Strong market position and government support should help Raghav Productivity Enhancers Ltd.

Despite higher competition, Raghav Productivity Enhancers Ltd. has established its position as a market leader in ramming mass manufacturing segment. Apart from this, superior product quality resulted in higher-than-average realizations. Established market position and customer base, healthy operating efficiencies and financial risk profile are expected to act as growth enablers.

Raghav Productivity Enhancers Ltd.

Raghav Productivity Enhancers Ltd. is engaged in providing Ramming Mass Mineral. The company is trusted by customers who need to use offerings as refractory material in induction furnace. Since 2009, the company has succeeded in offering premium quality White Silica Sand, Casting Powder, White Ramming Mass, Premixed Ramming Mass, Quartz Silica Ramming Mass, etc. The company is highly concerned about providing goods of highest quality to its customers in a bid to get repeat orders.

Since the company is a veteran player in this industry, is has well-built infrastructure and years of rich experience. It is extremely selective about products which are being suppled and imported. Expertise and experience help the company in providing only best quality products. Group of product analysts help in defining high standard of its products while dedicated workers make sure that delivery happens on time.

The company procures high-quality raw materials to satisfy various alloy requirements of its customers. It has a dedicated R&A wing to help maintain standard of its products according to international norms and specifications. Infrastructure of the company is equipped with state of art technology.

Business model of Raghav Productivity Enhancers Ltd.

The company is a manufacturer which is greatly acclaimed in markets for always besting at works. Business operations of the company as an exporter are praised by customers on an international basis. Silica Ramming Mass is refractory product utilised in inner lining of Induction Furnace (IF). IF is prominent in secondary steel manufacturing plants in various parts of world such as India, Asia, Africa and Middle East. It is widely used in foundry and casting plants globally.

The company has established itself as a leading exporter and only pan-India supplier of ramming mass among an unorganised and fragmented market.  

Track record of management

Mr. Sanjay Kabra, aged 53 years, is designated Promoter, Chairman & Whole-time Director of Raghav Productivity Enhancers Ltd. The company holds master’s degree in commerce from Rajasthan University and has been on Board since incorporation. With more than 25 years of experience, in business domain of the company, person is responsible for expansion and overall management of the company. He shoulders specific responsibilities of looking after financial and legal matters of the company.

Mr. Rajesh Kabra, is Promoter and Managing Director of the company. He holds bachelor’s degree in commerce and LLB from Rajasthan University. With experience spanning over 25 years in sales and marketing of ramming mass, he is responsible for marketing, promotion and development of products for the company.

Mr. Raghav is a post graduate in Family Business Management (FBM) course from ISB. He is involved in business for more than 3 years focussing on Exports and new business segments which should help in supporting future growth engines.

Financial performance of Raghav Productivity Enhancers Ltd.

Revenues from operations of the company saw a 36.77% growth from INR100 crore in FY22 to INR137.75 crore in FY23. Other income of the company came in at INR2.75 crore and made up ~1.35% share of the company’s revenues exhibiting its dependence on core business operations. Total expenses of the company grew 33.19% from INR77.8 crore in FY22 to INR104.95 crore in FY23. Raw material costs, making up ~30.49% share of the company’s revenues went up by 49.89%. This was because of an increase in operational scale of the company. Employee expenses, which made up ~2.56% share of the company’s revenues, grew 16.94% in FY23.

The company has managed to complete major expansion by setting a greenfield plant under subsidiary adjoining its existing plant. This has increased its combined manufacturing capacity from 180,000 MTPA to 288,000 MTPA. Share of exports in the company’s sales grew to 49.6% in FY23 from 41% in FY22. This signifies strong business development in higher value-add business segment. As a result, the company now exports to steel plants which are located in Nepal, Bangladesh, Taiwan, Saudi Arabia & other middle east countries apart from African countries.

Operating EBITDA of the company saw a growth of 46.5% from INR24.8 crore in FY22 to INR36.3 crore in FY23. Further, the company’s PAT came in at INR25.8 crore in FY23 against INR17.8 crore in FY22, clocking year-over-year growth of 44.9%. Despite the company was surrounded by price hikes throughout raw materials, the company was able to grow its EBITDA margins by 154 bps to 26.34% in FY23. Despite capex investments, the company closed FY23 as net debt-free organisation. This further validates the company’s strong financial discipline. Against backdrop of global trade disruption and forex risk, the company was able to grow its exports by ~66.6% from INR41 crore in FY22 to INR68.3 crore in FY23.

Future prospects

Raghav Productivity Enhancers Ltd. entered into high-margin foundry market in addition to steel plants, wherein the company has done a strategic alliance with global leader, Capital Refractories. This alliance has been done for supply of silica ramming mass to foundry and casting industries worldwide. The company is focused on expanding footprint in high-margin segment of bigger furnaces, higher than 25 MT.

