EQUITY RESEARCH: Rudra Global Infra Products Ltd

Rudra Global Infra Products Ltd is a renowned company operating in the infrastructure sector. With a strong presence in the market, the company specializes in providing a wide range of innovative products and solutions for the construction and infrastructure industry. Rudra Global Infra Products Ltd offers a diverse portfolio of high-quality products, including building materials, structural components, industrial machinery, and specialized equipment. The company is committed to delivering excellence and maintaining the highest standards of quality in all its offerings. Through continuous research and development, Rudra Global Infra Products Ltd strives to introduce cutting-edge technologies and sustainable practices into its products, contributing to the development of environmentally friendly infrastructure solutions. Rudra Global Infra Products Ltd has established a strong network of clients and partners both domestically and internationally. With a customer-centric approach and a team of experienced professionals, the company aims to provide exceptional service and build long-lasting relationships in the industry.

ABOUT

Incorporated as a private limited company in 2010, Rudra Global Infra Products Ltd (RGIPL), formerly known as MDICL, started operating in February 2013. Thermomechanically treated (TMT) bars and mild steel (MS) billets are produced by RIPL. In-house manufacture of TMT bars under the RUDRA TMX brand mostly uses the billets. A facility owned by RIPL in Bhavnagar, Gujarat, with an annual installed capacity of 250000 tons. RGIPL announced strong financial results for FY23, with net sales of 452 crores (up from 351 crores in FY22), EBIDTA of 31 crores (up from 30 crores in FY22), and PAT of 14 crores (up from 8 crores in FY22).

RGIPL enjoys a value-added mix of steel products & has forward integrated into TMT Bars–

• Billets and TMT bars of the highest quality are produced by RGIPL. The company has also invested in forward integration and built a TMT rolling mill with a 1,20,000MT yearly production capacity.
• Thermax Quenching System of Germany's most recent system was utilized by RGIPL to double its billet manufacturing capacity to 240000MT/year and to expand its activities. For TMT Bars Gujarat, Rudra TMX is a premium brand.
• L & T, Adani, Reliance Ind, Intas, Mylan, Alembic, JK Paper, Inox Wind, Minova, Safal & Pashwa Group, NHAI, Sanskruti Group, Dobariya Group, TBEA Kalapi Realty, and others are some of the company's notable clients.

Operational Capacity –

• The Rudra group began operations in 1991 with a steel re-rolling plant with a 1000 MT monthly capacity. Today, the group operates a number of enterprises, including a ship recycling facility, an oxygen plant, an induction furnace, and a re-rolling mill, generating more than 2 lakh MT of steel annually with a group revenue of about Rs 1000 crore.

RGIPL’s Business Model includes

• RGIPL creates TMT bars in a fully integrated and completely automated facility that also creates billets. The manufacturing capacity for both billets and TMT bars is 2.50 lac tonnes annually, and all of the materials used to make TMT bars are produced internally.
• RGIPL manufactures TMT Bars using Thermax's most recent German technology. Rudra TMX TMT bars are produced by RPIL in sizes ranging from 8 mm to 40 mm in grades such as fe500, fe550, fe550D, fe600 & CRS (Corrosion Resistant Steel).
• In the retail consumer category, RGPIL has made a name for itself as a luxury brand.
• The corporation opted to offer TMT items created by other manufacturers in order to appeal to even the price-conscious consumer in order to leverage its brand value and strong marketing network.
• As a result, RGIPL has been able to improve its market share by expanding its customer base in the TMT bar industry.
• By expanding the total number of items for sale RPIL has been successful in expanding its clientele from rural to urban markets, from small-batch to bulk purchasers, and from budget-conscious to discerning consumers.

RGIPL’s Core Product Portfolio includes –

• Real estate developers, large construction projects carried out by EPC companies, and general corporate capex carried out by companies for expansion for new units/capacity expansion are among RGIPL's key customer sectors.
• The two most important industries in India are those producing steel TMT bars and iron, both of which are crucial to the growth of our nation's economy. They are employed in practically every industry, from construction to the production of TMT bars, because of their high quality and strength. TMT bars play a significant part in the building industry today among all steel and iron goods by offering ductility, quality, safety, and lifespan.

RGIPL is largely focused on Gujarat where it enjoys a strong dealer network of over 400 dealers

• Additionally, RGIPL has established numerous stores under the brand name of RUDRA INFRAMART-A flagship service to offer clients a "one-stop solution" for all of their infra needs.
• This parallel network, which was developed to leverage our well-known brand RUDRA, gives the company the only right to promote TMT names like JB500 TMX and TRIDEV TMX.
• Under the Rudra Inframart network, Rudra offers the trust factor behind the availability of real brands, a wide selection of products, and convenience for satisfying the need for branded building products in one location, leading to improved merchandising to suit customer requirements and productively targeted customer reach out.

