Ratnamani Metals & Tubes Limited — Q2 FY24 earnings call

Call held 3 Nov 2023

Management summary

Ratnamani delivered a strong Q2 performance characterized by significant margin expansion driven by a favorable product mix and high-value special jobs. While H1 margins exceeded 20%, management remains conservative, guiding for a 16-18% range due to an increasing mix of lower-margin water projects. The company is aggressively expanding capacity with major projects slated for completion in mid-to-late 2024.

Highlights

  • Standalone Q2 revenue reached ₹1,084 crores, representing a 19.9% YoY increase.

  • EBITDA grew 63% YoY to ₹252 crores, with margins expanding by 600 bps YoY to 23.2%.

  • Net profit for the quarter stood at ₹169 crores, up from ₹100-odd crores in the previous year.

  • Order book as of October 1st remains robust at ₹2,979 crores, with 30% from the water segment.

  • H1 FY24 revenue witnessed 16% growth to ₹2,204 crores with a net profit of ₹305 crores.

  • Management maintained a conservative long-term EBITDA margin guidance of 16% to 18%.

  • Ongoing major capex of ₹250-300 crores for new Carbon Steel and Stainless Steel plants.

  • Forayed into pipe spooling through a 51:49 JV with Technoenergy, Switzerland.

Key financials

  1. Revenue ₹1,084 Cr +19.9%YoY
  2. EBITDA ₹252 Cr +63%YoY
  3. EBITDA Margin 23.2%
  4. Net Profit ₹169 Cr +69%YoY
  5. Order Book ₹2,979 Cr

What they filed

Q1 FY27: revenue down 30.2%, net profit down 62.8% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue898 1,294 1,575 1,062 940 +5%794 −39%893 −43%741 −30%
EBITDA149 214 292 192 140 −6%136 −36%122 −58%80 −58%
Net profit102 146 225 145 108 +6%88 −40%93 −59%54 −63%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Ravi Technoforge (Subsidiary)
    ₹124 Cr Revenue₹12.6 Cr EBITDA10.2% EBITDA Margin

Guidance & targets

Margin

  • Annualized EBITDA Margin Margin · FY24 · High confidence 16% to 18%
    we continue to expect our annualized EBITDA margins broadly in the range of 16% to 18% under normal business conditions

    — Manoj Sanghvi, Business Head

Revenue

  • Annual Revenue Range Revenue · FY24 · Medium confidence ₹4,500 crores to ₹5,000 crores
    this year, we would be anywhere between INR4,500 crores to INR5,000 crores.

    — Manoj Sanghvi, Business Head

  • Long-term Revenue Target Revenue · Medium Term · Medium confidence ₹6,000 crores
    we should be able to reach closer to INR6,000 crores. And we have to look beyond that.

    — Vimal Katta, CFO

Capex

  • Ongoing Major Projects Capex Capex · FY24-FY25 · High confidence ₹250 crores to ₹300 crores
    Ratnamani close to INR250 crores to INR300 crores, where we have 2 major projects, one for carbon steel, one for stainless steel, which are ongoing.

    — Manoj Sanghvi, Business Head

Market Share

  • ROCE Target Market Share · Long Term · Medium confidence 25% to 30%
    broadly at the company level between 25% to 30% is what we aim for.

    — Manoj Sanghvi, Business Head

Risks & concerns

  • Steel Price Volatility

    medium

    Softer steel prices led to a marginal sequential revenue decline and impacted realizations at Ravi Technoforge.

    Management acknowledged

  • Geopolitical Issues in Europe

    medium

    Impacted demand from European bearing manufacturers, affecting Ravi Technoforge's export volumes.

    Management acknowledged

  • Dull Oil & Gas Line Pipe Demand

    low

    Management noted that oil and gas line pipe tenders are currently seeing lower volume, though process pipes remain stable.

    Management acknowledged

Areas of evasion (2)

  • Customer-wise breakup of order book (specifically L&T exposure).
  • Precise volume mix for the water segment in H1.

Q&A highlights

3 direct
Margin Guidance Conservatism Direct
Positive surprises are possible. We'll definitely try our best, but to be practical that 17%, 18% range should be there.

Management is intentionally guiding lower than current performance (23%) to account for a shift toward lower-margin water projects.

Asked by Vikas Singh, PhillipCapital

Ravi Technoforge Performance and Valuation Direct
So second tranche is fixed buyout at a multiple of EBITDA. So which is at the end of FY '24's results.

Clarifies the acquisition structure for the remaining stake in the subsidiary, which is currently facing headwinds in the export market.

Asked by Vikas Singh, PhillipCapital

Bill Discounting and Finance Costs Direct
Their interest cost has been inbuilt in our pricing and documents are discounted by the customer itself under bill discounting facility... roughly 140 crores sort of thing.

Explains the spike in finance costs as a pass-through arrangement for a specific large order, which also helped reduce receivables.

Asked by Radha, B&K Securities

1 min read 4 chapters

Detailed narrative

Margin Outperformance vs. Conservative Guidance

Ratnamani reported a stellar EBITDA margin of 23.2% in Q2 FY24, significantly higher than its historical 16-18% band. This was driven by a favorable product mix and execution of high-margin special jobs. However, management refused to raise its full-year guidance, citing that upcoming execution will involve more water segment projects which typically carry lower margins. They expect the blended margin for the full year to settle around 17-18%.

Aggressive Capacity Expansion Underway

The company is investing ₹250-300 crores in two major ongoing projects. The Stainless Steel expansion is expected to be completed by June 2024, while the new Carbon Steel plant is targeted for September 2024. These expansions are central to management's vision of scaling revenue toward the ₹6,000 crore mark in the medium term. Additionally, a new JV for pipe spooling is expected to start commercial operations within 3-6 months.

Ravi Technoforge Facing Export Headwinds

Subsidiary Ravi Technoforge saw a YoY degrowth in realizations, primarily due to falling steel prices and weak demand from European bearing manufacturers. Export sales mix dropped from 38-40% to 30% in H1. Despite this, management expects a recovery by Q4 FY24, aiming to return to 13-14% EBITDA margins. They maintain a long-term target of ₹500+ crores in revenue for this segment within 2-3 years.

Order Book Dynamics and Sector Mix

The order book stands at ₹2,979 crores, with a healthy mix of 70% from Oil & Gas/Power and 30% from the booming water segment. While the domestic market remains the primary driver (₹2,370 crores), management is seeing strong traction for special grades in the export market, particularly in the Middle East. They are booking fresh orders at a rate of ₹100-150 crores per month for stainless steel alone.

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