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Ratnamani Metals – Keep it flowing!

Company Name – Ratnamani Metals & Tubes Ltd (Ratnamani Metals)

Current Share Price – INR 2,197 (February 9, 2023)

Market Cap – INR 15,401 cr


1. What is interesting about the stock?

The story of our universe is the story of energy flow. All living or non-living beings on earth owe their origin to this flow of energy, especially from Sun. There is an interesting series on Netflix - Our Universe with the voice of Morgan Freeman that provides a great context with some stunning visuals. Must watch!

An interesting thing that I read over the last week is that there are no countries that have high GDP per capita and low energy consumption. And the developed economies are asking developing countries like India and China for lower energy consumption (and green-house emission) – does it make sense?:

As a country like India develops or the per-capita income increases, energy consumption is bound to increase creating opportunities for pipes used to flow the oil & gas both for transportation or pipes used in a refinery or other related industries.

Ratnamani Metals is one such leading manufacturer of a wide range of welded and seamless stainless steel tubes and pipes (SSTP) (installed capacity of 61,500 TPA) and carbon steel pipes (5,10,000 TPA) of LSAW, HSAW, circumferential seam submerged arc welded, and ERW pipes. These pipes are used in various end-user industries such as Oil and Gas, Petrochemical & Refinery, Fertiliser & Chemical, Power, Water, Infrastructure, and other critical industries. The Company is one of the largest manufacturers of SSTP in the country.

Headquartered in Ahmedabad with manufacturing facilities at Chhatral & Indrad (near Ahmedabad) and Bhimasar (near Gandhidham, Kutch), the Company caters to customers in domestic as well as overseas markets across Asia Pacific, Europe, Middle East, and America.

The order book is around INR 3,244 cr as of November 1, 2022, with the stainless steel (SS) order book at INR 765 cr while carbon steel (CS) orders at INR 2,479 cr. Several government initiatives like ‘Har Ghar Nal Se Jal’, river interlinking, brownfield and greenfield expansion of refineries as well as city gas distribution expansion across the country, will continue to benefit the Company over the medium to long term. Exports contributed to ~13% of revenue in FY22 and Company is seeing increasing traction in exports owing to some orders which were being manufactured in Russia or Ukraine being diverted to other countries.

In October 2022, Ratnamani Metals acquired a 53% stake in Ravi Technoforge (a high-precision forged and turned bearing rings manufacturer). Out of the balance, 27% will be acquired in 2024, and the rest 20% in 2027. The total cost for the acquisition of 53% was INR 98 cr. This acquisition will help the company in expanding its business into a new product line catering to existing customers.

Management remuneration to Promoters seems to be on the higher side – 11% of PAT and 23% of overall employee expenses in FY22 and that is a corporate governance issue.

Why invest in Ratnamani Metals?

  • Strong linkage to the India capex (growth) story

  • Established relationships with customers

  • Experienced promoters as they have been with the Company since the start (last 40 years)

2. Key Historical Financials

  • Company revenue and net profit have grown at a CAGR of 17% in the last 5 years

  • After a dip in revenue in FY20 and FY21, Ratnamani Metals grew at 37% in FY22 on a YoY basis

  • EBITDA margins have been stable around 16-17% with a slight dip in Q1FY23 but have recovered in Q2FY23

  • Management has guided toward revenue of INR 3,800 – 4,000 cr in FY23 and an EBITDA margin of 15-17%

  • Cash flow conversion (CFO/EBITDA) was poor in FY22 due to a jump in receivables and inventory level (significant increase in working capital days)

  • Return ratios (ROCE/ROE) were healthy in FY22

3. What is my view on company valuation?

In the last 3 years, the Company PAT has grown at a CAGR of 8% vs the stock price appreciation of 37% implying a very sharp increase in the P/E multiple.

Ratnamani Metals trades at a P/E (TTM) multiple of 40x, which is quite expensive for a manufacturing business that is expected to grow at 15-17% in the next few years. 5-year median P/E multiple of the Company is 25x.

On an overall basis, the Company looks quite interesting and long-term investors can evaluate investing at significantly lower valuations.

4. What are the risks to the investment analysis?

Risks to the analysis are:

  • Large working capital cycle - company generally maintains a higher inventory due to the Company’s policy to cover its raw material requirement on a back-to-back basis, based on receipt of orders

  • Slowdown in the end-user industry


About the Author

I have over 17 years of experience in venture capital, private equity, and investment banking in India and the Middle East across various sectors. I was last working with Majid Al Futtaim Holding (MAF), a leading conglomerate in the Middle East, to look after investments, M&A, and venture capital. I have prior experience in India with Tata Capital (Private Equity), Merrill Lynch (Investment Banking or IB), and Ambit Corporate Finance (IB). I bring the long-term ownership mindset to the analysis.

I graduated from the MBA program of the Indian Institute of Management Lucknow (2005) after completing the Bachelor of Technology program at the Indian Institute of Technology, Kharagpur (2002).

I am an Insignificant Investor in the public market and co-founder of SocInvest.


I have no stock, option, or similar derivative position in any of the companies mentioned in the last 30 days, and shall not initiate any such positions within the next 5 days. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from SocInvest). I have no business relationship with any company whose stock is mentioned in this article.

I am not a SEBI registered advisor. This article is purely for educational purposes and is not to be construed as investment advice. Please consult your financial advisor before acting on it.

I have used publicly available information while writing this article.



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