About Company :
Rajratan is a global supplier of bead wire to renowned quality-demanding tyre manufacturing Indian & MNC companies. In addition to marketing products within India and Thailand where its manufacturing facilities are based, Rajratan also services customers in Italy, USA, The Czech Republic, Malaysia, Indonesia, Philippines, Vietnam, Sri Lanka, UAE, Bangladesh and other countries. The company possessed an installed aggregate manufacturing capacity of 106,800 TPA across both products in its Indian and Thailand facilities. The company is among the largest bead wire manufacturers in India enjoys 40-42% market share,and the only such manufacturing facility in Thailand. Exports from Thailand accounted for around 41% of revenues from that country.
Products:
Tyre Bead wire :
The main function of bead wire is to hold the tyre on the rim and to resist the action of the inflated pressure, which constantly tries to force it off. Bead wire is the crucial link through which the vehicle load is transferred from rim to the tyre, which prevents vibration during driving. It significantly affects the safety, strength and the durability of tyres. Bead wire is a drawn steel wire, which is manufactured from quality wire rods with high carbon content. Bead wire’s surface is coated with copper or bronze which ensures proper adhesion with the used rubber compound. Tyre bead wire is used in all kinds of automobile tyres, tyres of earth moving equipments and aircrafts so it’s a very important & critical component of any tyre which requires very high safety standards & quality tensile strength which tyre manufacturers will never compromise on hence it becomes a very niche business. The cost of bead wire is negligible in the overall cost of tyre manufacture but its role in a tyre is becoming increasingly critical in the success of automobile brands. As a result, the focus has progressively shifted from engaging the lowest cost material provider to one delivering the best quality.More than 80% business comes from bead wire
High Carbon steel wires:
High carbon steel wire is popularly known as black wire. It is a drawn steel wire which is manufactured from quality wire rods with high carbon content. With a wide range of usage, black wire plays a vital role in many industries from automobile and construction to engineering industries. It manufactures high carbon steel wire in its state-of-the-art plants and employ world-class patented heat treatment processes.
Locations : The Company’s manufacturing operations are located in India and Thailand.
India: Located in Pithampur Industrial Area near Indore. Capacity 72000 TPA (capacity increased by 100% in 19-20)
Thailand: Located in Ratchaburi, the facility is near to the port: Capacity 34800 TPA increased by 30% in 19-20)
The company possesses an installed aggregate manufacturing capacity of 106,800 TPA across both products in its Indian and Thailand facilities. Thailand enjoys attractive raw material availability for the manufacture of tyres. Following the imposition of anti-dumping duties by some countries on Chinese tyre exports, large Chinese tyre manufacturers have commissioned capacities in Thailand. Chinese tyre brands have commissioned larger and more sophisticated manufacturing facilities in Thailand than in their own country. This resulted in Thailand’s tyre sector growing at 8-10% per year across the last few years,
Markets: India tyre market reached a consumption volume of 185 Million units in 2019. India represents the fourth largest market for tyres in the world after China, Europe and the United States, Tyre market size is expected to reach a volume of 245 Million Units by 2025 growing at a CAGR of 4.8% during 2020-2025. MRF, Apollo Tyres and JK Tyres & Blakrishna industries are the top players in Indian markets which happen to be key customers, apart from some other MNC like Bridgestone, Continental, Good year for Rajratan Global wires. Also from the Thailand unit the export to USA, Srilanka , France, and other European countries constitutes about 40%
Product application
Bead Wire
Carbon steel wires
Financials
Promoter Holding : 64.53% Promoters increased stake by buying shares after March2020 from open mkt.
Key Positives:
1. ROE >20% ROCE>19%
2. Market cap 253 crores against consolidated sales revenue of approx 480 crores(FY19-20)
3. At cmp of Rs 250 stock available at PE of approx 7.6 on EPS of 32 for FY-19-20
4. FY19-20 revenue at Rs.480 cr compared to Rs.493crs in FY18-19, de growth of -2.5%
5. FY19-20, EBIDTA at Rs. 69.19crs compared to Rs. 54.1 cr in FY18-19, growth of 28%
6. EBIDTA margin for FY19-20 at 14.41% an increase by343 bps compared to 10.98% inFY18-19
7. For FY19-20, PAT at Rs. 33 cr compared to Rs.26.71 cr in FY18-19, growth of 25%
8. Company has grown at CAGR of approx 20% in last 3 years.
9. The Indian automotive production de-grew 14.73% in 2019-20. Rajratan posted a record profit
after tax in 2019-20
10. Most automotive ancillary companies reported lower margins in 2019- 20. Rajratan reported a
343 bps increase in EBIDTA margin in 2019-20.
Risk Factors:
1. Extended lock down in March April affected the Auto sales due to which Q-1 & Q-2 of 20-21
performance would be adversely affected in
2. Debt Equity Ratio is high 0.86 major reason capacity expansion done in FY19-20 High cost of
external debt can affect the health of business in future.
