Markets
Which is a better wire stock: Rajratan Global or Bansal Wire Industries?
Summary
- Bansal Wire listed at a significant premium to its issue price yesterday. How does it stack against this listed peer?
Recently, there has been much talk about optimistic growth projections for India's GDP. The expectation is that it may surpass many developed countries such as Germany and Japan.
Which sector could benefit the most from this anticipated growth in GDP? The wire industry is poised to be a frontrunner.
The Indian electric wire and cables market is projected to reach $2.2 billion (bn) by 2027, growing at a 4.6% CAGR.
Here's why this is exciting…
1. India’s massive railway network, the third largest globally, is expanding.
2. The renewable energy trend is gaining momentum. The increasing focus on clean energy sources will boost demand for efficient transmission and distribution.
3. Smart cities, incorporating 5G, cloud computing, and the Internet of Things (IoT), will rely heavily on robust cable infrastructure. High-speed data will travel through advanced optical fiber cables (OFC) and will be the backbone of smart cities.
This sector's growth is expected to outpace India's overall GDP growth.
The future seems promising for India's electric wire and cable market. Are you ready to participate in this growth?
Here's a brief comparison of two major Indian players in the wires and cable market. Both are flourishing due to the government's emphasis on infrastructure development.
Business Overview
Rajratan Global Wire: The company manufactures high-carbon steel wire used in tyre production, known as bead wire.
It also produces drawn steel wire, used in various industries like automobile, construction, and engineering.
Tyre bead wire is used in all kinds of automobile tires, earth-moving equipment tires, and aircraft tyres, to prevent vibration during driving and ensure safety, strength, and durability.
Bansal Wire: This company is the largest stainless steel wire manufacturing firm and the second-largest steel wire maker by volume in India.
In FY23, its production was 72,176 million (m) tonnes per annum for stainless steel wire and 206,466 m tonnes per annum for steel wire, representing approximately 20% and 4% of the market share, respectively.
The company was incorporated in 1985 and has consistently delivered quality products, establishing a strong presence in the industry.
With a 38-year legacy, it has a diverse portfolio across sectors, including automotive, general engineering, infrastructure, hardware, consumer durables, power and transmission, agriculture, and auto replacement.
Rajratan Global Wire vs Bansal Wire: Which stock is better?
To understand which wire stock outshines the other, we analysed them on various parameters.
Both these stocks were put through a rigorous test based on their profitability, operational efficiency, financial efficiency, and valuations.
This thorough evaluation aims to determine which company holds a stronger position and greater potential in a competitive market.
Revenue
Rajratan Global Wire saw a 0.6% decline in sales, which was influenced by the decrease in global steel prices.
The volume growth for Rajratan Global Wire was 16%, but there was no revenue growth due to the decrease in steel prices globally.
The sales for Bansal Wire in FY24 increased by 2.2%, driven by a rise in sales volume and a decrease in the sales price of the products, as shown in the table below.
Bansal Wire’ segments consist of high carbon steel wires, mild steel wires (low carbon steel wires), and stainless-steel wires, contributing 22.1%, 8.2%, and 51.9% respectively to the total revenue for FY24. The remaining revenue was contributed by trading sales and other miscellaneous sales.
In terms of revenue growth and the absolute revenue earned, Bansal Wire has outperformed Rajratan Global Wire.
Over the past three years, Bansal Wire's revenue has grown at a CAGR of 6%, while Rajratan Global Wire's revenue has declined.
Profitability
As shown in the table below, Bansal Wire has displayed impressive performance, especially in its YoY profitability growth.
In FY24, Bansal Wire recorded a significant 31% increase in net profit, attributed to a substantial rise in the volume of products sold.
This growth highlights the company's effective operational strategies and strong market position in the competitive landscape of wire players.
Rajratan Global Wire has reported a 28% YoY decline in bottomline for 2024, driven by a decrease in sales for the year.
