RMTL is a company established in 1983 and has experience in the field of pipes & tubes of over 35 years. Over the years, company has constantly focused on adding variety of products in its basket. Starting from Stainless Steel Pipes & Tubes production, the company has expanded to CS SAW Pipe, Welded SS Tubes for Automobiles, Seamless Pipe of High Nickel Alloys for critical application, Titanium Welded Pipes for Aerospace & Defence and so on. This shows that, company has constantly added new product variety of Pipes & Tubes in its basket. The company has expanded its portfolio of products to variety of different application and uses. This gives company the advantage of generating Revenues from a wide user industry and a wide client base. The company today, has a very reliable and established name in Critical Pipes & Tubes production serving to more than 35 countries.

RMTL specialises in variety of Steel Pipes & Tubes Production serving to many industries. Here, we divide the Products into Categories viz. Carbon Steel (CS) and Other Alloy Materials. There are many product which RMTL sells, which comes within these two categories. Look at the chart & table explaining products of RMTL:

Margins and realization (per ton) of Other Alloy Materials are way higher than Carbon Steel (CS). Other Alloy Materials like SS, Titanium & HNA are special commodity used in high end critical applications. These products majorly serves to niche markets. In fact, RMTL are only producers in India to make few types of Pipes & Tubes (they are import substitute). Hence, this category brings higher revenue and margins to the company. On the other hand, in Carbon Steel, products like LSAW, HSAW and ERW are (near) basic commodity. These CS products have enough competition as well. For these reasons, the margins & realization in Carbon Steel are low compared to other alloy materials. Let us get into finer details:

• Carbon Steel Department:

Carbon Steel department of RMTL includes ERW, SAW and Circumference Seam SAW Pipes. All of these product are near basic commodities and hence the margins are low when compared with Other Alloy Materials.

ERW Pipe have very high competition in the market, another reason why EBITDA is very low i.e. averaging below Rs. 3,500/- per ton. Realizations per ton for ERW Pipes stands at Rs. 40,000/- to 55,000/- per ton. Even if we consider lower side of realization i.e. Rs. 40,000/- on an average EBITDA of Rs. 3,500/- per ton, the EBITDA margins come to mere 8.75%. Similar is the case with SAW Pipes. SAW pipes generate better realizations (per ton) when compared with ERW, but costs for production in SAW is also higher. Hence, SAW Pipes also generates similar EBITDA margins i.e. in range of 8% to 12%.

Let us study in detail, RTML’s Product in CS Category, let me show you some of the statistics of the company for the year 2020:

Capacity utilization for CS Category stands at ~ 60%. There is upcoming additional capacity projected to commence by end of 2021. With high capacity, RMTL is well positioned to service the robust demand arising in future (see Opportunity Size). However, there is one disadvantage i.e. Replacement Demand for SAW Pipes. SAW Pipes life is said to be about 40+ years. SAW Pipe are laid underground (Mostly), and they are not replaced for many years. Hence, once they are placed they are not replaced. This is the reason why companies constantly need to find opportunities to newer projects to generate revenues. The long future for SAW pipes is unknown, but as of now with higher Opportunity Size, the demand till 2025 seems very promising.

• Other Alloy Materials Department:

Other Alloy Materials include Titanium, High Nickel Alloy (HNA) and Stainless Steel (SS). These materials generate extremely high margins, the reason why RMTL is constantly profitable and able to generate Economic Profit even in bad cyclical times. Materials like Duplex & Super-Duplex (HNA’s type), Titanium and Stainless Steel are used in critical applications where pressure requirement are very high and the use of high quality Pipes & Tubes is very crucial. Due to such unique requirement they form Niche Market and for obvious reasons demand a very high premium i.e. very high margins. These niche market includes application into critical requirement of Oil, Gas, Petrochemical, Refineries, Power, Fertilizers, Water Distillation, Aerospace and Defence. The requirement into niche market for these pipes & tubes is very limited, but there is enough opportunities for RMTL to grab on.

Firstly, RMTL is only producer in India for certain types of critical Pipes & Tubes. For titanium welded tubes, there are only two producers in India. Hence, RMTL makes product which are import substitute. With government initiative of Self-Reliant India and Make in India, preference is given to domestic manufacturer over international. Recent initiative by government states that “Government companies tendering order less than 200 Cr. should be given to only internal manufacturers”, makes RMTL a direct beneficiary being the only domestic producer.

