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1

INDIA

Institutional Research

Metal

Initiating Coverage

RATNAMANI METALS & TUBES LTD

Bright bet on long‐term capex cycle…

Initiating Coverage Networth Research is also available on Bloomberg and Thomson

Date: 21 November, 2011

Analyst: Shruti Raut [email protected]

Tel No.: 022 3022 5900

Incorporated in 1985, Gujarat‐based Ratnamani Metals & Tubes Ltd (RMTL) is engaged in manufacturing of stainless steel (SS) and carbon steel (CS) pipes catering to a diverse range of industries like oil and gas, petrochemicals, process industries, power plants and water distribution. It has made entrenched position in its space by building strong rapport with the EPC players to ensure sustained flow of orders. RMTL also exports pipes to several countries.

Investment Rationale

Market leader in stainless steel tubes

It offers a wide range of products with high value adds as well as customized products conforming to several domestic and international certifications and accreditations. The Company commands a market share of close to 40% in the domestic SS pipe market.

Diverse target market supports growth in turbulent times

RMTL caters to a wide range of industries like petrochemicals, oil & gas and thermal and nuclear power plants, chemical and fertilizer, water desalination etc. Hence, loss on revenue on slowdown in one sector is made up from over others.

Healthy Financials

RMTL has registered steady growth in revenue except stagnation in FY10 and FY11. The profitability has remained intact with rich cash flows and EPS rose in these two challenged years. Gross Block grew 12% CAGR over FY07‐11 and majority capex has been funded through internal accruals. Gearing is only 0.6 and interest coverage is healthy at 24.6x. Networth grew 16% CAGR in FY07‐11 with a superior ROCE of 17% and RONW of 18.8%.

Massive opportunities lie ahead

The pipelines network in India is at a nascent stage. Major players like GAIL, RGTIL, and GSPL plan to add ~15088 km of pipelines worth USD 3.7bn over the next 3‐4 years. OIL has recently announced to enter city gas distribution sector. Hence there is huge potential for CS pipes for fluid transport sector. India is slated to add 110MT of refinery capacity and 100GW of power capacity in next 5years, which implies an addressable market of Rs220bn for SS pipes only.

Key investment risk Slowdown in the industrial capex will impact RMTL’s business

Valuation outlook

RMTL is currently trading at 3.2x FY13E EPS of Rs.30.3. We set a price target of Rs127 at which the stock would trade at 5.5x its FY12E which is in line with the past average ‐ a 30% potential upside from the CMP.

Rating BUY Target Price ` 127 CMP ` 98 Upside 30%

Sensex 16211

Key Data Bloomberg Code RMT IN

Reuters Code RMT.BO

NSE Code RATNAMANI

Current Share o/s (mn) 46.4

Diluted Share o/s (mn) 46.4

Mkt Cap (`bn/$mn) 4.7/90.8

52 WK H/L (`) 134/82

Daily Vol. (3M NSE Avg) 15771

Face Value (`) 2

Beta 0.80

1 USD/` 51.7

Shareholding Pattern (%) Promoters 59.0

FII 10.8

Others 30.2

Price Performance (%) 1M 6M 1yr

RATNAMANI ‐1.2 0.7 ‐14.4

NIFTY ‐3.7 0.3 ‐17.5

Source: Bloomberg; *As on 18 Nov, 2011

Key Financials:

Rs. In mn Revenue YoY % EBITDA YoY % PAT YoY % EPS YoY % P/E EV/EBITDA ROE % ROCE % FY10 8,520.29 ‐10.8 1675 8.1 814 14.4 17.7 12.0 6 4 25% 22% FY11E 8,577.58 0.7 1550 ‐7.5 821 0.8 17.7 ‐0.1 7 5 20% 17% FY12E 9,739.03 13.5 2150 38.7 1074 30.8 23.2 30.8 4 3 22% 22% FY13E 12,632.62 29.7 2555 18.9 1404 30.7 30.3 30.7 3 3 24% 24% Source: Company, Networth Research

2 Initiating Coverage

Company Overview

Incorporated in 1985, RMTL initially started its operations in the stainless steel (SS) segment in Gujarat. Over the years sensing huge opportunity in low level of pipeline penetration, the Company later entered into carbon steel (CS) pipe segment. It operates out of two locations in Gujarat, namely, Chhatral and Kutchh. RMTL also operates windmills of 20.5MW capacity in Kutchh having an exportable surplus of 10.5 MW. Company milestones