Despite the higher absolute profit figures of Rajratan Global Wire, the growth has been declining. While Bansal Wire has experienced an increase in the net profit over the past couple of years.
On the margin front, Rajratan Global Wire's average EBITDA margins over the past three years surpassed Bansal Wire, standing at a whopping 17% versus 5% of the latter's.
The reason for the lower EBITDA margin of Bansal Wire is due to the company's business operations being spread across diverse product segments and ranges, which typically yield low margins.
This difference in operating margin has also impacted the net profit margin. There is a significant disparity in the average net margin of both companies.
Over the past three years, Rajratan Global Wire has maintained an average net margin of 11%, while Bansal Wire has only achieved 3%.
Debt Management
Another important metric to monitor is the debt of a company. This will help us understand its financial obligations. A high debt implies high interest cost, which ultimately reduces the net profit.
The tables above clearly show that Bansal Wire has a much higher total debt compared to Rajratan Global Wire, indicating that the company is using a higher level of leverage.
This increased debt has resulted in higher net debt to EBITDA and a higher debt to equity for Bansal Wire, from FY22 to FY24.
This is because the company needs to avail higher debt to support the higher capital required for its business operations.
Rajratan Global Wire's debt level is a relatively low at ₹2 bn. The company expects it to gradually decrease as cash flows increase in the future.
Return Ratios
In terms of return ratios Rajratan Global Wire is leading. In the last three years, the RoCE and RoE of the company averaged 28.1% and 28.3%, respectively.
In the case of Bansal Wire, the return ratios have been decreasing over the last 3 years, until FY24, where the RoCE saw an increase compared to FY23.
In the last three years, the RoCE and RoE of Bansal Wire averaged 18.1% and 25%, respectively. Going forward, as profit margins improve, the return ratios are also expected to improve.
Valuation
Rajratan Global Wire has a P/E ratio of 43.7x and a P/B ratio of 6.3x. It’s trading at a premium compared to its five-year median P/E of 29.6x, but at a discount compared to the five-year median P/B ratio of 7.7x.
Bansal Wire has a P/E ratio of 50.9x and a P/B ratio of 3.4x. The 5-year median P/E and P/B ratios are not available for Bansal Wire as the shares were not listed on the stock market back then.
The median P/E of all the industry players in the wire industry is currently at 35.4x, while the median P/B of the industry players is 5.1x.
Comparing the two companies, Bansal Wire appears to be overvalued in terms of the P/E ratio, while it seems to be undervalued in terms of the P/B ratio.
Valuation Matrices
Has Rajratan Global outpaced Bansal Wire on financial performance?
Rajratan Global Wire has outpaced Bansal Wire in terms of profit growth, profit margins, and financial efficiency.
In terms of its outlook, it is expecting gradual growth in sales over the next four years.
The company has no significant capital expenditure planned but is always on the lookout for opportunities that could help the business grow.
It is expecting around 14,000-15,000 tons volume from the Chennai plant this year, generating ₹1.25-1.3 bn in revenue.
Bansal Wire, on the other hand, has been in the wire industry for over 39 years now. It is one of the leading wire players in India. It’s the largest stainless steel wire manufacturing company and the second largest steel wire manufacturing company by volume in India.
The company is planning to invest its IPO proceeds to repay some of its debt, working capital requirements, and other general corporate purposes.
Both companies are well-established and have good growth plans that can help them capitalise on the growing demand for wires.
Conclusion
Despite challenges, the industry is benefiting from technological advancements, infrastructure development, and the global push for sustainability.
As the world becomes more connected, this market will continue shaping our future, rewarding adaptable companies.
Rajratan Global Wire and Bansal Wire are key players catering to India's wire demand. Their success will hinge on their ability to innovate and adapt.
Investors should conduct thorough due diligence, considering each company's financial health, market position, and growth strategies, given the market's dynamic nature.
Happy investing!
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
