>RATNAMANI METALS - AN EXCELLENT PROXY (ENAM)

An excellent proxy for India’s strengthening capex cycle

Ratnamani is India’s largest manufacturer of stainless steel pipes and tubes and is a preferred supplier of various EPC contractors (like L&T, BHEL), fabricators and engineering consultants
worldwide. It also has a SAW pipe division which caters to the requirements of the oil and gas transmission industry.

Investment argument
■ India’s market leader in the stainless steel tubes and pipes industry characterised by high value add and superior ROCE’s Ratnamani is India’s largest and a globally recognised company
in the high margin stainless steel tubing business which is a niche segment with few players across the globe.

■ Revenues linked to a diverse range of industries with different capex cycles. Contrary to the perception of being a small SAW pipe manufacturer catering to just the oil and gas sector, Ratnamani is actually a supplier of critical components to oil and gas refineries, petrochemicals and power generation sectors which have huge capex projects lined up for execution.

■ Carbon pipe segment to add to the growth with a renewed vigour. Having received all the API approvals for its SAW pipe manufacturing facilities and capability to produce pipes of varied dia’s, Ratnamani now plans to aggressively bid for big ticket pipe tenders floated by GAIL and other players.

■ Despite Ratnamani’s subdued revenue visibility in the near term (order book of Rs 350 cr) we believe that the large order book’s of EPC contractors (executing the power and hydrocarbon
related projects) gives us the necessary confidence that the order inflow will increase with the execution cycle.

Risk factors
■ Slowdown in the capex in user industries and margin pressure on account of increased competition.

Valuation
Ratnamani is a niche player with superior ROCE’s, high free cash flows (consistently +ve cash flow from operations) and a high scalability potential. With capex on thermal power projects about to take off in a big way and refinery capex activity gradually picking up (huge projects lined up), Ratnamani is expected to benefit from the derived demand for its products. We believe that once the execution of these large projects gathers momentum, Ratnamani will see a massive order inflow and earnings growth. At current valuations, the company offers an extremely favourable risk-reward proposition and we recommend BUY on Ratnamani with a price target of Rs 148

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