1985 Incorporated; Commenced production of SS Tubes & pipes

1993 Listed on Stock Exchange

1995 Commenced production of CS SAW pipes

1999 Developed SS tubes for Automobile Exhaust Systems

2000 Mobile plant for Large Dia Water Pipes

2003 Approval from NPCIL for supply of Critical tubes/pipes for Nuclear Reactors

2004 Established new facilities at Kutchh, Gujarat

2005 Commenced production at Kutchh division

2007 Enlisted by NTPC for L.P., H.P. and condenser tubes up to 500 MW and above rating power plants in India

Enlisted by Engineers India Ltd (a leading Refinery EPC) for SS Seamless Duplex Tubes

2008 Stabilized facility for Hot Extruded Mother Pipes

2009 Commenced 3 LPE Coating plant, High Speed Welded Tube Mill and Offline Welding in HSAW

Business model

RMTL operates in two business segments viz. Stainless steel pipes & tubes and carbon steel pipes (SAW pipes). Within SAW pipes it manufacturers the entire range of LSAW, HSAW and ERW pipes, while in stainless steel pipes and tubes it manufacturers both seamless and welded tubes used in multiple industries.


Revenue Contribution

SS tubes & pipes51%

CS pipes45%

Others4%

Source: Company, Networth Research

Stainless pipes and tubes has been the mainstay of RMTL’s business contributing more than half of the revenue. Carbon steel pipes which finds applications in oil and gas transportation is the other major revenue contributor.

Major industries served

48%

22%

8%

4%

5%

11%

Refineries, Petrochemicals, Oil & Gas Power ‐ Nuclear & Thermal

Infrastructure Pharma, Food, Beverages & Sugar

Desalination, Fertilisers & Chemicals Others


List of Industries served

Oil & Gas, Petrochemicals, Refineries Automobile & Exhaust Industries Nuclear & Thermal Power Plants Floating & Shore Line Pipes Engineering and Process Industries Pipes for Dredging Vessels Cross Country Pipe Lines Water/Sewerages Onshore & Off‐shore Platforms Pharmaceuticals Fertilizers Chemical Industries Space Applications Structural Food Beverage & Sugar Industries Biotech and many others


70% of sales emanates from Petrochemical, Oil & Gas and Power sectors. Apart from these fragmented sales are also flowing from chemicals and fertilizers, paper, pharmaceutical, food processing sectors etc. Though there is a slowdown currently observed in the domestic economy, but big investments/projects in the core industries are like oil and gas, petrochemical, power, fertilizers etc. are backed by government and top rated companies and execution of which will not get affected as resources and outlays are usually committed on a long‐term basis. But, likes of pharmaceuticals, paper, food processing etc in relatively smaller sector, which constitutes 20% of addressable market of RMTL, may see deferment of execution considering near‐term insipid market condition.

Facility overview

Installed Capacity Chhatral Kutchh Total Stainless Steel Tubes/Pipes (MT) Seamless 2700 1800 4500 Welded 3000 15000 18000 Hot extruded seamless 4500 4500 5700 21300 27000 Carbon steel pipes (MT) L‐SAW 30000 10000 40000 H‐SAW/ Spiral 150000 150000 ERW 70000 70000 Circular Seamless 40000 40000 70000 230000 300000

3 Layer PE & FBE Coating 2.5 mn sq. mtrs.

Wind Mills (MW) 20.5

Organic Growth Strategy

RMTL, has seen in recent past seen lot of unmet demand accruing from power, and oil & gas sector, for which it is setting up stainless steel condenser tube facility of 2,000 MTPA which is likely to be operational by Dec 2012E. Moreover it is augmenting 4,300 MTPA of Seamless capacities by March 2014. Civil work for this expansion has already been started. Also in carbon steel segment, the Company is planning to enhance its portfolio in ERW pipes by extending manufacturing to 18” diameter from the current 16”. Further, the Company is planning to add two more wind mills of 1.25 MW each by March 2013E and scrap one wind mill of 1 MW taking the total windmill capacity to 23 MW. The cost of cited expansion plan is ~Rs. 850mn, which will be part financed to the extent of ~Rs.600mn through debt and balance though internal accruals.