What are TMT Bars?

• Thermo Mechanically Treated Steel Bars are referred to as TMT. Thermax water jet technology is used to cool these TMT steel bars, which are made of the highest quality steel. As a result, the outer surfaces of the TMT Bar harden while the inner ones remain flexible. It contributes to making a super-strong construction and can bear stress or strain, protecting the building.
• TMT Bars are corrosion-resistant, ductile, strong, and resistant to fatigue and earthquakes. For the construction of flyovers, bridges, hydropower plants, dams, high-rise skyscrapers, industrial structures, quick transportation systems, and other structures, they are now the industry standard that is widely used.
• TMT Steel Bars are a blessing for modern buildings. These bars match the advancements in technology. TMT steel has the advantage of having a high elongation factor, which provides the structure of the building with the necessary tensile support and strength. Additionally, it makes the structure sturdy and earthquake-resistant.
• As more people move from rural to urban areas, their need for shelter increases. As a result, the need for residential construction rises yearly. The cost of the TMT bars' raw materials, storage, and shipping are reasonable. In addition, these bars offer increased tensile strength, weldability, and greater elongation to speed up construction while using less steel.
• TMT bars are affordable because they provide cost savings and are simple to handle on-site. Urbanization is accelerated by rising disposable income and thus serves as the key market driver for TMT steel bars.
• TMT Bars are necessary for every construction project. TMT bars are in high demand throughout India, particularly in Tier 2/3/4 towns, as a result of the expansion of the infrastructure and housing industries. For at least the next two to three years, there should be significant demand in the housing sector.

Advantages of TMT Bars:

• Strength: TMT bars are excellent for use in construction projects where strength is important due to their high tensile strength.
• Ductility:- Due to their great ductility, TMT bars are able to bend and distort without breaking. They are the best choice for usage in construction projects where flexibility is necessary because of this.
• Durability: TMT bars are excellent for use in building projects where durability is vital since they are highly resistant to fire and other types of corrosion.
• Cost-Effective:- TMT bars are more affordable than other varieties of steel, which makes them the best choice for usage in construction projects where cost is an issue.

TMT bars are in use in a wide range of construction projects in India, including:

1.     Buildings: TMT bars are utilized in the construction of high-rise constructions as well as residential and commercial buildings.

2.     Bridges: Because bridges need to be extremely strong and durable, TMT bars are employed in their construction.

3.     Dams: TMT bars are utilized in the building of dams, which call for extreme durability and strength.

4.     Industrial constructions: Power plants and oil refineries are two examples of industrial structures built with TMT bars.

TMT Bars vs. Conventional Bars: Impact on Construction

• TMT bars are not like regular bars; they are made differently. Because the entire manufacturing process includes self-tempering, atmospheric cooling, and quenching, it is ideal for all construction applications.
• An enhanced grade of TMT bars is the same as a higher grade. According to IS requirements, Fe 500 is one such premium TMT bar that provides the ideal balance of durability and flexibility.
• In keeping with this, the top producer of steel bars RGIPL provides the best TMT steel rod Fe 500 that complies with BIS requirements. The foundation of every building, Fe 500 TMT bars are the pinnacle of strength, flexibility, and resilience.
• TMT bars are still a cost-effective choice for building projects even if they cost more than conventional steel bars. TMT bars' longer lifespan and improved durability can result in long-term cost savings by lowering maintenance and repair expenses. TMT bar's strength and flexibility can also enable the creation of lighter, more streamlined structures, which can save building costs.
• TMT bars are helping India's green building industry to flourish as well. Because they are constructed of recycled materials, the construction sector has a smaller environmental impact. They also use less concrete than conventional steel bars, which lowers the carbon impact of building projects.
• TMT bars are used in a variety of contexts. They are employed in the construction of flyovers, industrial buildings, high-rise residences, bridges, and dams.
• Over the past few decades, there has been an exponential increase in demand for inexpensive reinforcing bars with higher yield strengths. The preoccupation with creating "mega" structures led to an increase in project scales, from breathtaking high-rises to enormous dams and bridges that span kilometers over. As a result, extensive research was conducted to identify low-cost reinforcement bars with higher yield strength.
• In terms of volume, the sales of construction materials, which include TMT bars, are projected to increase at a compound annual Growth Rate (CAGR) of 6.18%. The Indian construction sector is currently valued at USD 2.8 billion.

SHAREHOLDING PATTERN:

• Regarding the top management of Rudra Global Infra Products Ltd., Mr. Ashok Gupta is a visionary in the iron and steel industry and currently holds the position of Chairman of the BOD.
• Mr. Ashok Gupta started the sibling company of Rudra Global Infra Products Ltd., Hari Krishna Steel Corporation, in Alang, Bhavnagar, India, in the late 1990s.
• Mr. Sahil Gupta is the managing director at the moment, and his insights have been crucial in boosting productivity throughout the company's operations. Currently serving as the company's chief executive officer, Mr. Vivek Tyagi was instrumental in helping RGIPL build the Rudra brand to what it is today. Following the franchise model, he expanded his efforts beyond the company's core product to include Cement, 6mm bars, ERW Pipes, and MS wires in the RGIPL product portfolio.

