Ratnaveer Precision Engineering

Makes stainless steel products

Net proceeds to be used to fundworking capital requirement and general corporate purposes

Incorporated in 2002, Ratnaveer Precision Engineering Limited is a stainless steel (SS) product manufacturer focused on producing finished sheets, washers, solar roofing hooks, pipes, and tubes.

The company is promoted and managed by its Managing Director and Promoter, Vijay Ramanlal Sanghavi.

The company operates four manufacturing units, of which two (Unit-I and Unit-II) are located at GIDC, Savli, Vadodara, Gujarat, one (Unit-III) is located at Waghodia, Vadodara, Gujarat, and the other (Unit-IV) is located at GIDC, Vatva, Ahmedabad, Gujarat. The manufacturing facilities located at Vadodara and Ahmedabad, Gujarat, with an installed capacity of 26000 metric tonne per annum, was utilized around 84% during the last three years ended March 31, 2023

The company manufactures SS finishing sheets, SS washers and SS solar mounting hooks at Unit I and SS pipes and tubes at Unit II. Unit III and Unit IV are dedicated for the backward integration process. Unit III is the melting unit where it melts steel scrap and turns it into steel ingots. Unit IV is the rolling unit where flat ingots are further processed to turn them into SS sheets, which are the raw material for SS washers. Its units are supported by infrastructure for storage of raw materials, manufacturing of its products, storage of finished goods, together with a quality control and R&D laboratory.

Domestic revenues stood at Rs 387.539 crore in FY2023, which formed 80.79% of total revenue (80.39% in FY2022), while export revenue was Rs 92.191 crore, which formed 19.21% of total revenue (19.61% in FY2022).

The companys products find application across various industries including automotive, solar power, wind energy, power plants, oil & gas, pharmaceuticals, sanitary & plumbing, instrumentation, electro mechanics, architecture, building & construction, electrical appliances, transportation, kitchen appliances, and chimney liners.

The company primarily needs stainless steel coils, sheets, and wire to manufacture its products. In addition to SS coils, sheets, and wire, it also acquires SS scrap to process it into SS ingots under the backward integration process. The company sources raw materials from its suppliers based on quality specifications and cost effectiveness. SS coil, sheet and scrap are acquired locally as well as from foreign suppliers from Indonesia, Switzerland, Hong Kong and Singapore. The power requirements are met through the local power grids maintained by the state power grid. It maintains power back-ups through DG sets to ensure unhindered production in case of power cuts by local electricity providers.

The company intends to expand its portfolio of SS washers by adding circlips into the product line. It currently offers over 2500 SKUs (stock keeping units) of SS washers to its customers including inner ring washers, spring washers, nord lock washers, retaining rings, internal tooth washers, and external tooth washers of different sizes and specifications. It has taken the land located at E-78, GIDC Industrial Estate, Savli, District Vadodara, Gujarat, which is adjoining to its Unit I, on a 99-year lease from GIDC, for this expansion. It has undertaken R&D activity for developing circlips and has developed the required tools and identified prospective customers.

The Offer and the Objects

The offer comprises fresh issue of 13800000 equity shares aggregating up to Rs 135 crore at the upper price band of Rs 98 and Rs 128 crore at the lower price band of Rs 93 by the company and an offer for sale of up to 3040000 equity shares aggregating Rs 30 crore at the upper price band of Rs 98 and Rs 28 crore at the lower price band of Rs 93.

Promoter Vijay Ramanlal Sanghavi has offered sale of up to 3040000 equity shares, which shall lead to his post-issue shareholding decrease to 53.5% from 83.6% pre-issue shareholding.

The company proposes to utilize the net proceeds of the fresh issue towards funding working capital requirements amounting to Rs 85 crore and balance towards general corporate purposes prepayment.

Strengths

SS is a value-added product with high corrosion resistant properties. Higher levels of chromium and additions of other alloy elements (Nickel and Molybdenum) enhance the corrosion resistance. Compared to traditional steel, SS has higher resistance to corrosion, superior aesthetic finish and higher life span. These features have helped in increasing the popularity of stainless-steel across the world.

High recyclability, resistance to corrosion and low maintenance properties have made SS a preferred metal for application in diverse sectors railway, metro project, process industries, bridges, nuclear, airport, transportation, and kitchenware.

The per capita SS consumption in India remains low. India’s per capita SS consumption increased from 1.2 Kg in 2010 to 2.5 Kg in 2019. However, its consumption is comparatively lower compared to the world average of 6 Kg. This low consumption pattern is an indication of the inherent opportunities existing in the sector.