Scheduled expansion plans:

Stainless Steel Tubes/Pipes (MT) Capacity Commissioned by Condenser Tubes 2000 Nov‐12 Seamless Tubes 4300 Q3 FY13 Carbon steel pipes (MT) ERW 18" dia (current 16") Dec‐12 Wind Mills (MW) 2 X 1.25MW Mar‐12


Macro Overview

A. Indian Scenario

I. Pipeline infrastructure In India, the network of oil and gas pipelines is still in its nascent stage. With the total pipeline infrastructure being less than 20,000 km, through which 94 million metric standard cubic metres per day (mmscmd) of gas is supplied, leaving penetration levels at 25% vs. 59% in US. There is a huge pipeline infrastructure gap that India needs to bridge in order to meet the sustained energy demand of oil and gas. The thrust on creating pipeline infrastructure in India is very much evident going by the policy measures ‐ Tax incentives on capital expenditure on laying and operating of cross country pipelines and development of a blueprint for cross country gas pipelines to create a national gas grid to facilitate transportation of natural gas across India. Major O&G players like GAIL, RGTIL, and GSPL plan to add ~15,088 km of pipelines worth USD 3.7 bn over the next 3‐4 years. Company Quantity (kMT) Business Potential (USD bn) GAIL 1332 1.6 RGTIL 550 0.7 GSPL 1135 1.4 Total 3017 3.7


II. Gas India currently has an LNG import capacity of 13.5 MTPA viz. 10 MTPA LNG Terminal at Dahej, and 3.5 MTPA LNG Terminal at Hazira both in Gujarat. These terminals account for ~20% of the country’s gas requirements. New LNG terminals as well as expansion of existing ones will entail increased pipe demand for LNG evacuation to stations. Place Capacity Facility Promoter Commissioned by

Kochi 5 MMTPA LNG Terminal & regasification plant

Petronet LNG 2012

East Coast of India Proposing LNG Terminal Dhamra Port Co. Ltd (JV between L&T and Tata Steel)

‐‐

Dabhol, Maharashtra

2.5 MTPA LNG Terminal ‐‐ 2012

Ennore, Tamil Nadu

5 MTPA LNG Terminal IOC ‐‐

Mundra 5 MTPA LNG Terminal Adani Group ‐‐ Source: Company, Networth Research

III. City Gas Distribution The recent city gas distribution (CGD) network in the major cities saw a very enthusiastic response and the Government plans to invest ~Rs. 280 bn in pipeline infrastructure for CGD networks in 200 cities by 2015. This pipeline infrastructure would need H‐SAW, L‐SAW and ERW pipes giving the long‐due fillip to dormant carbon steel pipe sector. This in‐turn augurs well for RMTL, as substantial orders from these projects would be garnered.


IV. Water Sector Opportunity:The government is increasing its thrust on creating water infrastructure across the country. As per the estimates of The High Powered Expert Committee, for urban infrastructure services, headed by Isher J Ahluwalia, the total investment required to meet the current backlog and future needs for eight core urban infrastructure sectors (~90% of all urban investments) during FY12 to FY31E is Rs 30.98 trillion (tn), out of which pipe related sectors like water supply, sewerage management, Solid Waste Management and Storm Water Drains would account for ~26% of estimated investment equivalent to 8.03tn. This amounts to Rs402bn investment requirement per year. Further, a total sum of Rs 10.9 tn over 20 years period or Rs 546bn a year is estimated to be required for Operation & Maintenance on urban infrastructure during the FY12‐31E. Combining both, an investment requirement of ~1tn (Rs948bn) is envisaged in urban water infrastructure space.

B. Global Scenario

Global market for steel pipes and tubes is characterized by high degree of fragmentation. Leading names are Sandvik Materials Technology, Arcelor‐Mittal, Centravis Ltd., Tata Steel Europe, Europipe GmbH, Evraz Inc. NA, JFE Steel Corporation, Man Industries Ltd., Nippon Steel Corporation, Northwest Pipe Company, OAO TMK, Sumitomo Metal Industries Limited, Techint Group, United States Steel Corporation, and Welspun Corp Ltd.