Have a look at the major products which are made by RMTL (majorly) and are imported in huge values:

There are high chances that these orders will be given to internal manufacturer, RMTL being direct beneficiary. Apart from the above opportunities, company already serves to domestic market directly. Companies like RIL, HPCL, BPCL, MRPL, IOCL, Nuclear Power Corporation of India, BHEL, L & T, Department of Space, Brahmos Aerospace, DRDO, etc. are only few major clients which are named here. We have understood enough about Other Alloy Materials, let us check out RMTL’s other alloy material details for the year 2020:

You can see above that companies other alloy materials volume sales was 20,397 tonnes which bought revenue of Rs. 836/- Cr. This turns out the average realization per tonne in excess of 4, 00,000/-. Also, capacity utilization is quite high. The company is having expansion plan of 20,000 tonnes of Seamless Pipes & Tubes. This capacity extension is huge i.e. 71% of current capacity. With great prospect of future demand, it might bring in good revenues for future years. The capacity is said to commence at the end of 2021 as per management of RMTL.

Now that we understood both the product category in detail, let us find the revenue and profit breakup of the company.

• Revenue & Profit break-up analysis amongst product categories:

Let us directly dive into very basic details of the Revenue & Production breakup of company:

When we observe the above table, 91% of total production comes from Carbon Steel and it brings only 67.5% of the revenue. Whereas “8.79% of total production brings 32.50% of total revenue, contributed by other alloy materials”. This coincides with our above analysis showing Other Alloy Materials bringing higher revenue per tonne when compared with Carbon Steel. 

To understand the profit margin of RMTL for each of the product category (not directly available), we need to do certain calculation and make certain assumption to get a rough idea of profits between CS and Other Alloy Materials. The assumption as follows:

From above image, we have taken out two SAW Pipe companies i.e. Welspun Corp and Man Industries and found out Average EBITDA Margin (in %). Assuming RMTL earns similar margins being in the same industry which produces similar CS Pipes, we find EBITDA per ton of Carbon Steel and Other Alloy Materials as below:

Firstly, Other Alloy Materials earns a whopping EBITDA margin of 31.86% when compared to only 9.03% of CS. Not only that, Other Alloy Material makes 62.88% of total EBITDA of company with share in revenue of only 32.50% and a negligible share in production of 8.79%. This shows the importance of alloy material to the company. The reason why RMTL is consistently profitable and improving its profitability over time. Carbon Steel Category is stressed product category with low realization and low margin. 91% of total production comes from CS Category and contributes only 67.50% to Top line and a mere 37% to the bottom line.

With all the numbers and calculation backing our analysis, it is mostly clear that how the Revenue and Profits of Ratnamani are generated. Let us get through few more points in relation to products of RMTL.

• Other Important Points:

We know that company has only 28,000/- MTPA of running capacity of other alloy materials. With this small capacity of 28,000/-, RMTL is able to make so many types of products like Titanium Welded Tubes, SS Seamless and Welded Pipes & Tubes, Heat Exchanger Tubes, Instrumentation Tubes, etc. This shows that, RMTL can make variety of product types from same production machinery. Hence, company can easily cater to custom order of clients and grab orders which realize highest margins. Also, management has indicated in their Concalls that with small adjustment to the machinery (which takes very less time), they are able to make products of different materials and different sizes as well:

Apart from the above, RMTL has a long standing relationship with clients. RMTL is in approved clients list of major Oil & Gas companies. This makes their reputation for serving quality product even better. With focus on existing relation with old clients, they are able to access the orders of such huge companies at ease. Also, with referenced client, RMTL is really looking to spread its footprint to many existing and new clients all around the world. RMTL has required certification for quality management like BS, API, ISO, etc. which makes them preferred company for product requirements.

Hence, with the above background of majority of company’s products and its categories, we did understood what RMTL does, what it sells, where it sells and what are the margins, etc. This piece of article will be very useful for our company analysis going forward.

I hope you liked the data and analysis presented.

Thank You!!

Source: Find the Link of Excel Sheet containing all the required data.

 

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.