Strong growth momentum to continue…
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%)
Q1FY25 Results: Operational performance remained strong during the quarter. Revenue increased significantly by 73.6% YoY (+43.8% QoQ) to ₹ 204.2 crore. EBIDTA margin stood at 12% (flat YoY). Sequentially, the margin improved substantially by 888 bps. Subsequently, EBIDTA was up 68.2% YoY (+5.5x QoQ) to ₹ 24.6 crore. PAT increased by 52.4% YoY (+123% QoQ) to ₹ 12.5 crore
Investment Rationale
• Capacity expansions, buoyant demand to drive growth: RPEL is strongly positioned to benefit significantly from the buoyant industrial capex cycle led by strong product portfolio of stainless steel (SS) finished sheets, washers, solar roofing hooks, pipes & tubes etc. With a planned capex of ~₹ 106 crore over the next one year for capacity additions in the existing product lines and product portfolio expansion (with value-added products like circlips, electropolished and seamless tubes & pipes and nuts & bolts), we believe that company is well placed to increase its market share in both domestic and export markets and to cater higher growth segments. Company targets revenue of ₹ 1150 crore by FY27E (which implies 25% CAGR) with EBITDA margin improvement to 14% (from 8.4% in FY24)
• Multiple drivers for margins expansion in place: 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
• We maintain our positive stance on RPEL considering the significant improvement in operational performance in the coming period. We revise upwards our EBITDA margin estimates by ~80 bps each for FY25E/FY26E, factoring in strong Q1FY25 performance
• We expect strong earnings growth of ~55% CAGR over FY24-26E, driving improvement in return ratios over the same period. We maintain Buy on RPEL and assign a target price of ₹ 245 (valuing it at 18x FY26 P/E)
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