Ratnamani Metals & Tubes Ltd - Poised for Re-Rating; Result Update Q2FY15 :: Edelweiss report link

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Ratnamani Metals & Tubes Ltd. (RMTL) has reported stellar Q2FY15 results. Net sales for the quarter grew by a better-than-expected rate of 52% YoY. The beat on the topline was driven by strong growth in both carbon steel (81% YoY) and stainless steel (48% YoY) segments. EBITDA margin for Q2FY15 was above our expectation at 19.7%, driven by operating leverage on strong sales across segments. We expect operating margin to be ~19% for FY15, as contribution of the relatively low-margin water pipeline orders (bagged in the past few quarters) will increase in H2FY15.  After strong inflows of INR 700 cr in Q1FY15, the company has not witnessed any major order inflows. However, the order book s remains strong at INR 1068 cr, which is executable over the next 6-9 months. Based on strong execution and current order book, the management expects to achieve INR 1600-1700 cr revenue in FY15. We believe that RMTL is well placed to gain from the impending revival in the domestic capex cycle in oil refinery, petrochemicals, power, fertilizers and water pipeline sectors.

Robust sales growth driven by execution of strong order book

The company’s net sales grew by 52% YoY to INR 438 cr, which was above our estimate of 21%, driven by 48% YoY growth in stainless steel business and 81% YoY growth in carbon steel business. Growth in sales of Stainless Steel Pipes was driven by 54% YoY growth in volume, even as realization fell by 3% YoY due to change in product mix. The Carbon Steel business witnessed 65% YoY volume growth and 15% YoY growth in realization led by product mix. Exports accounted for 21% of the quarterly sales and would contribute even higher in the long run.

Margins better than estimate; Expects improved RoCE

Q2FY15 EBITDA margin was above our estimate at 20.1%, up 270bps YoY on account of: 1) strong revenue growth across segments resulting in operating leverage 2) low base of last year on account of forex loss. However, even after adjusting for last year’s forex loss of INR 3.7 cr, EBITDA margin expanded by 150bps YoY. We upgrade our EBITDA margin estimate for FY15 by 40bps on the back of strong margins witnessed in H1FY15 at 20%. We have considered lower margins in H2FY15 due to expectations of increased contribution from relatively low-margin water pipeline orders bagged by the company in the past few quarters. But this will positively impact RoCE, as utilization of the underutilized carbon steel pipes (HSAW) facility will improve.

Order book at INR 1068 cr, expect traction in inflows

RMTL witnessed strong order inflows of INR 700 cr in Q1FY15, but in the second quarter it has not witnessed any major order inflows. However, the company’s overall order book of INR 1068 cr still gives revenue growth visibility for FY15. The current order book comprises 41% from Stainless Steel Pipes business and 59% from Carbon Steel Pipes business. These orders would be executable in the next 6-9 months. Exports account for 15% of the order backlog. The order book includes INR 310 cr carbon steel line pipes orders (29% of OB). Further, the company expects more orders for HSAW pipes for water pipeline projects in Gujarat.

Guides for FY15 sales in INR 1600-1700 cr range

Based on the strong order book and robust execution in H1FY15, the RMTL management expects to achieve INR 1600-1700 cr of sales in FY15 (vs INR 1500 cr plus & 15% YoY growth guidance). Further, the company expects improvement in the domestic capex activity over the next one year, which would boost growth in FY16. The management is targeting 15% growth in FY16 sales. 

LINK
https://www.edelweiss.in/research/Ratnamani-Metals-And-Tubes-Ltd--Poised-for-Re-Rating;-Result-Update-Q2FY15/10005156.html