Global business potential for new pipeline projects augments well for the pipeline demand. Large projects are being planned in various other parts of the world for the period 2011‐2015E which will provide huge impetus. As per global consultant Simdex, the global pipeline demand is projected to be around 102 million metric tonnes (MMT) which is equivalent to ~ USD123 bn worth of business.

I. Crude Oil With the oil & gas sector witnessing healthy revival after the dip in CY08 and CY09. Encouraged by remunerative oil prices, huge capex programs are announced by most of the large oil and gas companies. Unabating oil and gas exploration activities will provide impetus to the business, across Middle East, Africa, South America, Asia and Australia. Many existing reserves are depleting and new finds need to be connected leading to sustained demand for pipes. In US, the rig count has increased from 1550 in July 2010 to 1717 in Dec 2010. The demand for crude is likely to grow at a CAGR from 1.3% from 87.3 mbpd (mn barrels per day) in CY10 to 93.2 mbpd in CY15 mostly led by on OECD countries (3.5% CAGR).

Geography‐wise Pipe Demand outlook Geography‐wise Pipe Demand outlook

Total Weight ('000 MT) USD bnNorth America 16317 20Europe 17503 21Middle East 13286 16Australia 4919 6Latin America 14212 17Africa 7117 9Asia 28837 35Total 102191 124

16%

17%

13%5%

14%

7%

28%

North America

Europe

Middle East

Australia

Latin America

Africa

Source: Company, Simdex, Networth Research Source: Company, Simdex, Networth Research


Change in fortune of crude oil

Source: Company, IEA, Networth Research

II. Gas Worldwide demand for natural gas is set to resume long‐term upward trend with the resumption of global economic growth. Low carbon content of gas relative to oil will act as a supportive factor to gas as world shifts more towards greener technologies. Currently global gas demand and production is ~3.3 trillion cubic metres (tcm) (2010) and is likely to reach 5.1 tcm by 2035 according to International Energy Agency (IEA). This growth will increase share of natural gas in global energy mix from about 21% to 25% in 2035. Thus, Gas will play a more prominent role in meeting world’s energy needs till 2035. Non OECD countries especially China and India are expected to account for large part of total increase in demand.

Gas Demand by region in GAS Scenario (Golden Age of Gas) (bcm)

2008 2015 2020 2025 2030 2035 CAGR 208‐35 OECD 1541 1615 1691 1773 1865 1950 0.90% N. America 815 841 872 924 986 1052 0.90% United States 662 661 668 700 741 786 0.60% Europe 555 574 608 636 653 667 0.70% Pacific 170 200 210 213 226 231 1.10% Japan 100 118 122 123 127 127 0.90% Non‐OECD 1608 2070 2328 2611 2913 3182 2.60% E. Europe/Eurasia 701 755 786 824 857 876 0.80% Russia 453 474 487 504 522 528 0.60% Asia 341 576 715 864 1049 1244 4.90% China 85 247 335 430 535 634 7.70% India 42 81 104 134 176 234 6.50% Middle East 335 428 470 536 592 632 2.40% Africa 100 139 154 164 170 173 2.10% Latin America 131 172 203 224 245 258 2.50% Brazil 25 48 66 76 88 98 5.10% World 3149 3685 4019 4384 4778 5132 1.80% Europea Union 536 553 587 609 621 636 0.60%

Source: Company, World Energy Outlook, Networth Research


Natural Gas production by Region in the GAS scenario


III. Replacement of archaic pipeline infrastructure Another area which will create vast opportunities is the huge pipeline replacement market in North America. More than 1 mn miles of its total 1.5 mn miles of pipelines were laid down in the 1960s and 1970s and have reached the end of their lifespan and a replacement is required. The recent oil spill may prompt the US to accelerate the replacement of old infrastructure.


SWOT Analysis of the Indian pipe industry

Strength

Approvals & accreditations from major oil & gas companies help sustain strong market share by some players

Safest and the most cost effective mode of transport for liquids and gases

Indian Players are more cost effective than international players

Thriving domestic market

Easy availability of raw materials locally

Weakness

Dependence on Government spending and changing regulations

Intensifying competition with capacity increases by domestic players and participation from foreign players

Heavier reliance on domestic orders

Opportunities

Low pipeline penetration in India vis‐à‐vis developed nations like USA and France

Increasing O&G exploration activity across the country provides opportunity for creating pipeline infrastructure

PNGRB (Petroleum and Natural Gas Regulatory Board) initiating new pipeline projects and expanding City Gas Distribution project

Increasing Government layout for infrastructure building with specific focus on O&G and water infrastructure.

