubes

As per Sharekhan "The management highlighted that it has bid for new carbon steel orders worth 4 lakh tonnes (Rs. 4,000-4,500 crore) and 27,500 tonnes (Rs. 1,800 crore) for stainless steel. The company has bid for 2 lakh tonnes of new orders in water transportation in Gujarat. Additionally, Cauvery basin refinery expansion bidding will start in Q1FY23. The recently-commissioned stainless steel capacities would witness ramp-up to 30-40% in FY23 with a volume of 6000-7000 tonnes and that for LSAW (In carbon steel) would see an utilisation of 50% (incremental volume of 50,000 tonnes)."

Sharekhan has said that "The company has planned a CAPEX of Rs. 100 crore for FY22 and Rs. 80-100 crore for FY23, which would be largely spent on debottlenecking activities and maintenance CAPEX. Management will take decisions on fresh CAPEX for capacity expansion at an appropriate time."

The brokerage has also highlighted that "RMTL is well-positioned to benefit from the potential increase in order intake, especially from the high-margin stainless steel (SS) pipes segment. We remain constructive on RMTL, led by a strong balance sheet and ability to generate superior return ratios despite capacity expansions. At CMP, the stock trades at 24.7x its FY2023E EPS and 20.6x its FY2024E EPS, which is justified, given strong revenue growth potential in the medium to long term. We maintain a Buy rating on RMTL with an unchanged PT of Rs. 2,500."

Disclaimer

The stock has been picked from the brokerage report of Sharekhan Ltd. 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.