Dear Reader,
We are pleased to inform you that our Hidden Gem stock of Oct'17 - Rajratan Global Wire Ltd (BSE Code: 517522) is a 24-Bagger stock for our Hidden Gems members within period of 5 years.
Our team suggested Buy on Rajratan Global Wire Ltd at price of Rs. 54.77 on 30 Nov 2017 (stock split and bonus issue adjusted price, actual recommended price was Rs. 639 with target of Rs. 1250). The company rewarded shareholders by issuing bonus share in the ratio of 4:3 in 2019 and later did a stock split of 1 shares into 5 shares (face value of Rs. 10 to Rs 2 per share) in March 2022. Hence, every 3 shares held by our members have increased to 35 shares. Rajratan Global stock price made all time high of Rs. 1410 and closed at Rs. 997 on Friday giving absolute returns of 1720% i.e. more than 18 times within 5 years against double digit returns of Sensex & Nifty in the same period.
We advised partial profit booking in Rajratan Global Wires to our Hidden Gems members recently at Rs. 1300, booking returns of 2270% (almost 24X) within period of 5 years. Rajratan Global Wires has delivered CAGR of more than 90% to our Hidden Gems members.
Below is the summary of Rajratan Global Wires Ltd shared by our team under Hidden Gem stock - Oct'17 report released on 30 Nov 2017.
1. Company Background
Established in 1988 by Mr Sunil Chordia,
Rajratan Global Wire Ltd (Rajratan
Global) is a market leader in supply of
tyre bead wire in India. The company
along with its subsidiary Rajratan Thai
Wire Company (Rajratan Thailand) has
around 40% share of the Indian tyre bead wire market. The company earlier entered into
the Joint Venture with Gustav Wolf (Germany) for gaining technical know-how, later in
2003 shareholding held by Gustov Wolf was bought back by the promoters.
The company commenced international operations in 2008 by setting up a plant in
Thailand through a wholly owned subsidiary Rajratan Thai Wire Company.
The company is second largest manufacturer (by capacity) of automotive tyre bead wire
in India and only player manufacturing tyre bead wire in Thailand. Along with tyre bead
wire, the company also manufactures other specialized steel wires (black wires) like rope
wires, spring wires, auto cable outer etc. Steel wire rods is the primary raw material used
for manufacturing by the company.
Rajratan Global has 2 manufacturing facilities, one in India and another in Thailand.
Rajratan Global is a long term supplier for almost all major tyre manufacturers in India
and is the market leader in the automotive tyre segment since 2012. The company has
long term standing relationship with marquee clients.
Rajratan Global Clients:
Products Description:
i) Tyre Bead Wire
Tyre bead wire is high carbon bronze coated steel wire used in all kinds of automobile
tyres, tyres of earth moving equipments and aircrafts. The main function of bead wire is
to hold the tyre on the rim and to resist the action of the inflated pressure which
constantly tries to force it off. The bead is the crucial link through which the vehicle load
is transferred from rim to the tyre. It significantly affects the safety, strength and the
durability of tyres.
Bead wire is a drawn steel wire, which is manufactured from quality wire rods with high
carbon content. Bead wire’s surface is coated with copper or bronze which ensures
proper adhesion with the used rubber compound.
Bead wire being a crucial component in any kind of tyre manufacturing, the company
always ensure that not only the best of raw-material goes into its manufacturing, but that
it also goes through toughest of quality tests.
The company specializes in bead wire of customized tensile grades as per the
requirements of its clients. Besides bead wire, it also produces high carbon steel wire and
uncoated wires of varying specifications for different applications.
2) High Carbon Steel Wire
High carbon steel wire is popularly known as black wire. It is a drawn steel wire which is
manufactured from quality wire rods with high carbon content. With a wide range of
usage, black wire plays a vital role in many industries from automobile and construction
to engineering industries. The company manufactures high carbon steel wire in its stateof-the-art plants and employ world-class patented heat treatment processes.
The high
carbon steel wire manufactured by the company are of two Grades:
1. Spring / Rope grade confirming to Grade I, II & III.
2. Rolling quality / flattening quality grade.
2. Recent Development (30 Nov'17)
i) India’s Tyre Market to witness a CAGR of over 9% during 2016-2021
India’s tyre market is forecast to witness a CAGR of over 9% during 2016-2021, according
to the report of Research and Markets, a leading international market research agency.
