Ratnamani Metals & Tubes Limited — Q2 FY25 earnings call

Call held 18 Nov 2024

Management summary

Ratnamani Metals delivered a resilient performance in Q2 FY25 despite a 16.6% drop in realizations and muted domestic oil and gas demand. The company is pivoting towards high-value exports and the Middle East market to offset domestic headwinds. Aggressive capacity expansion plans in India and overseas, coupled with a strong order book, underpin management's confidence in achieving 8-10% revenue growth for the fiscal year.

Highlights

  • Standalone Q2 revenue stood at ₹917 crores with EBITDA of ₹168 crores.

  • H1 FY25 revenue reached ₹2,039 crores with EBITDA of ₹335 crores and margins at 16.4%.

  • Order book remains robust at ₹2,900+ crores as of November 1, 2024.

  • Management maintained FY25 revenue guidance of ₹5,000 - ₹5,200 crores (8-10% growth).

  • EBITDA margin guidance maintained at 16% to 18% for the full year.

  • Announced significant capex: ~$40 million for a Middle East greenfield plant and ₹240-250 crores for India expansion.

  • Pipe spooling business has an order backlog of ₹650 crores, targeting ₹150 crores revenue in FY25.

  • Blended realization decreased by approximately 16.6% YoY due to soft steel prices.

Concerns

  • Soft and Volatile Steel Prices

Key financials

2 periods

Headline

  • Order Book
    ₹2,900 Cr
  • Realization Decrease (Blended)
    -16.6%
    YoY -16.6%

Standalone Q2

  • Revenue
    ₹917 Cr
  • EBITDA
    ₹168 Cr
  • EBITDA Margin
    18.3%

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

  • Pipe Spooling Business
    ₹650 Cr Order Backlog₹150 Cr FY25 Revenue Target
  • Ravi Technoforge (Subsidiary)
    ₹138 Cr Revenue10% EBITDA Margin11% Revenue Growth

Guidance & targets

Revenue

  • Standalone Revenue Revenue · FY25 · High confidence ₹5,000 - ₹5,200 crores
    So, standalone basis, I would say we would still be close to between Rs. 5,000 crores to Rs. 5,200 crores. So, yes, we still maintain that there would be a growth of 8% to 10%.

    — Manoj Sanghvi, CEO

  • Spooling Business Revenue Revenue · FY26 · Medium confidence ₹400 - ₹500 crores
    Next year, we will target anywhere between Rs. 400 crores to Rs. 500 crores

    — Manoj Sanghvi, CEO

Margin

  • EBITDA Margin Margin · FY25 · High confidence 16% - 18%
    Yes. Here our yearly guidance will remain the same, 16% to 18%, in between that anyway.

    — Manoj Sanghvi, CEO

Capex

  • Middle East Greenfield Plant Capex · next 18-24 months · High confidence $40 million
    At this stage, we can only reveal that the broader project cost is estimated around $40 million.

    — Manoj Sanghvi, CEO

  • India RTL Expansion Capex · next 18-24 months · High confidence ₹240 - ₹250 crores
    the one in India where we plan to expand capacities in RTL is close to Rs. 240 crores, Rs. 250 crores.

    — Manoj Sanghvi, CEO

Risks & concerns

  • Soft and Volatile Steel Prices

    high

    Blended realizations dropped 16.6% YoY, impacting top-line growth despite stable volumes.

    Both acknowledged

  • Muted Domestic Oil & Gas Demand

    medium

    Domestic oil and gas projects and CGD business are expected to remain muted in the near future.

    Management acknowledged

  • Project Execution Delays

    medium

    Slowdown in dispatch clearance due to seasonal factors (monsoon) and project delays at the customer end.

    Management acknowledged

Areas of evasion (2)

  • Specific sector breakdown of the order book (claimed not to have it at the moment).
  • Specific competitor names in the stainless steel segment.

Q&A highlights

3 direct
Inventory Buildup Direct
About 50% of this would be water pipe and balance would be all other products... So, this quarter, most of it will be liquidated and will come to a normalized level of inventory.

Explains the ₹120 crore inventory spike as a temporary monsoon-related delay in water projects, easing working capital concerns.

Asked by Dheeraj Dave, Samvad Financial Services

Realization vs Volume Impact Direct
Realization decrease would be anywhere close to 15%, approximately... in Q2 if you look at stainless still and carbon steel both, blended... it will be close to 16.6%.

Quantifies the significant headwind from falling steel prices, which is masking volume growth in the headline revenue numbers.

Asked by Dhananjay Bagrodia, ASK

Middle East Strategy Direct
One is, of course, looking at the market size and what we are supplying from here. Another is, these days with the countries being protective and the local content required, that is another reason for us to set up this plant in Middle East.

Reveals the strategic shift to local manufacturing in the Middle East to bypass protectionist barriers and capture high-margin export demand.

Asked by Abhishek Ghosh, DSP Mutual Fund

2 min read 5 chapters

Detailed narrative

Revenue Resilience Amidst Realization Headwinds

Ratnamani reported a standalone Q2 revenue of ₹917 crores, which was impacted by a significant 16.6% YoY decline in blended realizations due to soft steel prices. Despite this, management maintained its full-year revenue guidance of ₹5,000 - ₹5,200 crores, implying a stronger second half. The growth is expected to be driven by a recovery in water project dispatches, which were delayed by the monsoon, and a robust export pipeline.

Strategic Pivot to the Middle East

The company announced a $40 million greenfield project in the Middle East for cold finishing activities. This move is strategic, aimed at meeting local content requirements in protective markets and capturing the high traction seen in the MENA region. Management noted that while domestic oil and gas demand is muted, the Middle East is providing substantial order inflows, with the current order book mix shifting towards a 50:50 export-domestic ratio.

Spooling Business: The New Growth Vertical

The pipe spooling joint venture is emerging as a key growth driver with an order backlog of ₹650 crores, primarily from the nuclear sector. The company targets ₹150 crores in revenue from this segment in FY25, scaling up to ₹400-500 crores in FY26. EBITDA margins for this business are expected to be in line with the company's blended average of 16-18%, with Phase 1 and Phase 2 capex totaling approximately ₹300 crores.

Aggressive Capex for Specialized Products

Ratnamani is investing heavily in specialized, high-value-added products. Beyond the Middle East plant, it is spending ₹240-250 crores on expanding capacities in India for auto parts and has recently commissioned a project for heavy thickness pipes. Total capex for the next financial year is estimated at ₹300-350 crores, focusing on products with higher asset turnover and better margins.

Working Capital and Inventory Management

Q2 saw a ₹120 crore increase in inventory, largely attributed to the monsoon delaying the uplifting of pipes for water projects. Management expects this inventory to liquidate in Q3 and Q4 as laying activities accelerate. The company remains confident in its cash flow and financial leverage, maintaining its margin guidance despite the temporary working capital buildup.

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