Riding on multiple tailwinds…
About stock:
Ratnaveer Precision Engineering (RPEL), established in 2002, 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%)
Investment Rationale
• Expansion of capacities; buoyant capex cycle to drive growth: We believe that RPEL is well positioned to benefit significantly from the buoyant industrial capex cycle scenario. Company’s product portfolio of stainless steel (SS) finished sheets, washers, solar roofing hooks, pipes & tubes etc has a wide usage across large number of industries. Going ahead, company plans to incur capex of ~₹ 106 crore over the next 12 months for expanding its capacities across the key product lines and augmenting the overall product basket with new products (circlips, electro-polished and seamless tubes & pipes and nuts & bolts). With this capex, company targets to meet strong demand for its products, cater higher growth segments and increase its market share in both domestic and export markets. Company expects revenues of ~₹ 1150 crore by FY27E as it factors in additional ~₹ 400 crore sales from this new capex of ₹ 106 crore
• 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 expect company’s operational and financial performance to improve significantly over the coming periods, given the strong growth opportunity driven by buoyant capex, augmentation of capacities, improving product mix and operational efficiencies
• We estimate revenue CAGR at ~23% over the period FY24-26E. EBITDA and PAT are expected to increase by ~42% and ~44% CAGR over the same period. Strong earnings growth would also translate into improvement in return ratios for the company during the period. We recommend Buy on RPEL and assign a target price of ₹ 200 (valuing it at 15x FY26 P/E)
Leave a Reply