Centrum is bullish on Ratnamani Metals and Tubes has recommended buy rating on the stock with a target price of Rs 1005 in its research report dated November 10, 2017.
Centrum's research report on Ratnamani Metals and Tubes
We maintain our positive stance on Ratnamani Metals & Tubes (RMTL) and revise our TP to Rs1005 (vs Rs935 earlier). Q2 performance was on expected lines with EBITDA remaining flat YoY due to limited previous orders in hand; however strong pick up in order inflow in Q2FY18 (~Rs15bn of new orders) has improved revenue visibility materially for FY18-19E. New orders in SS segment have also started to trickle in and visibility remains good (refinery upgradation and expansion capex picking steam). We continue to believe in RMTL’s long-term growth story, with expected strong domestic capex over FY18-20E and completion of expansion in the high-margin SS business by H2FY19E.
Outlook
We continue to value RMTL on DCF and model the company’s earnings and cash flows to FY22E to factor in the contribution from the expansion in SS’ seamless business. We assume 6% linear growth from FY22-27E, terminal growth of 3% and WACC of 9.6% to arrive at a revised DCF-based revised fair value of Rs1005. Maintain Buy. Key downside risks are increased RM volatility and lower margins due to competition.
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