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Rajratan Global Wire Ltd

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About the company

Rajratan Global Wire Ltd was established in 1989, it manufactures bead wire, high-carbon steel wire with specialization in TBW, which is bronze-coated and used in tyres and drawn steel wire (known as black wire), used in automobile, construction and engineering industries.

 

Q4FY22 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
  Q4FY22 Q4FY21 YoY % Q3FY22 QoQ % FY22 FY21 YoY%
Sales 145 117 23.9% 136 6.6% 541 338 60.1%
PBT 22 18 22.2% 23 -4.3% 90 47 91.5%
PAT 19 16 18.8% 17 11.8% 69 37 86.5%
Consolidated Financials (In Crs)
  Q4FY22 Q4FY21 YoY % Q3FY22 QoQ % FY22 FY21 YoY%
Sales 248 184 34.8% 222 11.7% 895 548 63.3%
PBT 40 25 60.0% 40 0.0% 153 66 131.8%
PAT 37 23 60.9% 33 12.1% 124 53 134.0%

 

Detailed Results:

  1. The company reported a strong quarter with consolidated revenue rising by 34% YoY coupled with PAT growth of 61% YoY. 
  2. EBDITA margins stood at 19.21% while PAT margins at 14.96%.
  3. EBIDTA for the quarter grew at 46% YoY.
  4. ROE stood at 36.9%.
  5. Working capital days for the FY reduced from 64 to 27 days owing to increase in creditor days from 53 to 79 days.
  6. A Final Dividend of Rs.2 per share has been declared in Q4.

 

Investor Conference Call highlights:

  1. The management states that margin expansion has taken place due to 
    1. capacity expansion in India which has reduced cost of bead wire conversion, 
    2. reduced variable costs, 
    3. improvement in product quality and 
    4. product mix along with change in customer profile leading to the ability to pass on cost of raw material to the consumer.
  2. The company currently supplies at prices lower than what China, Malaysia and Vietnam charges thus it is not expensive to customers.
  3. Customer contracts are on a quarterly basis while raw material procurement is on a monthly basis.
  4. The Thailand unit’s profitability is not at par with the India unit due to increase in capacity utilization to 95%.
  5. The company will increase capacity in Thailand to 60,000 tons this year.
  6. The company doesn’t expect to get affected with EV disruption since tires will remain the same whether it is traditional auto or EV.
  7. The company has received approvals in Thailand from few customers leading to better push of volumes from added capacity.
  8. The company expects the tire market to grow at 7-8% CAGR for next 5 years.
  9. The management also sees possibility to export products to other countries from India.
  10. The management sees high customer stickiness due to relationship with marquee clients & the cost of bead wires being only 3% of total costs for tire makers.
  11. The Chennai capacity of 60000 tons will take 2-3 years to be properly utilized.
  12. The company is only bead wire manufacturer in Thailand coupled with lower imports from other countries due to supply chain disruption leading to higher share of domestic biz.
  13. The management expects profitability in domestic market of Thailand will be higher due to less volatility of freight, storage and better cost of management.
  14. The management is targeting 40% of Chennai plant to be catered for exports market.
  15. The management believes it is the lowest cost bead wire manufacturer in the world.
  16. The company enjoys economies of scale advantage against its customers.
  17. Debottlenecking will help in achieving higher utilization.
  18. The company plans to produce 10,000-11000 tons of black wire.
  19. The company currently supplies 500-600 tons to USA without taking any selling efforts.
  20. The company is incurring Rs.300 Cr capex for Chennai plant
  21. The company has availed Rs 100 Crs worth of debt from two banks and wont avail any further loans for capex.
  22. The company expects 20% volume growth in the coming year.
  23. The Indian market size is 120,000 tons and market share of the company is 45% in the auto tier customer segment.

 

Analyst’s View:

Rajratan had a good quarter with revenue growth of 35% YoY and profit growth of close to 61% YoY in Q4. The company expects good demand from export markets due to its low prices as compared to other exporters from China, Vietnam and others. The management is optimistic for the company’s future as it is EV agnostic in nature and should not be affected by the EV disruption movement. The management maintains that the company will be able to maintain its edge as the lowest cost manufacturer in the world for bead wire. It is also expecting to add to the Thai capacity and use 40% of the production from the Chennai unit for exports. It remains to be seen how the company will be able to retain its lowest cost manufacturer position and how the export market pans out for it. Nonetheless, given the company’s strong market positioning in the domestic market and its inherent low cost manufacturing capacity, Rajratan is a good auto ancillary stock to watch out for.