Threats

Volatile crude oil prices will dither investment decisions

Any change in government policies on pipeline Investment

Sharp fluctuation in steel prices between the bid and award of the contract

Volatile forex rates

Freight costs on pipeline investments

Tepid global economic environment


Investment Rationale

Market leader in Stainless steel tubes

The Company commands a market share of 40% in the Indian Stainless Steel Industry on the back of strong customer base, a wide portfolio of products and international accreditations.

Strong Customer base RMTL has over the years established a track record for supplying quality and high value addition products worldwide. It is a preferred supplier of various EPC contractors, fabricators and engineering consultants worldwide.

Wide portfolio of products RMTL offers a broad range of pipes, with capabilities to manufacture, pipes ranging from 0.25”‐60” in diameter for SS Tubes/Pipes and from 6”‐147” for CS Tubes/Pipes. It is the only manufacturer in India with capabilities to produce 100” diameter duly annealed SS Pipes. Certifications and Accreditations provide an edge: Steel pipe has to pass through a stringent process of quality approvals by API (American Petroleum Institute). Moreover in order to gain trust, pipe manufacturers need accreditations from national and international EPC players like EIL, MECON etc. This standard compliance process requires considerable amount of time, which acts as an entry barrier for new players willing to enter this market.

Risk diversification

RMTL caters to a wide range of industries. So revenue loss on slowdown in one sector is likely to made up from another sector. Proximity to ports and major steel player

Since freight costs of steel pipes form significant part in the total cost, RMTL’s strategic location close to Mundra, Kandla port and JNPT facilitates control over transportation cost and improves its competitiveness. Also the proximity of its facilities to the major steel players like Essar Steel compounds benefits.

Healthy Financials

Since incorporation, the Company has witnessed steady growth and built a strong balance sheet. Although the revenue growth has stagnated in FY10 and FY11, the profitability of the Company has remained intake and in fact EPS of the Company has increased in these two challenged years. Gross Block has grown at a CAGR of 12% and majority of its capex has been funded through internal accruals. Currently the gearing ratio is only 0.6 and interest coverage is 24.6 times. And the Networth has grown at a CAGR of 16% with a superior ROCE of 11% and RONW of 18.8%.


Revenue Growth .. peak in FY09 slight decline due to economic EPS …on an upward trend despite de‐growth in revenue

0.00

2000.00

4000.00

6000.00

8000.00

10000.00

12000.00

14000.00

FY06 FY07 FY08 FY09 FY10 FY11 FY12E FY13E0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

FY06 FY07 FY08 FY09 FY10 FY11 FY12E FY13E

Source: Company, Networth Research Source: Company, Networth Research

EBITDA Growth & Margins PAT Growth & Margins

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5.00

10.00

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20.00

25.00

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FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13

EBITDA Growth EBITDA Margins

0.00

2.00

4.00

6.00

8.00

10.00

12.00

0.00

200.00

400.00

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1000.00

1200.00

1400.00

1600.00


PAT Growth PAT Margins


Networth Gross Block

0.00

2000.00

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10000.00

FY06 FY07 FY08 FY09 FY10 FY11 FY12E FY13E0.00

1,000.00

2,000.00

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4,000.00

5,000.00

6,000.00

7,000.00




D/E

0.000

0.200

0.400

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1.000

1.200

1.400



Key Investment Risks

Slowdown in capex of user industries

Ratnamani’s topline is contingent on the capex of user industries of Oil & Gas sector, Thermal Power Plants, Paper plants, Water Transportation etc. Any slowdown in the capex plans would adversely impact revenues, though TMTL’s diversified customer base mitigates this risk to some extent.

Rising costs

Rising interest costs and raw material prices would constrict the growth in profit. To mitigate RM cost the Company normally books its raw materials on receipt of orders and expedite execution.