Investment rationale:
1. At cmp of Rs 250 the stock is available at low PE Multiple of 7.6.Performance in FY 20-21 is
expected to be affected due to prolonged lock down in the country due to COVID which is
already reflecting in the price & reason for lower PE.Management is positive about 20-21 &
expects a flat top line revenue ,
2. With opening up of lock down and slowly resumption of economic activity across country could
see the demand rising and in next 6 months it may experience normal/higher demand from 21-22
3. Company targeting to reduce debt in future since capex is almost over to improvise the margin.
4. Global sentiment towards Chinese imports has been developing very fast which could benefit
the company and local demand & export could see increase in demand.
5. domestic tyre exporters are optimistic about long-term prospects due to the continuing decline in tyre imports as a result of anti-dumping duties on Chinese truck and bus radial tyres, along
with countervailing duty and customs duty on truck bus radial and passenger vehicle tyres
6. Thailand is an important country for global tyre manufacturers & Rajratan is only manufacturer
of bread wire in the country thus enjoys a monopoly. Also availability of Port exports are
convenient & cost effective.
7. This is a good proxy company for investment for investors who are looking at tyre Companies
for investment with higher market coverage, pricing power.
8. it doubled the capacity of its Indian operations in 2019-20 and intends to double its Thailand
capacity across the next few years
9. The Thai government plans on increasing tyre production from 530,000 tonnes per year to more
than a million tones. Thailand’s tyre market is projected to cross $5.6 billion mark by 2022,
which remains a key growth driver & moat for the company.
Target Price:
Company has been given a PE multiple of 14-15 in recent past in pre COVID times stock can be re-rated to similar levels and has potential to touch Rs 350 in one year’s time.
Multibagger potential:
Also looking at current capacity and at indicative price realisation of Rs75000 per ton company has potential to achieve turnover of Rs 800 crores at full capacity & considering the current market cap of 250 crores & future potentiel of reduction in debt,industry growth,Thailand growth,improvement in Margin, stock also has potential to give multibagger returns over next 3- 4 years.I had recommended this stock some times in 2014 at 91 & in last 7 years it has given 7-8 times considering the bonus shares issued in 2019.
Rajratan is a global supplier of bead wire to renowned quality-demanding tyre manufacturing Indian & MNC companies. In addition to marketing products within India and Thailand where its manufacturing facilities are based, Rajratan also services customers in Italy, USA, The Czech Republic, Malaysia, Indonesia, Philippines, Vietnam, Sri Lanka, UAE, Bangladesh and other countries. The company possessed an installed aggregate manufacturing capacity of 106,800 TPA across both products in its Indian and Thailand facilities. The company is among the largest bead wire manufacturers in India enjoys 40-42% market share,and the only such manufacturing facility in Thailand. Exports from Thailand accounted for around 41% of revenues from that country.
Products:
Tyre Bead wire :
The main function of bead wire is to hold the tyre on the rim and to resist the action of the inflated pressure, which constantly tries to force it off. Bead wire is the crucial link through which the vehicle load is transferred from rim to the tyre, which prevents vibration during driving. It significantly affects the safety, strength and the durability of tyres. Bead wire is a drawn steel wire, which is manufactured from quality wire rods with high carbon content. Bead wire’s surface is coated with copper or bronze which ensures proper adhesion with the used rubber compound. Tyre bead wire is used in all kinds of automobile tyres, tyres of earth moving equipments and aircrafts so it’s a very important & critical component of any tyre which requires very high safety standards & quality tensile strength which tyre manufacturers will never compromise on hence it becomes a very niche business. The cost of bead wire is negligible in the overall cost of tyre manufacture but its role in a tyre is becoming increasingly critical in the success of automobile brands. As a result, the focus has progressively shifted from engaging the lowest cost material provider to one delivering the best quality.More than 80% business comes from bead wire
High Carbon steel wires:
High carbon steel wire is popularly known as black wire. It is a drawn steel wire which is manufactured from quality wire rods with high carbon content. With a wide range of usage, black wire plays a vital role in many industries from automobile and construction to engineering industries. It manufactures high carbon steel wire in its state-of-the-art plants and employ world-class patented heat treatment processes.
Locations : The Company’s manufacturing operations are located in India and Thailand.
