Buy Ratnamani Metals and Tubes: target of Rs 3000: Sharekhan

The research firm ICICI Securities believes earnings of apparel brands and retail companies under their coverage may surprise positively from Q3FY22E as the likely demand recovery may result in better than expected margin performance. Some of the costs savings achieved during pandemic may sustain and coupled with high operating leverage may lead to higher than pre-covid margins from Q3FY22E.  Stocks like Trent, V-Mart and Aditya Birla Fashion and Retail are the preferred picks backed by their strong and consistent track record of execution.

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Sharekhan's research report on Ratnamani Metals and Tubes

Q4FY22 performance was impressive with a robust 40% y-o-y rise in revenue to Rs. 974 crore (versus our estimate of Rs. 930 crore) and resilient margin of 17.3% (70 bps above our estimate) led by strong order execution and rise in share of high-margin stainless steel products. PAT at Rs. 112 crore beat our estimate by 7%. Order book position remains robust and grew by 48% y-o-y and 16% q-o-q to Rs. 2,223 crore with the carbon steel (CS)/stainless steel (SS) mix at 71%/29%. Board approved bonus issue in the ratio of 1:2 (one equity share for every two equity shares held). Strong revenue growth guidance of 20-25% y-o-y for FY23; margins expected to be at 15-18%. Peak revenue potential is at Rs. 5,000 crore on existing capacities, while the company has planned fresh capex of Rs. 350 crore for SS/CS with incremental revenue potential of Rs. 600-700 crore.

Outlook

Superior earnings growth outlook, potential improvement in earnings quality and strong balance sheet warrants upward revision in PE multiple to 27x FY24E EPS and thus we increase our PT to Rs. 3,000. The stock trades at 27.3x/22.6x its FY23E/FY24E EPS.

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