Valuations

RMTL has good fundamentals and better financials. Yet its valuations are low compared to its peers. We have valued the Company using PE methodology. Currently the Company is trading at a 5.5x FY11 EPS. Considering a slowdown in the industrial capex of various sectors and rising cost pressures, we assign a conservative P/E multiple of 5.5x on FY12E EPS deriving our target price of Rs. 127/share.

Peer Analysis (Rs in mn)

CMP Mkt Cap SalesFY11

EBITDA Margins ROCE (EBIT/CE)

FY09 FY10 FY11 FY09 FY10 FY11

RMTL 98 4545 8122 16 19 18 17 23 31

Jindal SAW 127 35012 41879 14 19 21 15 23 19

Welspun Gujarat 78 17699 61373 12 17 14 13 24 17

Man Industries 125 6933 14948 12 8 11 18 16 23

Maharashtra Seamless 337 23759 17613 19 27 25 25 29 31

PSL Ltd 58 3087 23781 10 12 16 11 13 23

Relative Valuations P/E P/BV EV/EBITDA

FY09 FY10 FY11 FY09 FY10 FY11 FY09 FY10 FY11

RMTL 2 6 7 1 1 1 2 5 5

Jindal SAW 4 10 12 1 2 1 4 5 8

Welspun Gujarat 6 10 12 1 2 1 4 6 7

Man Industries 9 3 6 2 0 1 5 2 2

Maharashtra Seamless 4 9 7 1 2 1 2 6 5

PSL Ltd 4 9 5 1 1 0 3 8 5

P/E Band



Financials:

Income Statement (`mn)

Y/E March FY10 FY11E FY12E FY13E

Sales 8885.8 8643.6 10184.7 13522.0Excise Duty 517.1 641.1 763.9 1014.1Windmill Income 150.9 119.9 132.3 145.3Net Sales 8519.5 8122.5 9553.2 12653.1

Change in inventory 0.8 455.1 185.8 ‐20.5Total Revenue 8520.3 8577.6 9739.0 12632.6Expenditure Cost of Raw Materials consumed 5663.5 5737.0 6214.0 8351.3Personnel Cost 474.1 492.6 546.4 687.9Other Exp 707.5 798.1 829.0 1038.2 6845.1 7027.7 7589.5 10077.4EBITDA 1675.2 1549.8 2149.6 2555.2EBITDA Margins (%) 19.7 18.1 22.1 20.2Depreciation 368.8 399.9 440.3 465.0EBIT 1306.4 1149.9 1709.3 2090.2

Finance cost 17.5 46.7 162.5 68.2Other Income 14.8 24.2 32.6 42.6PBT 1303.7 1127.5 1579.4 2064.6Tax 489.5 306.3 505.4 660.7PAT 814.3 821.1 1074.0 1403.9PAT Margins (%) 9.6 9.6 11.0 11.1EPS 17.7 17.7 23.2 30.3

Balance Sheet (`mn)


SOURCES OF FUNDS Share Capital 91.9 92.7 92.7 92.7 Employee Stock Options 30.6 20.5 0.0 0.0 Reserves & Surplus 3,524.8 4,256.6 5,142.1 6,299.6 Networth 3,647.2 4,369.9 5,234.9 6,392.4 Loan Funds 3,201.5 2,556.6 3,062.4 2,701.5

Deferred Tax Liability 580.9 536.8 645.9 703.8 Total Funds 7,429.6 7,463.3 8,943.1 9,797.7 APPLICATION OF FUNDS Gross Block 5,009.6 5,292.8 5,870.0 6,200.0 Accumulated Depreciation 1,410.2 1,806.6 2,246.9 2,711.9 Net Block 3,599.4 3,486.2 3,623.1 3,488.1 Capital Work‐in‐progress 29.7 121.8 140.0 0.0 Fixed Assets 3,629.1 3,608.0 3,763.1 3,488.1 Investments 500.5 70.1 70.1 70.1 Inventories 1,675.7 3,518.1 3,690.6 3,517.1 Sundry debtors 1,663.1 1,640.4 2,092.8 2,778.5

