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Research
Maintain Buy on Ratnamani Metals and Tubes - Sharekhan
Posted On : 2011-11-20 01:47:52( TIMEZONE : IST )
- Ratnamani Metals and Tubes
- Cluster: Ugly Duckling
- Recommendation: Buy
- Price target: Rs132
- Current market price: Rs100
Revenues surge: For the quarter ended September 2011, Ratnamani Metals & Tubes Ltd (Ratnamani) reported a 75.5% surge in net sales to Rs308.8 crore. The sales growth was backed by a 99% growth in the carbon steel tubes and pipes segment (CS pipes) and a 44.4% jump in the stainless steel tubes and pipes (SS pipes) segment.
OPM impacted by forex loss and freight charges: The gross profit margin (GPM) improved by 440 basis points to 37% on the back of improved realisation. The realisation for CS pipes surged by 162.8% on the back of higher sales of coated LSAW pipes whereas that of SS pipes improved by 15%. However, the operating profit margin (OPM) slipped by 280 basis points to 15.3% despite a surge in the revenues. The fall was due to a foreign exchange (forex) loss of Rs8 crore on marked-to-market forex denominated loans and change in terms with regards to freight re-imbursement. From the quarter under review, the company would not be getting re-imbursement of freight charges.
Net income growth restricted by higher interest and tax: The interest cost for the quarter increased by 50% to Rs4.1 crore on the back of an increasing cost of debt whereas the other income was down 67.9% to Rs1.5 crore. The tax provisioning for the quarter doubled to Rs10.9 crore with the effective tax rate up at 31.8% from 22.8% in the corresponding quarter of the previous year due to higher domestic revenues. The resultant net profit grew 26.7% to Rs23.5 crore.
Margin assumption lowered: Going forward, we have lowered our OPM estimates by 290 basis points for both FY2012 and FY2013 to factor in the change in freight re-imbursement terms as well as the forex losses. We have marginally tweaked our revenue estimates to factor in the lower volume growth as well as the increase in the realisation in the CS pipes segment.
Maintain Buy: The company has demonstrated a strong revenue performance in the last two quarters. However, margins have trended down consistently. The management commentary remains encouraging in terms of the potential opportunities in the oil & gas sector. Going forward, we expect the company's revenues and profits to grow at CAGR of 27% and 13% respectively over FY2011-13. At the current market price, the stock is attractively trading at a price/earnings (PE) multiple of 5.9x its FY2012E earnings and 4.5x its FY2013E earnings. On an EV/EBITDA basis, it is trading at 4.3x on FY2012E EBITDA and 3.4x FY2013E EBITDA. We maintain our Buy rating on the stock with a revised price target of Rs132 (based on 6x FY2013E earnings).
