Ratnamani Metals & Tubes Ltd - Weak Quarter | Q1FY27 Company Update

Ratnamani Metals & Tubes’ (RMT) 1QFY27 results missed our estimates, due to poor performance at the pipes & tubes business. Slowdown in new project spending in domestic markets and disruption in Middle East were the main reasons for degrowth in pipes revenues. However, the subsidiaries performed exceedingly well (uplifting consol. margins) and are expected to continue its growth momentum. Going forward, we expect subdued performance in the pipes & tubes business over short term, leading to a 13%/12% cut in FY27E/FY28E earnings. However, over longer term, we expect demand to revive from re-construction of Middle East Oil & gas and domestic water infrastructure. We value RMT at an average of 30x Jun’28E PE and 17x Jun’28E EV/EBITDA to arrive at TP of Rs 2,550 (Rs 2,720 previously). We move to BUY rating (previously Accumulate) on Ratnamani metals due to attractive valuations, post a sharp correction in share price. Remain positive on long term prospects of Ratnamani’s business.

Ratnamani Metals & Tubes' stock price chart:

Weak pipes business drags revenue despite strong subsidiary contribution:

RMT reported 16% YoY decline in consol. revenues at Rs 9.7bn (miss to MNCL estimates), dragged by a steep decline in revenue from pipes & tubes business, offset by a strong contribution from subsidiaries (Ravi Technoforge: Rs 1bn, +26% YoY; Spooling: Rs 719mn, +849% YoY on a very low base). Standalone pipes & tubes revenue declined 30% YoY to Rs 7.4bn owing to delayed deliveries to Middle East and weak demand in domestic markets.

Margins beat expectations due to outperformance at subsidiaries:

RMT reported consol. EBITDA of Rs 1.6bn (+10% YoY) with margins at 16.7% (+36bps YoY). While the standalone business reported a large 727bps YoY compression in margins to 10.8% due to high fixed cost, consol margins were buoyant due to high margins at subsidiaries (Ravi Technoforge @ 13.4%; + 400bps YoY and Spooling @ 51.1% vs loss YoY). Consol. Adj. PAT declined by 38% YoY to Rs 822mn, due to high depreciation and low other income.

Demand scenario remains weak and deliveries delayed:

The subsidiaries demonstrated strong growth momentum in 1QFY27, followed by a margin improvement. The spooling business with a strong order book is expected to maintain strong growth and high margins, catering to the nuclear demand. Ravi Technoforge is likely to achieve margin expansion in FY27E, before adding new contracts at the expanded capacity in FY28E. However, order booking and execution has been weak for the pipes business both in the domestic and export markets. We expect the demand from water and Oil & gas to remain weak in the short term, due to muted project spending. Further, 16-20% of RMT’s exports are dependent on Middle East, which is heavily disrupted due to delayed deliveries and high cost of logistics. All these factors have led to lowering our revenue and margins for pipes & tubes business, resulting in a 13%/12% cut in earnings for FY27E/FY28E respectively. However, we expect the demand to improve over long term which could result in strong growth in FY28E. Remain positive on long term prospects for RMT.

Valuation and Rating:

We value RMT at an average of 30x Jun’28E PE (unchanged) and 17x Jun’28E EV/EBITDA (unchanged) to arrive at TP of Rs 2,550 (Rs 2,720 previously). We upgrade RMT to BUY rating (previously Accumulate) due to attractive valuations, post the steep correction in share price. Downward revision in TP is due to cut in earnings, partly offset by valuation roll forward. Key risks: Delay in recovery of Oil & gas demand, rising competition in Stainless Steel (SS) pipes & tubes.

Company website: https://www.ratnamani.com/

*CMP is as per report published date

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Analyst:

• Sahil Sanghvi - Research Analyst, Institutional Equities (NISM-201900004744)
• Uvais Khatri - Research Associate, Institutional Equities (NISM-202300049054)

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FAQs on Ratnamani Metals and Tubes Ltd. Q1FY27 Company Update

Here are quick answers to common investor queries about the Ratnamani Metals swing trading opportunity, including entry strategy, targets and key risks.

How did Ratnamani Metals perform in Q1FY27?

Consolidated revenue declined 16% YoY to ₹9.7 billion, mainly due to a 30% decline in standalone pipes and tubes revenue. Strong subsidiary performance supported consolidated profitability.

Why did Ratnamani Metals' pipes business decline?

The pipes and tubes business was affected by weak domestic project spending, delayed Middle East deliveries and higher logistics costs amid regional disruptions.

How were Ratnamani Metals' margins in Q1FY27?

Consolidated EBITDA increased 10% YoY to ₹1.6 billion, with EBITDA margin improving 36 bps YoY to 16.7%. Strong subsidiary margins offset weakness in the standalone business.

What is the outlook for Ratnamani Metals?

Near-term pipes and tubes demand is expected to remain subdued. Over the longer term, potential recovery in oil and gas, Middle East reconstruction and domestic water infrastructure could support growth.

What is the target price for Ratnamani Metals?

The supplied analyst report assigns a target price of ₹2,550 versus a CMP of ₹2,203 and upgrades the rating to BUY. The target is an analyst estimate, not an assurance of future returns.

What are the key risks for Ratnamani Metals?

Key risks include a delayed recovery in oil and gas demand, prolonged Middle East disruption, weaker project spending and increasing competition in stainless steel pipes and tubes.

What could drive Ratnamani Metals' long-term growth?

Potential drivers include recovery in oil and gas demand, Middle East reconstruction, domestic water infrastructure spending, subsidiary expansion and improved execution in the pipes and tubes business.

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