Multibagger: Ratnamani Metals & Tubes

Ratnamani Metals and Tubes
Recommendation: Buy
Price target: Rs1,110
Current market price: Rs770

Price target revised to Rs1,110

Result highlights

• For Q4FY2008 Ratnamani Metals & Tubes Ltd (RMTL) has reported a growth of 51.8% year on year (yoy) in its net sales to Rs231.5 crore. The sales are in line with our expectations.
• The company has reported a mark-to-market loss of Rs27.5 crore on foreign exchange (forex) derivatives for the quarter under review. Adjusting for the same, the operating profit grew by 53.8% to Rs59.4 crore. Thus, the operating profit margin (OPM) increased by 40 basis points.
• For the forex loss, the management maintains that the chances of incurring any loss on its positions are limited. In our view, this could be a risk to our profit estimates going forward.
• The interest expenses declined by 30.3% to Rs3.4 crore while the depreciation charge increased by 2.9% to Rs6.4 crore during the quarter.
• Consequently, the adjusted net profit grew by 81.1% to Rs31.6 crore. However, the reported net profit declined by 23.6% to Rs13.4 crore.
• The company has an order book of Rs650 crore of which Rs119 crore worth of orders are for exports.
• The board has declared a dividend of 70% and a sub-division of shares into five shares of face value of Rs2 each.
• We are introducing our FY2010 estimates for RMTL in this report and expect the company's revenues to grow at a compounded annual growth rate (CAGR) of 27.5% and profits to grow at a CAGR of 24.7% over FY2008-10. We have revised our FY2009E fully diluted earnings per share (FDEPS) mainly to factor in the impact of the 10% export duty levied by the government, which has lately been scrapped. Consequently, the impact would be felt only for one month and thereby we are revising our estimates to Rs138.7 per share.
• We believe that given the robust business outlook for RMTL, the latter's strong order book with increased capacity would drive its revenue growth going forward. The current valuations are compelling and we maintain our Buy recommendation on the stock with a revised price target of Rs1,110 (8x FY2009E EPS). At the current market price the stock trades at 5.6x and 4.5x its FY2009E and FY2010E earnings.