Rajratan Global Wire: A hidden gem in making.

Rajratan Global Wire Ltd. : A hidden gem in making:

CMP: ₹585.55
Target1: ₹768
Target2: ₹922
Time Horizon: Short-Mid Term.

MONOPOLY : 
➢ Indore  based Rajratan A  hidden  gem in  making. Global  Wires  is  India’s  largest  and  Thailand’s  sole manufacturer  of  bead  wire,  a  bronze  coated  high  carbon  steel  wire,  used  in making  for  automobiles,  earth  moving  equipment  and  aircraft tyres hold  rubber tyre with  metal  rim,  giving  grip  to  the tyre tyre which,  which and  hence  forms  a  critical Component.
➢ Five  years  back,  the  industry  had  8 players,  which  has  now come  down  to  only  3. Other  2  players  are  TISCO  and Aarti Steel.  Both  these  companies  have  been concentrating  more  on  their  core  business  and  have  no  growth  plans  in  the wire  business  in  the  near  term
➢ The  Company  along  with  its  subsidiary Rajratan Thai  Wire  Company  (“ tyre bead Rajratan Thailand”)  has  ~  39%+  share  of  the  Indian  TBW  market.

CLIENTELE:  
➢ They supply to all the tyre makers whether MRF, Ceat, Apollo, Balkrishna, Bridgestone, Continental, etc.
➢ Both the plants are approved with over 15 major tyre manufacturers across the globe.
➢ Diversified clientele.
➢ Sole supplier to companies such as Otani Radial, ND Rubber, Siam Rubber, Hihero,
Union, BKF & Camel.

EXPANSION:
➢ The group has combined installed capacity of 62,400 Metric Tons per Annum (MTPA) as on Sep. 30, 2017.
➢ The company is operating at maximum capacity domestically and is also expanding
its current capacity by another 20000 tons at a CAPEX of Rs.40 crores. Its Thailand
plant is operating at 70% capacity and the company expect to ramp up the capacity by
another 10 to 15 percent by this financial year.

CREDIT RATING:

➢ Current CARE rating: BBB+/A3+ (LT/ST) 

➢ We expect a rating upgrade in the near term. Reserves are higher than ever. 

➢ The above ratings have been reaffirmed twice due to improved financials before which the ratings were suspended. Clearly the financials showcase a turn-around and are poised to improve. 

➢ Rationale: Owing to improvement in the capacity utilization of Thai subsidiary RTWL, sales volume had increased. Also, due to decline in steel prices in the domestic as well as international markets.

➢ RGWL has prepaid entire dues for FY18 (Rs.4.70 crore) in June 2017 which further improved its leverage (as on September 30, 2017) and debt coverage indicators during H1FY17. 

➢ Further, in September 2017, the government has imposed anti-dumping duty Truck and Bus Radial (TBR) Tyre from China. The anti-dumping duty shall ensure fair play and boost the demand for domestic TBR tyres. Considering the strong market position of RGWL as a supplier of TBW to tyre manufacturers, this move by the government shall indirectly benefit RGWL’s sales going forward. Thai government might as well implement anti-dumping duty. 

MANAGEMENT:

Promoted by Choradia family, the management of RGWL possesses vast experience in the bead wire industry. Mr. Sunil Chordia, Managing Director, was Chairman at ‘Steel Wire Manufacturers Association of India (SWMAI)’, which is an apex body for wire and wire rope manufacturers in India. He has also been the Chairman of MP State Council of Confederation of Indian Industry (CII). Son of Mr. Sunil Choradia is a Whole-Time director at Thailand subsidiary, RTWL, looking after the day-to-day operations. He is actively involved in planning the company’s growth strategies in Thailand. The top management of RGWL is supported by experienced and wellqualified second-tier management. 

SHAREHOLDING PATTERN: (Q3)

 ➢ Promoter holding stands high at 63% as
compared to 62.28% in Q1.

➢ Constant growth can be seen in the % held by DIIs.

➢ SBI small and midcap funds holds a large chunk (7.38%).

➢ No. of HNIs also rose from 1 in Q2 to 3 in Q3. (HNI + SBI =~17%)

➢ This SP Tulsian Reco has a negligible Free float (20%) with some 1500 retailers.

➢ Now comes the shocker; 

➢ The promoter, Sunil Chordia (also the MD), bought 9514 (0.2%) shares of his own company in first week of February off the market in 7+ trading sessions. The disclosures can be verified from the BSE site.

➢ The total equity acquired by him in just past few days totals to ~55 lakhs, which is far more than his annual remuneration. This implies that the promoter is very very optimistic about the growth of his company. 

➢ When, one of our associates met Mr. Sunil Chordia, he made several optimistic statements and expected a breakout in the Q4 as well as annual result. 

FINANCIALS, TECHNICALS & OUR VIEW: 

➢ It has a mcap of 260 cr. 

➢ Stock is trading at 585, i.e. 2.53 times it book value. (better than most auto ancillary companies.) 

➢ It is trading at a P/E of 16.53 (TTM). Whereas the industrial avg. (auto ancillary stands at 28+. (Super positive) 

➢ The dividend and promoter holding has been rising since the past few years. 

➢ Continous & unhindered growth in sales, expenses and OPM since past 3 years. 

➢ Total assets spiking up with a sharp decline in borrowings owing to appreciable rise in Fixed Assets and Reserves ( lifetime high at 83.30 cr.). The company is virtually debt free. Cash flow likely to turn positive by Q4.

➢ This high a Reserve (83.30 cr) either translates into higher dividend or a bonus in near view. 

➢ The script has a RSI and MFI of 42.59 and 62.45. Both neutral. 

➢ If there’s a breakout owing to it’s core fundamentals (as expected by us and the promoter himself) and if the stock sustains above it’s 200 SMA of Rs. 617, we can see higher levels. 

➢ Acc. the estimates given by the management, we see the script having an EPS of 42- 48 (annual), which gives us a P/E of 12.18-13.9 at CMP. 

➢ We can conveniently see the script trade at a P/E of 16-19 (very modest numbers given that it’s current P/E stands at 16.51, (Money control has old Q2 data)). Thus, fundamentally, the projected price can be seen at 42*16= 672 to 48*19=912. 

➢ Thus we have a BUY RECO on Rajratna Global Wires Ltd. at CMP of Rs. 585 with a modest target price of 762 (potential upside of 30%) at FY18E P/E of 18 and EPS of 42.4. 

➢ The time horizon being short-mid term and total allocation at 2.5-5% of total portfolio. The risk apetite being low-medium and stop loss at Rs. 542 (~7%).

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ALL the above research work is for educational purpose only. Please consult your advisor before indulging in any of the above scripts. The author of this doc. is merely a stock market spectator and he may/ may not have significant holdings in the above mentioned scripts. We strictly adhere SEBI norms.

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Thank You. Fin.