Cash and bank balances 243.0 474.1 393.0 800.8 Loans and advances 814.3 518.1 1,018.5 1,352.2 4,396.0 6,150.6 7,194.8 8,448.6 Current liabilities 875.0 2,211.5 1,871.4 1,932.7 Provisions 221.0 153.9 213.5 276.4 NET CURRENT ASSETS 3,300.0 3,785.2 5,110.0 6,239.5 Total Funds 7,429.6 7,463.3 8,943.1 9,797.7

Financial Ratios


Profitability & Return Ratios EBITDA Margin 19.7 18.1 22.1 20.2EBT Margin (%) 15.3 13.1 16.2 16.3Net Profit Margin (%) 9.6 9.6 11.0 11.1ROE 24.9% 20.5% 22.4% 24.1%ROCE 22.5% 16.7% 22.5% 24.0%

Working Capital & Liquidity ratios

Receivables (days) 68.3 69.3 75.0 75.0Inventory (days) 68.8 148.6 132.3 94.9Payables (days) 46.7 114.9 90.0 70.0Current Ratio 4.0 2.6 3.5 3.8Quick Ratio 2.5 1.1 1.7 2.2Debt/Equity 0.9 0.6 0.6 0.4Turnover & Leverage Ratios Gross Asset Turnover 2.3 2.4 2.6 3.6Interest Coverage Ratio 74.7 24.6 10.5 30.6Valuation Ratios

EV/Sales 0.8 0.9 0.7 0.5EV/EBITDA 4.2 5.1 3.3 2.5

P/E 7.2 4.2 3.2P/BV 1.2 1.0 0.9 0.7

Cash Flow Statement (`mn)

Y/E March FY10 FY11 FY12E FY13E

New Cash Flow from operations activities ‐893.0 917.6 108.3 1147.2Net Cash Flow from Investments ‐784.9 44.4 ‐595.4 ‐190.0Net Cash Flow from Financial activities 1399.8 ‐730.8 405.9 ‐549.3Net change in Cash ‐278.1 231.1 ‐81.2 407.8Opening Cash & cash bal 521.1 243.0 474.1 393.0Closing Cash & Cash Bal 243.0 474.1 393.0 800.8


Annexure ‐ 1 Promoters:

Prakash M. Sanghvi is the Chairman and Managing Director of Ratnamani and has a rich experience of 33 years in the industry.

Jayanti M. Sanghvi is the whole time Director of Ratnamani and has a rich experience of 30 years in the industry.

Shanti M. Sanghvi is the whole time Director of Ratnamani and has a rich experience of 28 years in the industry.

Annexure ‐ 2 Clientele:

A. Domestic

Petrochemical & Refinery Reliance Industries Ltd, Hindustan Petrochemicals Corporation Ltd, Bharat Petrochemicals Corporation Ltd, Mangalore Refineres & Petrochemicals Ltd, Indian Oil Corporation Ltd.

Oil & Gas Oil & Natural Commission, Gas Authority of India Ltd, Gujarat State Petronet Ltd, Engineers India Ltd, Oil India.

Power Nuclear power Corporation of India (all units), Bharat Heavy Electricals Ltd (all units), National Thermal Power Corporation, Siemens, Alstom Power, Reliance Energy, Adani Power, Lanco

Fabricators Larsen & Tubro (all units), Godrej & Boyce Manufacturing Co. Ltd, ISGEC Heavy Engineering Ltd, Dodsal Corporation

Fertiliser National Fertilizers Ltd, Indian Farmers Fertilizers Co. Ltd, Gujarat State Fertilisers & Chemicals Ltd, Gujarat Narmada Valley Fertilizers Company Ltd, Krishak Bharti Cooperative Ltd

Space Applications Department of Space Nuclear Applications Bhabha Atomic Research Centre

B. International KNPC, BASF, Equate, Exxon, SIDEM, Agip KCO, Qatar Gas, Dredging International, Bechtel, JGC, Chiyoda, Technip, KHE, Toshiba, Colt, GEA, Bt Batignolles Technologies Thermiqu, Chiyoda, Doosan, DOW etc.

