12 reasons to invest in Raj rat an Global

There are four reasons why one should not be investing in Rajratan Global Wires.

The company is relatively unknown, growth was flat in 2017-18, the principal raw material (steel) is passing through a sectoral rebound, and the stock is quoted 15 times 2017-18 earnings.

But, there are a number of reasons why one would invest on the other hand.

Bead wire is a technologically-intensive proxy of the tyre sector, accounting for 4 per cent of the cost of a tyre, but critical to holding the tyre on the rim and resisting the action of the inflated pressure, which constantly tries to force it off.

The company is India’s largest bead wire producer and the only one of its kind in Thailand. In India, the number of organised manufacturers is probably less than the fingers on one hand.

The company is arguably a globally competitive manufacturer, growing faster than the industry average; exports were about 20 per cent of total revenues from India and around 40 per cent of revenues from Thailand.

The company maintained its FY18 bottom line despite an unprecedented increase in raw material costs (28 per cent).

The company enjoys revenue visibility on account of multi-year relationships with virtually every prominent Indian tyre brand; 85 per cent of revenues were derived from customers working with Rajratan for five years or more. Even as 2017-18 was a challenging year from one perspective, the company’s working capital cycle declined, cost of funds moderated and capacity utilisation increased.

The Thai subsidiary enjoys a tax benefit on the profits reported on all the production in excess of 22,000 TPA (tonnes per annum) for eight years, subject to a ceiling of the amount invested by the company above 22,000 TPA.

The company had a mere ~99.5 million of long-term debt on its books as of March 31, 2018. The company’s gearing strengthened from 1.30 in 2016-17 to 0.87 in 2017-18 (a challenging year for the company, remember).

India announced an anti-dumping duty on tyre imports from China in 2017, providing Rajratan’s downstream

MUDAR PATHERYA

sector with the incentive to grow its scale faster from this point onwards.

Bridgestone India is committed to investing around ~19 billion over five years. Michelin is doubling production capacity at its Indian facility in 2018. Goodyear restarted its Ballabgarh plant in November 2017. MRF plans to invest around ~8 to 10 billion a year and ~45 billion in Gujarat over the next decade with one more unit planned in Chennai by 2020. Apollo Tyres has planned a capital expenditure of ~45 billion. Ceat Tyres plans to invest ~40 billion in its Chennai plant. Yokohama India intends to invest ~3.8 billion. JK Tyre has planned to double TBR tyre capacity at Laksar by 2019. MAXIS plans three more Indian plants in eight years.

Taking a cue, Rajratan is doubling its Indian capacity to 72,000 TPA at 40 per cent of the prevailing greenfield cost — for only ~600 million.

And for all this, Rajratan quotes at a market capitalisation of ~2.5 billion, making it an excellent hedge in a volatile market. Send me a nazraana if you make money on this.

The author is a stock market writer, tracking corporate earnings and investor psychology to gauge where markets are not headed