As per the report, titled “India Tyre Market Forecast & Opportunities, 2021, India ranks
among one of the largest tyre markets in the world. Growing automobile sales coupled
with expanding automobile fleet are the major factors boosting demand for tyres in the
country.
Though the replacement tyre demand had majority share in 2015, the OEM tyre demand
is expected to outpace replacement tyre demand during 2016-2021 with more than 60
tyre manufacturing plants spread across the country.
Moreover, with favorable inflationary scenario, expanding middle class population and
increasing national disposable income, tyre sales across all the automobile segments are
expected to grow in the coming years. As per report, presence of major automotive OEMs
such as Ford, Hyundai, Honda, Mahindra, Maruti Suzuki, TATA, BMW, etc. has been hugely
contributing to the sales of tyres in India.
Two-wheeler tire segment, which accounts for a volume share of over 50% in the
country’s tyre market is also expected to maintain its position as the largest tyre segment
over the next five years, adds the report.
ii) India imposes Anti-Dumping Duty on select Tyres from China
In Sept 2017, India has imposed an anti-dumping duty on a certain types of unused radial
tyre for trucks and buses for the next five years in an attempt to protect the domestic tyre
industry from low-cost Chinese imports.
The duty slapped on “new/unused pneumatic radial tyres with or without tubes and/or
flap of rubber (including tubeless tyres) having nominal rim dia code above 16 (inch),”
ranges between $245.35 to $452.33 per tonne, according to a notification by the Central
Board of Excise and Customs.
Earlier, the Directorate General of Anti-dumping and Allied Duties had suggested such as
levy on Chinese imports which are dumped in India for a cost below normal value. While
the duty does not ban the import of these goods, it is meant as a tool that levels the field
between the foreign and domestic industry.
This is a positive development as tyre industry gets nearly 55 percent of its revenue from
trucks and buses radial tyre.
3. Financial Performance (30 Nov'17)
Rajratan Global Wire consolidated net profit rises 30.61% in the Sept 2017 quarter
Net profit of Rajratan Global Wire rose 30.61% to Rs 5.76 crore in the quarter ended
September 2017 as against Rs 4.41 crore during the previous quarter ended September
2016. Sales rose 24.54% to Rs 90.44 crore in the quarter ended September 2017 as against
Rs 72.62 crore during the previous quarter ended September 2016.
Rajratan Global Wire consolidated net profit declines 43.26% in the June 2017 quarter
Net profit of Rajratan Global Wire declined 43.26% to Rs 3.58 crore in the quarter ended
June 2017 as against Rs 6.31 crore during the previous quarter ended June 2016. Sales
rose 5.92% to Rs 71.08 crore in the quarter ended June 2017 as against Rs 67.11 crore
during the previous quarter ended June 2016.
The company performance in Jun’17 quarter was subdued mainly on account of increase
in input cost and lower offtake due to GST. However, it managed to post better Sept’17
quarter results by increasing its product prices due to rise in of raw material cost.
4. Peer Group Comparison (30 Nov'17)
5. Key Concerns / Risks (30 Nov'17)
i) Steel wire rods is the primary raw material used for manufacturing by the company.
Increase in steel prices can adversely impact the operating margins of the company.
As per management, the company passes on 60-100 percent of the higher raw
material prices to its customers.
ii) Sluggishness in automobile demand globally can impact tyre industry, this can have a
direct impact on revenue growth of the company.
iii) Steel wire Industry is highly fragmented and competitive. Any adverse development
in market conditions, trade or government policies, foreign exchange fluctuations
may impact company’s performance.
6. Saral Gyan Recommendation (30 Nov'17)
i) The growth outlook for Indian tyre industry looks promising with imposing of antidumping duty on a certain types of unused radial tyre for trucks and buses for the
next five years and expected rise in domestic automobile sales going forward. This will
augur well for the company being a market leader in India with 40% market share in
automotive tyre bead wire segment and preferred supplier of more than 15 major
tyre manufacturers in India and abroad. Moreover, growth momentum is expected to
sustain in Thailand with addition of new clients like Bridgestone.
ii) With rise in demand, Rajratan Global expanded its Thailand plant capacity from
24,000 MT to 26,400 MT last year. The company has planned further expansion of
9,600 MT over next 2 to 3 years to meet the growing demand for the company’s
product. Moreover, the company has also invested in a new warehousing facility
which is expected to help Rajratan Thailand to maintain sufficient inventory levels.
