Growth visibility remains strong…
About stock: Ratnaveer Precision Engineering (RPEL), is a Gujarat based stainless steel (SS) product manufacturer focused on producing finished sheets, washers, solar roofing hooks, pipes and tubes
• The company operates out of four manufacturing units in Gujarat with total manufacturing capacity stood at 30000 tonnes as of FY24. SS finishing line sheets contributed ~47% to total revenues in FY24 followed by SS washers (~23%), tubes & pipes (~17%), sheet metal components (~8%) and SS fasteners & components (~5%)
Q2FY25 Results: Operational performance remained strong during the quarter. Revenue increased significantly by 61.4% YoY (+12.6% QoQ) to ₹ 230 crore. EBIDTA margin stood at 10.6% (+140 YoY, -139 bps QoQ). Subsequently, EBIDTA was up 85.8% YoY (flat QoQ) to ₹ 24.5 crore. PAT increased by 54% YoY (-1.8% QoQ) to ₹ 12.3 crore. For H1FY25, revenue is up 66.9% YoY with EBITDA margin stands at 11.3% (vs 10.7% in H1FY24). PAT is up 74.8% YoY to ₹ 24.8 crore in H1FY25
Investment Rationale
• Capacity expansions to drive growth; demand remains buoyant from domestic and export markets: We believe that the company is well positioned to to capitalize on the large industrial capex pipeline in India with having strong portfolio of products like stainless steel (SS) finished sheets, washers, solar roofing hooks, pipes & tubes etc. Company is in process of implementing capacity additions in existing product lines & enhancing portfolio with value-added products (circlips, electro-polished and seamless tubes & pipes and nuts & bolts). We believe that the company would be able to strengthen its position in both domestic and export markets in coming periods. Company aims to achieve ₹ 1150 crore revenue by FY27E (implies ~25% CAGR) with EBITDA margin improving to ~14% (from 8.4% in FY24)
• Backward integration, favourable product mix to help margins improvement: Company’s expansion into new lines of value-added products (like circlips, electro-polishing tubes & pipes, nuts & bolts) and higher-margin segments like railways, defence, energy etc would help in better volumes growth & realisations. Moreover, the backward integration of manufacturing and usage of captive solar power would help the company in achieving efficiency in the production process, reducing overall production costs and gaining competitive advantage
Rating and Target Price
• With strong demand traction, capacity expansions and favourable product mix, we expect company’s operational performance to improve significantly over the next 2-3 years. We estimate revenue CAGR at ~24% CAGR over FY24-27E while EBITDA/PAT to grow at ~45%/~47% CAGR over the same period, led by improvement in margins
• We maintain Buy rating on RPEL with a revised target price of ₹ 290 (based on 20x P/E to FY26E EPS)
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