StockAxis

Rajratan Global Wire Ltd

Quarterly Result - Q4FY22

Rajratan Global Wire Ltd

Steel & Iron Products

Current

Small Cap Portfolio

CMP
Rs. 694
Rating:
Hold
April 21, 2022

Previous

Rating:
Hold

Stock Info

BSE
517522
NSE
RAJRATAN
Bloomberg
RGW:IN
Reuters
RAJR.BO
Sector
Steel & Iron Products
Face Value (Rs)
2
Equity Capital (Rs cr)
10.15
Mkt Cap (Rs cr)
3338.45
52w H/L (Rs)
637.95 - 161.00
Avg Daily Vol (BSE+NSE)
36,126

Shareholding Pattern

(as on 31-Mar)
%
Promoter
65
FIIs
-
DIIs
8.06
Public & Others
26.93
Source: Ace equity, StockAxis Research

Price performance

Return (%)
1m
3m
12m
Absolute
13.38
13.15
252.85
Sensex
1.08
-1.91
20.45
Source: Ace equity, StockAxis Research

Indexed Stock Performance

Rajratan Global Wire Ltd Sensex
Rajratan Global Wire Ltd
Source: Ace equity, StockAxis Research

Financial Highlights:

Particulars (Rs. in Crores) Q4FY22 Q4FY21 YoY Q3FY22 QoQ
Revenue from Operations 247.60 183.65 34.81% 221.83 11.60%
EBITDA 47.55 32.42 46.70% 47.34 0.44%
EBITDA Margin (%) 19.20% 17.70% 21.30%
Profit After Tax 37.03 23.21 59.54% 32.77 13.00%
Net Profit Margin (%) 14.96% 12.64% 14.77%
Earnings Per Share 7.29 4.57 59.52% 6.45 13.02%

Source: Company Filings; StockAxis Research

Result Highlights
The company reported excellent results for the quarter ended March 2022, although margins were hurt because the company had to absorb increased raw material prices in February and March 2022. Normally, the company enters contracts with its customers for three months and procures raw materials on a monthly basis, which explains why Rajratan was unable to pass on higher raw material costs, resulting in lower margins in Q4FY22. However, the company's management stated that it is in talks with its clients about passing on the higher pricing, which would help the company achieve stronger margins in the following quarters.

The company's topline increased by 11% QoQ to Rs. 248 crores, owing to higher volume (up 11% QoQ) and marginally higher realisation. Despite rising input costs, absolute EBITDA for the quarter was nearly flat. EBITDA margin, on the other hand, was down ~210 basis points from the previous quarter. EBITDA/tonne decreased by 9.3% sequentially, but is up by 30% on a YoY basis. Profit after tax was higher by 13% QoQ to Rs. 37 crores due to deferred tax credit.

For the whole year (FY22), the company's topline has increased by 63.4% YoY, to Rs. 893 crores. The sales volume increased by 27%, while the realisation increased by 29%. EBITDA nearly doubled to Rs. 182 crores, compared to Rs. 92 crores in FY21, with a margin increase of 350 basis points to 20.3%. EBITDA/tonne increased by 56% YoY. PAT increased by 2x YoY to Rs. 124 crores, up from Rs. 53 crores in FY21.

Volume and Realization Trend

Rajratan Global Wire
Rajratan Global Wire

Four tyre companies have moved manufacturing base from China to Thailand in the previous couple of years, resulting in increasing demand for bead wire. The bead wire market in Thailand was anticipated to be 80,000 MTPA in FY21, and is further expected to increase at a CAGR of 8%-10% over the next three years, owing to decreasing imports from China and new tyre capacity addition by key tyre producers. The company, as Thailand's sole manufacturer of bead wire, has benefited significantly from an increase in demand in the country as a result of the Chinese government's withdrawal of rebates and a recent reduction in volume supply by one of the major suppliers. The Thailand business of the company will increase market share by increasing its share of business with existing clients and gaining new consumers.

Conference Call Highlights

  • With the upcoming capacity at Thailand (expected in Q1FY23) and new planned capacity in Chennai, the performance of the company is expected to continue. This will also aid in increase the local market share (in Thailand the management is targeting 35%-40% market share as it is the only manufacturer) and boost exports (the management is targeting 40%-50% of the volume from new Chennai plant to export to South East Asia, Europe, and the USA).
  • In the 1st week of April 2022, the company has done the ground breaking of the Chennai Plant and work has started. The company targets to roll out first coil from the Chennai plant before end of Q4FY23. Though, as per the management, it may not be the significant sales quantity.
  • The Capex for Chennai plant and capex of additional 20,000 MT capacity in Thailand is expected to be ~Rs. 380 crores (Rs. 300 crores for Chennai Plant and balance for Thailand).
  • To fund the above mentioned capex, the company will use combination of debt and internal accruals. The management has decided to fund it with a loan of Rs. 100 crores.
  • The Q4FY22 margins were impacted as the company had to absorb the commodity price increase for the February and March months. The company usually has three months contracts with its customers and on the other hand, it procures raw material on a monthly basis, therefore margin got impacted. However, the management said that the price discussions are happening with customers.
  • Due to the expansion undertaken by the company two years back, the cost of making the bead wire has reduced (if the company uses the capacity at 90%-95%, the cost further goes down) along with the price hikes, the margins of the company are stable if we consider the year as a whole.
  • Thailand business profitability has come at par with India as the capacity utilization of Thailand plant has increased to 90%-95% during H2FY22.
  • The management expects 20%-25% volume growth in FY23 on the back of 7-8% CAGR in Indian Tire market & higher demand in Thailand.
  • The size of Indian market is 120,000 tonnes (including cycle tyres) and the market share of the company in auto tyres is between 45%-50%.