Increase in minimum stock volume is being prioritized which will ensure efficient
delivery performance.
iii) The company’s Thailand operations are in sweet spot. The company is sole
manufacturer of tyre bead wire in Thailand and enjoys significant logistic benefits as
major tyre manufacturers are located in close proximity. Thailand is one of the largest
producers of natural rubber making it a market of choice for global tyre
manufacturers. Presently there are around 20 tyre manufacturers in Thailand out of
which 5 are Japanese and Taiwanese, providing good opportunity for Rajratan. The
company is preferred supplier of Global OEM’s, major Japanese clients includes
Sumitomo, Bridgestone and Yokohama. Recently, the company gets into agreement
with Bridgestone and expect good revenue growth with rise in orders in coming
quarters.
iv) The company continue to target 100% share of business in Thailand, it’s a sole supplier
to companies such as Otani Radial, ND Rubber, Siam Rubber, Hihero, Union, BKF &
Camel. Moreover, the company is continuously growing its exports market, it’s a
largest supplier to the Sri Lanka tyre market with strong foot hold in other South East
Asian countries like Vietnam and Malaysia.
v) Rajratan Global has registered sales CAGR of 2.8% and profit CAGR of 45.2% with ROE
of 12.9% over last 5 years. The company has reduced its debt significantly over last
couple of years with increase in operating margins.
vi) Rajratan Global has experienced core management team with strong Industry
connect. Mr. Sunil Chordia is the Founder and MD of the company. He steered
Rajratan Global towards significant growth in the tyre bead wire business and helped
the company receive international approvals in short span of time. He possess over
27 years of experience and holds BSc, DCMA and MBA (finance) degrees. Mr.
Yashovardhan Chordia looks after Thailand operations. He has worked as consultant
for 3 years at Levers for change, he has experience in working on turn around projects
for various sectors like Steel, Refinery, Refractory and Plastic.
vii) As of Sept’17, promoter’s shareholding in the company is at 63% out of which 16.41%
shares is pledged. Promoters increased their shareholding by 0.72% in Sept’17
quarter, promoter’s shareholding in Jun’17 quarter was at 62.28%. Institution
shareholding in the company is at 7.86%.
viii) The company is paying regular dividend since 2007. The company has paid dividend
even during the years when it was in losses. The dividend yield is at 0.23%.
ix) As per our estimates, Rajratan Global can deliver PAT of 21.71 crores in FY17-18 and
Rs. 27.98 crores in FY18-19 with annualized EPS of Rs 49.89 and Rs. 64.32 respectively.
At current price of 639, stock is available at forward P/E multiple of 9.9X based on
FY18-19 earnings. Company’s valuation looks attractive considering strong earning
visibility on account of planned expansion & robust growth outlook for tyre industry.
x) On equity of Rs. 4.35 crore, the estimated annualized EPS for FY18-19 works out to Rs.
64.32 and the Book Value per share is Rs. 244. At current market price of Rs. 639,
stock price to book value is 2.62.
Imposition of anti-dumping duty for 5 years and robust growth outlook of automobiles is
expected to augur well for Indian tyre manufacturers in medium to long term. Considering
company’s leadership position in domestic tyre bead wire market, continuity in growth
momentum in its Thailand business with addition of new clients, planned expansion over
3 years to meet growing demand and attractive valuations of the company with
comfortable debt level, Saral Gyan team recommends “Buy” on Rajratan Global Wire Ltd
at current market price of Rs. 639 for target of Rs. 1250 over a period of 12 to 24 months.
Buying Strategy:
- 70% at current market price of 639
- 30% at price range of 520 - 550 (in case of correction in stock price in near term)
Portfolio Allocation: 3% of your equity portfolio.
To Read / Download Saral Gyan Hidden Gem - Oct'17 Research Report - Click Here
Rajratan Global Wire Ltd is 1 out of those 65 multibagger stocks which have given returns in the range of more 200% to 9900% returns to our subscribers in period of 3 to 10 years. Team of equity analysts at Saral Gyan put lot of efforts & smart work to identify Hidden Gems (Unexplored Multibagger Small Cap Stocks) and Value Picks (Mid Caps with Plenty of Upside Potential) which not only grow your capital at a healthy rate but also ensures protection of your capital during market downturn.
Also Read : Hidden Gems SIP Returns of 395% Vs Small Cap Index returns of 181%
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