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Ratnamani Metals & Tubes Ltd.: Navigating Steel Horizons
Ratnamani Metals & Tubes Ltd. is a leading player in stainless steel and carbon steel pipe manufacturing, capitalizing on the growing demand for stainless steel in various industries. The company reported robust financial performance in Q2FY24, and its strategic shift, sustainability initiatives, and expansion plans signal a promising future. Despite sector-specific challenges, Ratnamani is committed to maintaining a strong market presence and exploring new opportunities in the pipeline industry.
About the Company
Ratnamani Metals & Tubes Ltd. stands as a prominent player in the manufacturing of stainless steel pipes and tubes, as well as carbon steel pipes. Operating from its state-of-the-art facilities in India, the company has carved a niche for itself in the steel industry.
Industry Overview
The demand for stainless steel is witnessing a surge driven by its exceptional strength, corrosion resistance, and low maintenance requirements. Its versatility finds applications in key industries such as automotive, construction, and aerospace. Stainless steel pipes and tubes, with their corrosion resistance, are in high demand, especially in sectors like construction, oil and gas, and chemicals. The increasing adoption of stainless steel components in renewable energy sources further contributes to the industry's growth.
The pipeline industry's capex cycle is intricately linked to oil prices. The downturn in oil prices in 2018 led to a slowdown in capital expenditure in the oil and gas sector, only to witness an uptrend post-2020. While oil prices remain a crucial factor, the increasing emphasis on securing supply chains has become a driving force for capex, regardless of oil prices.
Pipelines emerge as the most economical means of transporting oil and gas, costing significantly less than railways or roads. Notably, in the USA, 70% of petroleum products are transported via pipelines. The strategic advantage of pipelines is underscored by the fact that the USA holds 65% of the world's pipeline network.
Financial Results for Q2FY24
In Q2FY24, Ratnamani Metals & Tubes Ltd. showcased robust financial performance:
- Revenues: ₹1,131.00 Crores, marking a significant 25.67% YoY increase.
- Total Expenses: ₹921.00 Crores, reflecting an 18.23% YoY rise.
- Consolidated Net Profit: ₹164.00 Crores, soaring by an impressive 65.66% from the previous year's Q2.
- Earnings per Share: ₹23.38, witnessing a substantial 65.93% increase from the previous year's Q2.
Annual P&L
Revenue from operations is continuously increasing with 20% CAGR since last 5 years.
Similarly operating profir and PAT is also showing strength.
Debt position of Company is almost negligible, where as continuous profit and cash flow giving strength to balance sheet.
Business Insights
Strategic Shift:
The company undertook a strategic shift, revising its long-term margin band to 16%-18% due to changes in the product mix, focusing more on stainless steel and evaluated products in carbon steel.
Solar Initiative:
Ratnamani successfully commissioned a 15-megawatt capital solar project in March, aligning with sustainability goals to reduce carbon emissions and power costs.
Growth Plans:
Despite the challenges, the company is planning for continued growth beyond FY '25, with considerations for additional capital expenditure. The entrance of new players in the ERW space is anticipated to take 12 to 18 months to ramp up.
Competitive Landscape:
Certain competitive information cannot be disclosed, but antidumping measures on stainless steel seamless pipes have increased demand, reflecting the company's competitive edge.
Export Opportunities:
The company enjoys sustainable export orders in the stainless steel segment, indicating global recognition and demand for its products.
Diversified Demand:
Ratnamani experiences diverse demand for its products from various industries, including pharmaceuticals, chemicals, fertilizers, food and dairy, sugar, automobile, and oil and gas.
Sector-Specific Challenges:
While facing pressure in the CGD sector due to government policy changes and high risks associated with spot market purchases, the company is actively working on addressing challenges.
Capex Progress:
Capex in carbon steel (CS) and stainless steel (SS) is progressing well after initial delays, demonstrating the company's commitment to expansion.
Strategic Opportunities:
Ratnamani Metals & Tubes Ltd. is actively pursuing organic opportunities and greenfield projects, including bids in the water segment (INR 3,000 crores), the oil and gas segment (INR 1,000-1,500 crores), and some international projects.
Growth Targets:
The company aims for a volume growth of 15-20%, with a base increasing to 10-15%, showcasing its confidence in sustaining and expanding its market presence.
Subsidiary Growth:
Ravi Technoforge, a subsidiary, has ambitious revenue targets of INR 500-600 crores with an EBITDA margin of 16% in the next two to three years.
Russia's Invasion of Ukraine:
Geopolitical events like the Russia-Ukraine conflict prompted countries to reevaluate their supply chains, leading to increased capex for securing these chains.
Carbon Steel Segment:
Majority of revenue comes from this segment, with plans to expand capacity from 249 MMTPA to 298 MMTPA by 2025.
Jindal SAW:
Maharashtra Seamless:
Welspun Corp:
Analysis
In last 5 years, Sales of the company grew with 20% CAGR and profit grew with 27% CAGR, which shows the strength of the growing company. Since the management of the company is progressive mindset, and the government focus on "Nal se Jal Mission" and upcoming election will lead to higher government allocation to these schemes. This in turn will benefit the company in longer run. The company is also increasing capacity which will add further fuel to the growth of the company. Now the only thing that can concern for the company like this is Delay in government capex. We need to also follow the cashflow of companies like this. That will be a key trigger for the upcoming growth.
Conclusion:
The pipeline industry in India, with players like Ratnamani Metals & Tubes Ltd., stands at the crossroads of challenges and opportunities. The strategic guidance, capex projects, and exploration of new markets position the company for sustained growth, while the industry dynamics and global trends present a compelling narrative for the future. As we navigate the complexities of the energy landscape, investing in pipelines becomes not just a financial choice but a strategic bet on the infrastructure that fuels our world.
I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Stocx Research Club). I have no business relationship with any company whose stock is mentioned in this article.
I am not a SEBI Registered individual/entity and the above research article is only for educational purpose and is never intended as trading/investment advice.
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