Outlook & valuation

We believe Rajratan is well-positioned to benefit from the global and domestic tyre industries' potential growth as a result of potential growth in the automotive industry and a strong replacement market, as the company currently holds 45% to 50% domestic market share and 20% market share in Thailand. Given the increased capacity that will be commissioned in Thailand in Q1FY23, management anticipates a 15% to 20% increase in market share.

Furthermore, it is the preferred supplier of the big and marquee names in the tyre industry, and has solid partnership with them as the sole player with a niche focus in the manufacturing of bead wire with a focus on high-quality. Domestic capacity expansion and expansion programmes in Thailand are likely to improve revenue growth in the medium to long term. The stock is trading at ~16x of FY24E earnings.

Quarterly Financials

Particulars (Rs. in Crores) Q4FY22 Q4FY21 YoY Q3FY22 QoQ
Revenue from Operations 247.60 183.65 34.81% 221.83 11.60%
COGS 154.19 115.39 130.02
Gross Profit 93.38 68.26 36.80% 91.81 1.71%
Gross Profit Margin (%) 37.72% 37.17% 41.39%
Employee Benefit Expenses 8.87 7.91 8.07
Other Expenses 36.96 27.93 36.40
EBITDA 47.55 32.42 46.70% 47.34 0.44%
EBITDA Margin (%) 19.20% 17.70% 21.30%
Depreciation & Amortisation 3.99 3.60 3.96
EBIT 43.56 28.82 51.15% 43.38 0.41%
EBIT Margin (%) 17.60% 15.69% 19.56%
Finance Cost 4.03 3.84 3.87
Other Income 0.72 0.59 0.52
Profit Before Tax 40.25 25.57 57.41% 40.03 0.55%
Tax Expenses 3.22 2.36 7.26
Effective Tax Rate (%) 8.00% 9.23% 18.14%
Profit After Tax 37.03 23.21 59.54% 32.77 13.00%
Net Profit Margin (%) 14.96% 12.64% 14.77%
Other Comprehensive Income 2.04 -2.92 1.80
Total Comprehensive Income 39.07 20.29 34.57
Earnings Per Share 7.29 4.57 59.52% 6.45 13.02%

Source: Company Filings; StockAxis Research

Consolidated Financial statements

Profit & Loss statement

Year End March (Rs. in Crores) 2020 2021 2022E 2023E 2024E
Net Sales 480.21 546.54 892.86 1172.62 1407.21
Expenditure
Material Cost 297.04 340.64 536.95 703.57 844.32
Employee Cost 27.05 28.10 32.69 42.00 56.29
Other Expenses 88.09 85.69 141.63 173.55 206.86
EBITDA 68.03 92.11 181.59 253.50 299.74
EBITDA Margin 14.17% 16.85% 20.34% 21.62% 21.30%
Depreciation & Amortization 12.09 14.10 15.52 20.96 30.04
EBIT 55.94 78.01 166.07 232.54 269.69
EBIT Margin % 11.65% 14.27% 18.60% 19.83% 19.17%
Other Income 1.17 1.63 2.00 2.50 3.00
Interest & Finance Charges 13.39 13.38 15.43 17.74 22.25
Profit Before Tax 43.72 66.26 152.64 217.30 250.44
Tax Expense 10.67 13.13 28.31 47.81 55.10
Effective Tax rate 24.41% 19.82% 18.55% 22.00% 22.00%
Net Profit 33.05 53.13 124.33 169.50 195.34
Net Profit Margin 6.88% 9.72% 13.92% 14.45% 13.88%

Balance Sheet

As of March (Rs. in Crores) 2020 2021 2022E 2023E 2024E
Share Capital 10.15 10.15 10.15 10.15 10.15
Total Reserves 163.33 216.39 330.81 490.15 675.34
Shareholders' Funds 173.48 226.54 340.96 500.30 685.49
Non Current Liabilities
Long Term Borrowing 53.60 59.24 53.80 156.71 151.71
Deferred Tax Assets / Liabilities 11.33 10.58 9.67 9.67 9.67
Current Liabilities
Short Term Borrowings 82.94 70.31 82.91 80.00 80.00
Trade Payables 40.32 49.11 116.44 166.94 208.51
Other Current Liabilities 15.89 21.45 12.90 12.90 12.90
Total Equity & Liabilities 385.36 451.10 616.84 926.68 1148.44
Assets
Net Block 228.93 242.34 281.20 420.24 550.20
Long Term Loans & Advances 2.13 5.34 22.07 22.07 22.07
Current Assets
Inventories 41.32 51.00 81.91 117.42 146.66
Sundry Debtors 83.73 116.61 180.95 258.89 323.36
Cash and Bank 3.09 7.50 8.44 75.78 83.87
Total Assets 385.36 451.10 616.85 926.68 1148.44

Key Ratios

Year End March 2020 2021 2022E 2023E 2024E
EPS 31.79 51.39 24.49 33.38 38.48
Cash EPS 43.42 65.03 27.55 37.51 44.39
DPS 2.00 8.00 2.00 2.00 2.00
Book value (Rs/share) 166.86 219.13 67.16 98.54 135.02
ROCE (%) Post Tax 14.86% 19.17% 32.84% 30.19% 25.72%
PE 5.79 14.97 25.73 18.87 16.00
P/BV 0.23 0.72 9.38 6.39 4.67
Dividend Yield (%) 5.31% 5.10% 0.32% 0.32% 0.32%