The company is one of the few tohave a backward integration model. While its two units (Unit I and II) are dedicated for manufacturing the products, which are offered to customers. The other two units (Unit III and IV) are dedicated towards processing the byproducts generated in manufacturing products and converting it back into the raw material for its products. Raw material generated through backward integration was 11.03% of total raw material requirement, while 88.97% was from external resources in FY2023.

The company’s manufacturing units are strategically located with availability of transportation, which facilitates convenient transportation of products.

The company started business activities by manufacturing SS washers and have since branched out to manufacturing SS finishing sheets, SS solar roofing hooks, SS tubes and pipes, which has enabled it to diversify its product portfolio manifold. Having a wide range of products not only enables it to meet the trends and the ever-changing demands of its customers but also gives the company an edge to efficiently compete with competitors.

The company has an in-house R&D facility at Unit I, where it develops tools and moulds for its products.

Revenue contribution from top 10 customers is Rs 147.199 crore, Rs 190.695 crore and Rs 238.062 crore, contributing 35.60%, 35.35%, 38.84%, and 49.62%, for fiscals 2021, 2022 and 2023, respectively. The company’s diversified customer base signifies its non-dependence on any single customer and thereby hedges its business operations from potential customer specific risk and sector specific risks.

Weaknesses

The company operates in an industry which is highly competitive and fragmented with low barriers to entry and it competes with a range of organized and unorganized players, both at the national and regional level.

The pricing in the steel industry is subject to market demand, volatility, and economic conditions. Fluctuations in steel prices may have a material adverse impact on its business, results of operations, prospects, and financial conditions.

The business requires a significant amount of working capital primarily as a considerable amount of time passes between purchase of raw materials and collection of receivables post sales to customers.

The business is a high volume-low margin business. Due to this nature of business, sudden changes with respect to price movements in goods being traded or sudden ad hoc anomalies in business or operations could substantially affect its net bottom lines and hence, adversely affect results of operations and financial conditions.

The company has experienced negative cash flows in relation to its operating, investing, and financing activities in the last three financial years.

The company has not received the necessary approval from the competent authority for construction of a portion of its factory premises at Unit-I, admeasuring about 1,300 square meters.

The company is required to obtain consent under certain environmental laws, which are critical for operating its units. Any failure to comply with environmental laws and the terms andconditions of approvals issued under such environmental laws and regulations could also impact its ability to obtain or renew the approvals with respect to its units in a timely manner or at all and may also adversely affect its ability to operate its units and consequently affect results of operations.

The company is required to obtain, renew, or maintain certain statutory and regulatory permits and approvals required to operate its business and if it fails to do so in a timely manner or at all and its business, financial conditions, results of operations, and cash flows may be adversely affected.

Activities involving its manufacturing process can be dangerous and can cause injury to people or property in certain circumstances. A significant disruption at any of its manufacturing facilities may adversely affect its production schedules, costs, sales, and ability to meet customer demand.

Valuation

For FY2023, consolidated sales were up by 12% to Rs 479.75 crore. OPM rose 310 bps to 9.5%, which led to 66% increase in operating profit to Rs 45.63 crore. Other income decreased 9% to Rs 1.4 crore, while interest cost rose 5% to Rs 12.29 crore and depreciation increased 2% to Rs 4.02 crore. PBT increased 128% to Rs 30.71 crore. Tax expenses were 43% higher at Rs 5.67 crore. Net profit increased 164% to Rs 25.04 crore.

FY2023 EPS on post-issue equity works out to Rs 5.2. At the upper price band of Rs 98, P/E works out to 19.

There are no listed companies that are exclusive Stainless-Steel manufacturer of finished sheets, washers, solar roofing hooks, pipes and tubes. However, listed peers who are in similar line of business and manufacturer of SS products in India, a set of listed peers are Jindal Stainless, M.M. Forgings Limited, Menon Bearings Limited, and Venus Pipes & Tubes Limited

As of 29August 2023, its listed peers such as MM Forgings trades at TTM P/E of 17.6, Menon Bearings at TTM P/E of 26.2,Venus Pipes &Tubes at TTM P/E of 58.7,andJindal Stainless trades at TTM P/E of 17.3.

For FY2023, RatnaveerPrecision EngineeringOPM and ROE stood at 9.5% and 29.1%, respectively, as compared to 19.7% and 18.2% for MM Forgings, 24.6% and 24.5% for Menon Bearings, 12.9% and 9.8% for Venus Pipes & Tubes and 10.5% and 24.4% for Jindal Stainless, respectively.