Sharekhan has maintained a Hold recommendation for Ratnamani Metals & Tubes Limited (RMTL) with a price target of Rs 3,950, reflecting limited upside due to rich valuations. Despite a 16% growth in the order book, Q2FY25 revenues fell by 14% YoY to Rs 971 crore, impacted by delays in export execution, lower pricing, and monsoon-led disruptions. While the company remains well-positioned for long-term growth in the oil & gas and water supply segments, near-term challenges, including margin pressures and soft demand, weigh on its valuation. RMTL's strong balance sheet and leadership in high-margin stainless steel (SS) pipes support its long-term growth potential.

Sharekhan Retains Hold on Ratnamani Metals

Recommendation Overview
Sharekhan reiterates its Hold rating for Ratnamani Metals, with a price target of Rs 3,950. The recommendation reflects a balanced view of the company’s solid growth potential and the limited upside due to high valuations.

Q2FY25 Performance: Weak Revenue and Margins

Decline in Revenues

Q2FY25 consolidated revenue declined by 14% YoY to Rs 971 crore, below the estimated Rs 1,267 crore.
Contributing factors included falling steel prices, delayed dispatches due to monsoons, and postponed export orders.
Margin Pressures

Operating Profit Margin (OPM) fell by 584 bps YoY to 15.8%, impacted by low-margin SS pipe orders.
Net Profit decreased by 40% YoY to Rs 99 crore, also affected by delayed execution of export orders.

Order Book and Future Growth Drivers

Order Book Growth

The order book grew by 16% QoQ to Rs 2,960 crore, with exports contributing 50% of total orders.
Significant traction in export inquiries points to robust execution potential in H2FY25.
Segment Opportunities

Oil & Gas: Potential growth through government investments in pipeline infrastructure.
Water Supply: Driven by projects under the Jal Jeevan Mission and other public initiatives.

Outlook for H2FY25 and Beyond

Revenue and Margin Guidance

Management estimates FY25 revenues between Rs 5,000–5,200 crore with OPM in the range of 16–18%.
Earnings growth will be supported by the commissioning of:
Heavy thickness pipe capacity.
New cold finishing line.
Carbon steel (CS) pipe capacity in East India.
Capex Plans

Planned investments include Rs 200 crore in FY25 and Rs 320 crore in FY26 for capacity expansion and operational improvements.

Valuation and Investment Case

Rich Valuations

RMTL trades at 32x FY26E EPS and 20x FY26 EV/EBITDA, reflecting limited upside despite growth prospects.
The company remains a market leader in high-margin segments like stainless steel pipes, ensuring long-term growth potential.
Long-Term Growth Drivers

Increasing government spending on infrastructure and pipeline projects is expected to sustain demand.
Robust export opportunities in Europe and the US, along with anti-dumping duties on imports, further bolster the outlook.

Risks to Watch

Key Risks

Demand Weakness: Soft demand or delays in project commissioning could affect revenue growth.
Input Cost Volatility: Inability to pass on higher raw material costs may pressure margins.
Execution Delays: Dependence on timely delivery of export orders remains a risk factor.