Ratnaveer Precision Engineering surges 32% in 8 sessions; should you invest in the small-cap stock now?

Shares of Ratnaveer Precision Engineering reached a new all-time high of ₹167 per share in today's session, gaining 3.2%. Over the past 8 sessions, the stock has surged 32%, and it has increased by 39% in the current month so far.

In its recent note, domestic brokerage firm ICICI Direct Research has initiated coverage on the stock, assigning a 'buy' rating with a target price of ₹200 apiece, which indicates an upside of 24.22% from the stock's previous closing price.

The Gujarat-based stainless steel (SS) product manufacturer offers a diverse portfolio, including SS finished sheets, washers, solar roofing hooks, pipes, and tubes, which are widely used across numerous industries. The brokerage believes the company is well-positioned to benefit significantly from the buoyant industrial capex cycle.

It highlighted that the company's SS sheet portfolio, in particular, boasts a wide range of finishes and applications in sectors such as architecture, construction, automotive, transport, food, process industries, and aerospace. The material's corrosion resistance and customisable finishes have boosted its usage, with demand growing at a CAGR of 13% over the past 5–6 years.

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Industry reports predict a continued healthy demand growth of 10-12% CAGR over the next 5 years, driven by increasing use in elevators, escalators, commercial kitchens, bus bodies, and metro and railway coaches.

The demand for SS washers is expected to be driven by buoyant industrial capex, including sectors like automobiles, chemicals, oil & gas, fertilisers, pharma, petrochemicals, power, seawater equipment, and other engineering applications. Additionally, rapid urbanisation has accelerated the pace of infrastructure developments and real estate construction, further boosting demand, the brokerage stated.

The oil & gas and chemical & petrochemical industries are the two largest consumers of steel pipes and tubes, driving global demand. The demand for SS pipes and tubes is expected to remain strong, supported by substantial government expenditure planned in major end-user industries.

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Overall, the brokerage believes that the strong capex cycle across industrial and infrastructure segments, led by both public and private investments, presents substantial opportunities for the company’s products in domestic markets. Moreover, India’s emergence as a prime choice for manufacturing industrial products and components provides a sizable opportunity for the company to increase its export share.

Expansion of capacities

The company plans to incur a capex of ₹106 crore over the next 12 months for expanding its capacities across the key product lines and augmenting the overall product basket with new products (circlips, electro-polished and seamless tubes & pipes, and nuts & bolts).

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With this capex, the company targets to meet strong demand for its products, cater to higher growth segments, and increase its market share in both domestic and export markets. The company expects revenues of ₹1,150 crore by FY27E as it factors in an additional ₹400 crore in sales from this new capex.

Multiple drivers for margin expansion in place

According to the brokerage, the company's expansion into new lines of value-added products and higher-margin segments like railways, defence and energy would help in better volume growth and realisations.

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Moreover, the backward integration of manufacturing and usage of captive solar power would help the company achieve efficiency in the production process, reducing overall production costs and gaining a competitive advantage, the brokerage noted.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before making any investment decisions.