Stock update: Ratnamani Metals and Tubes

Stock update: Ratnamani Metals and Tubes

Ratnamani Metals & Tubes (RMTL) has bagged Rs152 crore gas transmission and distribution order from Gas Authority of India. We believe this to be positive for RMTL particularly when viewed against the backdrop of slower inflow since couple of quarters. While the order inflow is positive, the same has been slower than our estimates.

In a recent conference call, RMTL’s management highlighted improving order intake from power sector, however orders from oil & gas space are likely to pick up only gradually. The order backlog stands at ~Rs400 crore. Further, RMTL has bid for an order from Bhatinda Refinery.

In Q2FY2010, we expect RMTL’s top line to report a de-growth of 20% to Rs203.1 crore. The margins are expected to improve on year-on-year basis on the back of decline in raw material cost. On the back of fall in revenues, we expect the adjusted profits to decline by 8.6% year on year.

Incorporating the numbers from annual accounts and slower order intake in July-September quarter, we have revised our revenue and profit estimates. We are revising down our earnings per share (EPS) estimates to Rs17.4 and Rs22.2 for FY2010 and FY2011 respectively. While we are revising down our estimates, we are revising up our price target, as we roll forward our target multiple on the stock. Our price target stands revised to Rs133 (6x FY2011E).

The company has been witnessing gradual improvement in its business environment. RMTL’s specialty products consumed in high-growth sectors like power would drive the volumes going forward.

Further, meaningful revival in orders from the refinery sector could add to incremental orders. At the current market the stock trades at 4.8x its FY2011 estimates, which we feel is attractive and thereby reiterate a BUY on the stock.