Petrochemicals & Refinery Oil & Gas Fabricators EPC Contractor / Consultants

Source: Company


Annexure ‐ 3 Product portfolio:

Stainless Steel Seamless Tubes & Pipes: 6 MM OD to 219.1 MM OD

0.5 MM THK. to 8.18 MM THK

Stainless Steel Seamless Pipes (Hot Finished) 1”NB to 3”NB

Up to 8 MM THK

Stainless Steel Welded Tubes & Pipes 10 MM OD to 1524 MM OD

0.5 MM THK. to 50 MM THK

Carbon Steel L‐SAW Pipes 12”NB to 48”NB

5 MM THK. to 28 MM THK

Carbon Steel H‐SAW Pipes 18”NB to 110”NB


Carbon Steel Circ. Seam SAW Pipes 36”NB to 147”NB


Carbon Steel ERW Pipes 6”NB to 18”NB

5 MM THK. to12.7 MM THK

3 Layer PE and FBE Coating 6”NB to 64”NB

Annexure ‐ 4 Certificates and Accreditations:

ISO 9001:2008 under TUV



License API 5L, API 5LC and 2B Monogram

ADW2 Certification under TUV

Pressure Equipment Directive (PED) under TUV

“Well known Tube / Pipe Maker” under Indian Boiler Regulations, 1950

Approval by Engineers India Ltd, PDIL and MECON

Approval by Nuclear Power Corporation of India Limited for supply of Critical Tubes/Pipes for Nuclear Reactors


Networth Research: E‐mail‐ [email protected]

Surya Nayak AVP Research [email protected] 022‐30225901

Minal Dedhia Banking/Midcaps [email protected] 011‐47399803

Vishal Kothari Pharma & Chem. [email protected] 022‐30225900

Jignesh Vayda Midcaps [email protected] 022‐30225904

Suhani Patel Construction/Cement [email protected] 022‐30225900

Shruti Raut Logistics/ Retail (Associate) [email protected] 022‐30225900

Siddharth Deshmukh Telecom/I.T (Associate) [email protected] 022‐30225900

Derivatives & Technical Research

Akshata Deshmukh AVP Derivatives & Technical’s [email protected] 022‐30641744 Kekin Maru Derivatives Analyst [email protected] 022‐30641621

Akhil Rathi Research Associate ‐ Derivatives [email protected] 022‐30641680

Institution Sales [email protected]

Viral Malia AVP Institutional Sales [email protected] 022‐30225902

Key to NETWORTH Investment Rankings

Buy: Upside by>15, Accumulate: Upside by +5 to 15, Hold: Upside/Downside by ‐5 to +5, Reduce: Downside by 5 to 15, Sell: Downside by>15

Disclaimer: This document has been prepared by Networth Stock Broking Ltd. (NSBL). NSBL is a full service, integrated investment banking, portfolio management and brokerage group. Our research analysts and sales persons provide important input into our investment banking activities. This document does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable, but we do not represent that it is accurate or complete and it should not be relied on as such. NSBL or any of its affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. The user assumes the entire risk of any use made of this information. Each recipient of this document should make such investigation as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult his own advisors to determine the merits and risks of such investment. The investment discussed or views expressed may not be suitable for all investors. We and our affiliates, officers, directors, and employees may: (a) from time to time, have long or short positions in, and buy or sell the securities thereof, of Company (ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as advisor or lender / borrower to such Company (ies) or have other potential conflict of interest with respect to any recommendation and related information and opinions. This information is strictly confidential and is being furnished to you solely for your information. This information should not be reproduced or redistributed or passed on directly or indirectly in any form to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject NSBL and affiliates to any registration or licensing requirements within such jurisdiction. The distribution of this document in certain jurisdictions may be restricted by law, and persons in whose possession this document comes, should inform themselves about and observe, any such restrictions. The information given in this document is as of the date of this report and there can be no assurance that future results or events will be consistent with this information. This information is subject to change without any prior notice. NSBL reserves the right to make modifications and alterations to this statement as may be required from time to time. However, NSBL is under no obligation to update or keep the information current. Nevertheless, NSBL is committed to providing independent and transparent recommendation to its client and would be happy to provide any information in response to specific client queries. Neither NSBL nor any of its affiliates, directors, employees, agents or representatives shall be liable for any damages whether direct, indirect, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject Company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report. Analyst holding in stock: no.

Networth Stock Broking Ltd. (www.networthdirect.com)

Office: ‐ 144 – B, Mittal Court, 224, Nariman Point, Mumbai 400 021. Tel No.: 022 3022 5900

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