INVESTMENT RATIONALE

Solid Execution Skills -Execution is the most crucial component for any manufacturing business, and RGIPL has excelled at it. The company's revenue increased by 29% in FY23 alone, from Rs 351 cr to Rs 452 cr. Additionally, it invested Rs. 15 cr in capital expenditures to double its capacity to 2.50 lac tpa, which will support its future significant growth in terms of earnings and revenue. Furthermore, RGIPL obtains high-quality marine steel that is readily available and may be treated directly.

Top Quality Management – The company's promoters have extensive experience in the TMT manufacturing sector, as evidenced by RGIPL's excellent operations through multiple economic cycles. In addition, the promoters have provided need-based funding to support the company's operations during downturns in the economy. Experienced Management: RGIPL's skilled employee base and promoters have an average of more than two decades in the steel and TMT industries. RGIPL also boasts a strong technical team, an outstanding operations team, and a significant emphasis on internal research and development.

KEY CONCERN

• The majority of RGIPL's clientele is based in Gujarat. Although there isn't much of a risk to the company, we think that timely execution is crucial, and any delays here could negatively affect how the business operates. However, based on RGIPL's execution history to date, we think that such an eventuality would not occur in the future.
• Environmental hazards such as cyclones, strong rains, and floods can have a big impact on corporate expansion.

FINANCIALS

Strong Operating Cashflows are also a big positive driver –

• Due to its decision to collaborate with reliable government and private clients that have sufficient finance lines, RGIPL has also produced very healthy operating cash flows in FY23 and FY22. This allows the company to be compensated at regular milestones that safeguard its liquidity.
• This is shown in the fact that the average debtor's period decreased from 41 days in FY22 to 35 days in FY23 and that the CCC decreased from 165 days to 124 days in FY22.
• In FY23, the CFO/EBITDA was 142%, down from 196% the previous year. This demonstrates unequivocally a high level of cash flow produced by the business's operational EBITDA, which is also a sign of the strength of the business model.

RGIPL enjoys a strong BS with huge scalability potential going ahead –

• RGIPL has a solid business plan that spans several industries, and it keeps up steady investment, mostly through internal accruals for working capital and capital expenditures.
• Actually, RGIPL produced very strong operating cash flows in FY23 of Rs 44 crs, which enabled it to use internal accruals to finance its WC and capital needs.
• Going forward, we anticipate that overall bottom line growth could rise at a CAGR of 25% in the following two years, beginning in FY24, with capex and WC being primarily supported by internal cash flows.
• We anticipate that the PAT will increase steadily over the following three years, reaching Rs 29 cr in FY25 from Rs 14 cr in FY23.
• Additionally, it is anticipated that EBIDTA will increase by 22% over the next three years, from Rs 31 cr in FY23 to Rs 56.80 cr in FY25.
• In the upcoming years, the business anticipates sustaining and growing its EBITDA margins, which are now at 7-8%, thanks to a robust order book pipeline that will also result in greater OCFs over the next two years.

VALUATION

In a broad overview, the projected Topline is set to reach Rs 600 crore in FY24E and Rs 800 crore in FY25E. In terms of financial performance, we anticipate that the company will report a Profit After Tax (PAT) of Rs 18.51 crore in FY24E and rebound to Rs 29.90 crore in FY25. Consequently, conservatively speaking, RGIPL is expected to report an Earnings Per Share (EPS) of Rs 7.38 for FY24E. Our forecast for FY25E indicates that RGIPL's profit momentum will continue to be robust, with an expected EPS of Rs 11.56.

The remarkable aspect here is the consistent EPS growth, averaging 30–35% year-over-year from FY23 to FY25, adding to RGIPL's attractiveness. This growth is pivotal considering RGIPL's strong revenue visibility due to its exceptional product execution capabilities and the favorable trends in the building products, real estate, construction, and engineering sectors, where the capital expenditure cycle appears robust.

The stock is currently trading at an attractive valuation of 10x and 8x on an EV/EBITDA ratio for FY24 and FY25, respectively. This valuation appears favorable for a well-established player with a substantial market share and commendable profitability. The company's management expresses optimism about increasing EBITDA margins in the future through improved pricing strategies and operational efficiency, leveraging the advantages they possess.

Given RGIPL's stable financial history, dominant position in the market, and strong backing from its promoters, we foresee the possibility of a future stock rerating. Consequently, we believe that investing in RGIPL stock at this juncture may assist you in achieving your price target of approximately Rs 100 within the next 12 to 15 months.

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