We performed Industry Analysis of our segment i.e. Steel Pipes & Tubes, wherein Opportunity Size was the most important aspect. In a similar way Revenue Driver is most important aspect of any company analysis. To start with RMTL’s projection of revenue, have a look at the historical data points first:

Capacity standing as of year 2020 is 3, 50,000 tonnes for Carbon Steel and 20,000 tonnes for Other Alloy Materials. Going forward, company is coming up with new capacity for Seamless Plant as well as de-bottlenecking in its existing CS Plants. Due to lockdown and travel restriction, company expects plant to be operational only from Q3FY 2021 as opposed to earlier date of May, 2020. Have a look at the capacities (current and proposed) for RMTL:

Therefore, when we try to find out future revenues occurring to RMTL, we need to consider this capacity extension.

As we have performed detailed Product Category analysis for RMTL, we will try to break the revenue into these two categories for better understanding.

• Revenue Expectation from CS Category:

RMTL’s Carbon Steel Pipes & Tubes category includes SAW Pipes and ERW Pipes. Volume Sales of this category have grown at CAGR of 10.84% from 2011 (83, 850 MTPA) to 2020 (2, 11,777 MTPA). Despite facing cyclical phases over 10 year period, its volume sales from CS category has smoothly grown over the years. When we look at Industry’s Opportunity Size, robust demand is expected with estimated CAGR of about 30%. Hence, the period up to 2025 looks promising. Have a look at the snap:

Therefore, with huge demand prospect. I can only expect the capacity utilization levels to increase and reach to its near peak level by 2025 i.e. 80%. As far as realizations are concerned, they depend on demand-supply mechanism completely and we cannot predict it. This is the reason, I have taken it at near average levels for RMTL.

Hence, taking capacity utilization at 80% for Carbon Steel Category with average realization at Rs. 81,500/- per tonne, we arrive at estimated revenue for RMTL for carbon steel category as:

• Revenue Expectations from Other Alloy Materials Category:

The volume sales of other alloy materials as of 2020 is 20, 397/- MTPA. With total capacity at 28,000/- MTPA, its utilization stands at 72.84%. Management have indicated in their Concall that maximum attainable utilization level stands at 80%, which makes 72.84% utilization levels very good. Taking reference from Industry’s opportunity size, we are at comfort levels that RMTL can easily grab the opportunities coming to it from the industry dynamics.

My estimation would be very straight, considering the prospect of RMTL to grab on huge opportunity, RMTL will be able to easily achieve 80% utilization levels on its current capacity of 28,000 MTPA. However, to get understanding about upcoming capacity, we need to dig in to smaller details.

New capacity of 20,000/- MTPA is expected to commence from Q3 of FY 2021. As per management in recent Concall of Q2 FY2021, company can achieve 60% to 80% of utilization in 2-3 years itself. Hence, I can only expect that after 4-5 years, the capacity utilization levels will be at 80%. We are relying on management commentary here because they have great execution skills (justification for its reliance is performed in management analysis part). Hence, when we put into numbers for Other Alloy Category, we get the following Revenue Estimation for RMTL:

The above table is self-explanatory, and we can see RMTL touching a sales of Rs. 1,555 Crores by then end of 2025.

• Combining Revenue Expectation for RMTL:

Hence, for determining Revenue of RMTL till 2025, we have considered both the product categories. We would simply combine both the revenues to get RMTL’s total revenue. Note that, for the year 2021, the figures have been adjusted to reflect the impact of COVID on revenue of the company (as indicated by management at Rs. 2,300/- Crores.).

Considering all the above, we have our final revenue estimates as below:

Hence, from all the above, we are finally able to make an estimate the Revenue of the company for coming future. It need not be correct, but that is the part of analysis.

Finally, as we complete revenue estimation for RMTL, I would like to thank you for your attention.

 

Disclaimer: Views are personal and presented through independent research. By no means there is any stock advice. Also, presented content is for learning purpose only. I might be wrong in presenting data and inaccurate data, let me know if you find any discrepancies.