CMP = Rs 880 (as of Friday)
Price target: Under review
Result highlights:
- The Q4FY2007 results of Ratnamani Metals & Tubes are above our expectations.
The company reported strong quarterly results. The revenues for the quarter grew by 95.3% to Rs 172.6 crore. - The operating profit for the quarter grew by 77.6% to Rs 34 crore and the operating profit margin (OPM) for the same period declined by 240 basis points to 22.3% from 24.8% in Q4FY2006.
- The OPM declined due to a higher raw material cost as a percentage of sales. The raw material cost went up by almost 310 basis points to 62.9% from 59.8% in Q4FY2006. Other expenses as a percentage of sales also went up by 110 basis points during the quarter.
- The interest expense for the quarter increased by 111.4% to Rs 4.9 crore while the depreciation cost for the quarter increased by 310.1% to Rs 6.2 crore.
- The profit before tax grew by 80% to Rs 27.6 crore. The net profit for the quarter grew by 38.4% to Rs 17.5 crore due to a higher tax rate of 36.7% in this quarter compared with 17.8% in Q4FY2006.
- For the full year, the net sales grew by 79% to Rs 571 crore and the net profit grew by 91% to Rs64.2 crore.
- The order book at the end of this quarter stood at Rs 500 crore. Driven by a strong order book and the increasing demand for its products from its key user industries, which are in capital expansion phase, I believe there is strong visibility of its earnings.
- At the current market price, the stock is trading at 12.4x its FY2007 earnings per share and 6.9x its FY2007 enterprise value/earnings before interest, depreciation, tax and amortisation.
- I would upgrade my earnings estimate for FY2008 as well as the price target and would be coming out shortly with a detailed update on the company.