India: Located in Pithampur Industrial Area near Indore. Capacity 72000 TPA (capacity increased by 100% in 19-20)
Thailand: Located in Ratchaburi, the facility is near to the port: Capacity 34800 TPA increased by 30% in 19-20)
The company possesses an installed aggregate manufacturing capacity of 106,800 TPA across both products in its Indian and Thailand facilities. Thailand enjoys attractive raw material availability for the manufacture of tyres. Following the imposition of anti-dumping duties by some countries on Chinese tyre exports, large Chinese tyre manufacturers have commissioned capacities in Thailand. Chinese tyre brands have commissioned larger and more sophisticated manufacturing facilities in Thailand than in their own country. This resulted in Thailand’s tyre sector growing at 8-10% per year across the last few years,
Markets: India tyre market reached a consumption volume of 185 Million units in 2019. India represents the fourth largest market for tyres in the world after China, Europe and the United States, Tyre market size is expected to reach a volume of 245 Million Units by 2025 growing at a CAGR of 4.8% during 2020-2025. MRF, Apollo Tyres and JK Tyres & Blakrishna industries are the top players in Indian markets which happen to be key customers, apart from some other MNC like Bridgestone, Continental, Good year for Rajratan Global wires. Also from the Thailand unit the export to USA, Srilanka , France, and other European countries constitutes about 40%
Product application
Bead Wire
Carbon steel wires
Financials
| Consolidated | 2020 | 2019 | 2018 |
| Revenue | 480.21 | 492.9 | 348.8 |
| Other Income | 1.17 | 1.7 | 4.9 |
| Total Income | 481.38 | 494.6 | 353.7 |
| Expenditure | -412.3 | -440.5 | -311.8 |
| Interest | -13.3 | -10.8 | -8.7 |
| PBDT | 55.78 | 43.3 | 33.2 |
| Depreciation | -12.09 | -9.2 | -7.73 |
| PBT | 43.69 | 34.1 | 25.47 |
| Tax | -10.67 | -7.4 | -4.52 |
| Net Profit | 33.02 | 26.7 | 20.95 |
| Equity | 10.15 | 4.35 | 4.35 |
| EPS | 32.53 | 61.38 | 48.16 |
| NPM | 6.88% | 5.42% | 6.01% |
Promoter Holding : 64.53% Promoters increased stake by buying shares after March2020 from open mkt.
Key Positives:
1. ROE >20% ROCE>19%
2. Market cap 253 crores against consolidated sales revenue of approx 480 crores(FY19-20)
3. At cmp of Rs 250 stock available at PE of approx 7.6 on EPS of 32 for FY-19-20
4. FY19-20 revenue at Rs.480 cr compared to Rs.493crs in FY18-19, de growth of -2.5%
5. FY19-20, EBIDTA at Rs. 69.19crs compared to Rs. 54.1 cr in FY18-19, growth of 28%
6. EBIDTA margin for FY19-20 at 14.41% an increase by343 bps compared to 10.98% inFY18-19
7. For FY19-20, PAT at Rs. 33 cr compared to Rs.26.71 cr in FY18-19, growth of 25%
8. Company has grown at CAGR of approx 20% in last 3 years.
9. The Indian automotive production de-grew 14.73% in 2019-20. Rajratan posted a record profit
after tax in 2019-20
10. Most automotive ancillary companies reported lower margins in 2019- 20. Rajratan reported a
343 bps increase in EBIDTA margin in 2019-20.
Risk Factors:
1. Extended lock down in March April affected the Auto sales due to which Q-1 & Q-2 of 20-21
performance would be adversely affected in
2. Debt Equity Ratio is high 0.86 major reason capacity expansion done in FY19-20 High cost of
external debt can affect the health of business in future.
Investment rationale:
1. At cmp of Rs 250 the stock is available at low PE Multiple of 7.6.Performance in FY 20-21 is
expected to be affected due to prolonged lock down in the country due to COVID which is
already reflecting in the price & reason for lower PE.Management is positive about 20-21 &
expects a flat top line revenue ,
2. With opening up of lock down and slowly resumption of economic activity across country could
see the demand rising and in next 6 months it may experience normal/higher demand from 21-22
3. Company targeting to reduce debt in future since capex is almost over to improvise the margin.
4. Global sentiment towards Chinese imports has been developing very fast which could benefit
the company and local demand & export could see increase in demand.
5. domestic tyre exporters are optimistic about long-term prospects due to the continuing decline in tyre imports as a result of anti-dumping duties on Chinese truck and bus radial tyres, along
with countervailing duty and customs duty on truck bus radial and passenger vehicle tyres
6. Thailand is an important country for global tyre manufacturers & Rajratan is only manufacturer
of bread wire in the country thus enjoys a monopoly. Also availability of Port exports are
convenient & cost effective.
7. This is a good proxy company for investment for investors who are looking at tyre Companies
for investment with higher market coverage, pricing power.
8. it doubled the capacity of its Indian operations in 2019-20 and intends to double its Thailand
capacity across the next few years
9. The Thai government plans on increasing tyre production from 530,000 tonnes per year to more
than a million tones. Thailand’s tyre market is projected to cross $5.6 billion mark by 2022,
which remains a key growth driver & moat for the company.
Target Price:
Company has been given a PE multiple of 14-15 in recent past in pre COVID times stock can be re-rated to similar levels and has potential to touch Rs 350 in one year’s time.
Multibagger potential:
Also looking at current capacity and at indicative price realisation of Rs75000 per ton company has potential to achieve turnover of Rs 800 crores at full capacity & considering the current market cap of 250 crores & future potentiel of reduction in debt,industry growth,Thailand growth,improvement in Margin, stock also has potential to give multibagger returns over next 3- 4 years.I had recommended this stock some times in 2014 at 91 & in last 7 years it has given 7-8 times considering the bonus shares issued in 2019.
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.