Increasing population, rapid industrialisation, urbanisation, infrastructure development, etc. are expected to support the company’s long-term growth. In FY24, the company has plans to commercialise new plant and complete technical trials for new ramming mass variants at plant to make sure that it is benchmarked as per international standards.

Going forward, plans are there to strengthen the company’s R&D capabilities on basis of progressive investments, and increase export outreach. In near future, the company’s focus will be on developing niche quartz processing technologies for several applications such as engineered stone, semi-conductors, etc. Apart from developing niche technologies, the company’s focus will be on developing other refractory products utilised in induction furnaces like castable, and slide gate refractories, etc.

Various government initiatives are expected to further support Raghav Productivity Enhancers Ltd. Under Union Budget 2023-24, allocation to Ministry of Road Transport and Highways (MoRTH) grew to INR2.70 lakh from budget estimate (BE) of INR1.99 lakh crore allocated for FY23.

Industry analysis

Induction furnace market in India is expected to be compounded at ~6.63% over FY21-FY25, which exhibits a rise by $74.81 million. Critical types of induction furnaces are channel induction furnaces and coreless induction furnaces. Channel induction surfaces segment led highest share of induction furnace market in this country as they are primarily deployed for alloys with low melting point.

Induction furnaces are particularly utilised in steel industry, copper industry, aluminium industry and zinc industry. This is because they offer clean, energy-efficient, and controllable melting process. By end-user, steel industry has been categorised as largest revenue-generating segment.

Increasing demand for high-quality alloys and metals under environmentally clean conditions increased application of induction furnaces in foundries for steel, cast iron and non-ferrous metals. Functions of industrial induction furnaces are smelting, steelmaking, metal casting, etc. Factors helping market's growth are increased demand for metal castings from automotive sector, fast-growing railway sector and metro projects and increased demand for smelting, mining, and metal alloy machinery. In addition, potential of renewable energy market continues to support demand for copper, which is expected to support growth in post-blockage induction furnace market.

Macroeconomic factors including increasing industrial activities due to ‘Make in India’ initiative to promote manufacturing, upgradation in metal processing and production and higher demand for refined metals continue to supplement adoption of induction furnaces.

Steel industry analysis

India is presently world’s second-largest producer of crude steel, having an output of 125 MT in FY23. Indian steel industry continues to be at bright spot. Government’s focus on infrastructure development supports long-term growth in steel industry. Under Union Budget 2023-24, government earmarked INR70.15 crore to Ministry of Steel. Favourable government policies and initiatives such as Public Private Partnership (PPP) model and National Steel Policy should help India to increase crude steel production capacity to 300 MTPA by 2030.

Risk factors

Global economic turbulences and geopolitical tension can impact export business of Raghav Productivity Enhancers Ltd. However, exposure to more than 26 countries besides India supports in de-risking market risk by reducing dependence on any specific market for business. Working capital-intensive operations is another risk which Raghav Productivity Enhancers Ltd. faces. Gross current assets were high at 243 days which includes cash and bank balances of INR13.76 crores as on March 31, 2022 and have remained above 150 days over previous 3 fiscals, led by large receivables and inventory levels. Given nature of business, the company should maintain large WIP and finished goods inventory and extend long credit period.

Significant increase in working capital requirement or any large, debt-funded capex might impact its financial risk profile, especially liquidity.

Shareholding pattern of Raghav Productivity Enhancers Ltd.

By end of June 2023, promoters of Raghav Productivity Enhancers Ltd. held ~62.92% stake in the company. This holding has remained consistent in comparison to quarter ended March 2023. Mr. Sanjay Kabra was holding ~11.75% in the company while Mr. Rajesh Kabra held ~21.45% by June 2023 end.

Valuation and investment rationale

Stock of Raghav Productivity Enhancers Ltd. currently trades at ~47.2x of FY23 EPS, which is at a discount to sectoral average of ~56.43x. Therefore, significant upside potential is expected which should be supported by vehicle scrapping policy, favourable dynamics of automobile sector, etc.

Union Budget for 2023-2024 provided special emphasis on vehicle scrapping policy by earmarking adequate funds to replace vehicles which are more than 15 years. As a result of this, ~9 lakh vehicles which are being owned by central and state governments, transport corporations and public sector undertakings will become eligible for scrapping. Need for new vehicles to replace such vehicles is expected to provide boost to steel consumption. Apart from this, growth-enhancing policies and schemes including production-linked incentives (PLI) scheme and government’s focus on self-reliance should lead to increased manufacturing capacity and pace up industrial growth. All these factors should support Raghav Productivity Enhancers Ltd. over long-term.

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