Rajratan Global - Focused Tyre Beadwire Company

Stock Opportunities
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First of all, please calm down and chill. I can understand your frustration that your stock keeps on falling :grinning: and basically you want to tell yourself indirectly that this is a good company and this fall is temporary blah blah(where I didn’t even mention that this is a bad company). This shows immature argument where you voluntarily saying the company can’t be bad and all “Analyst” are bullish :sweat_smile: which again shows all robin hoods are following the same “Analyst” which you mentioned. :joy:
So thats why I also mentioned the same.

Also you didn’t understand what I am trying to convey. I didn’t mention that its a bad stock. I mentioned I am going to buy at those level since I missed this stock at the earlier stage.

I expected someone will ask this kind of funny question that why I have not entered when it was at 1650.
So there are thousands of companies listed in market. So I can’t track or invest in all sectors or companies.
Whatever you know, I may not know and vice versa. I bought only chemical and pharma sector companies last year, so obviously I missed this.

So basically what I tried to convey is FOMO. People will find the good stocks but sometimes at a later level.
Last year in GMM Pfaudler, though its a good company people started buying heavily from 4000 where it reached till 6900 and suddenly the company announced OFS around 3500 and it keeps on hitting LC.

So honestly I didn’t know about this company(Rajratan) at 300 level or later levels and when I got to know about this company I can’t just simply buy for high price. That’s why I tried to convey even if I miss a good company I will wait till it reaches my buying power and if it doesn’t reach I will give a miss and I don’t chase the stock.

So I don’t want to extend this one on one conversion further. I am ending it here. Period.

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Over all macro environment for steel looks good will it really translate to bead wire as well. If cost of bead wire is just 3 percent of the tyre cost, would tyre manufactures switch the current vendor for a cost saving of around 0.75 percent (reflecting steel price increase in China)?

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Your point is valid but remember American Airlines removed one olive from their salads served in first class to save 40k dollars
What’s the value of one olive for a flight ?

Not to mention American Airlines don’t paint their planes as much as others to make them lighter and save on fuel

Corporations run on excel sheets by MBAs will and have done unimaginable cost cuttings

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On a high level it sounds reasonable to think it might help cost , if a inexpensive supplier is chosen.
In Tire development world, its lot more complex, tire is the most complex part of vehicle, from wet/dry handling comfort/NVH to durability, and safety(good to read infamous ford explorer controversy in 90s). Tire development is a long process considering its multi material /non linear nature. So in general marginal cost might not overweigh redevelopment, reconfirming. Just my 2 cents, being involved in tire dynamics

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Saving 0.75% in total cost for a 10% margin product accounts for an increase in 7.5% profit!!!..

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Good conversation

Interesting point on cost saving post Chennai plant commissioning.

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Very good discussion and tells a lot about the way company is improving and is not just simply adding capacity

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Good Points covered here for overall discussion


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Short notes from a recent interview

  1. Will do 55k-60k Tonnes in India, as against 42k Tonnes last year. Will do 35k Tonnes in Thailand against 29k Tonnes. Volume growth 25-30%. Prices currently are 18,000 per Tonne and see no immediate reason for it go down. So total volume growth for year will be around 30%. Rest of the qtrs should be better than Q1.

  2. 70% of tire volumes goes for replacement market.

  3. Thailand market share has gone from 20% to 30%

  4. Enhanced margins comes from higher capacity. Easily able to pass on steel price to customers. Indian steel is cheaper than China’s. It’s operating leverage playing out.

  5. Will take another 2 years to become a supplier to Michellin. The product approval takes years.

  6. Getting good enquiries from US & Europe as China+1. But doesn’t have capacity.

  7. Capex : Increasing capacity in Thailand from 40k to 60k Tonnes. Could being production by beginning of next FY. Could cater to US & Europe market from there. Establishing greenfield capex in Chennai for another 60k Tonnes. Have identified land, should take possession Oct and ground breaking in Nov. Should take 1 yr to roll out first product and another year to fully utilize capacity. So max 2 years from OCt. Total investment is close to 300 cr. to be required in next 3-5 years.

  8. Trends playing out : Radialization of tyres. Still not complete, specially in truck & bus (MHV/LHV) segment. US & Europe have 90-95% of them using radial tyres. They need higher quality thicker wires, with high tensile. Rajratan have been making since last 20 yrs, volumes have grown in recent past. currently 30% of total sales which has to go to 50%. no timelines. 20% blended margins currently and upside possible (no committment).

  9. No dilution plans and there is no need. Cashflows are healty to support expansion, might raise some debt but conservative. Debt cost in India below 7% and in Thailand below 5%

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that’s their EBITDA/T. Current realisation would be around 90k.

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Thanks for the correction.

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Rajratan has reported another quarter of fantastic earnings(https://www.bseindia.com/xml-data/corpfiling/AttachLive/f66e940d-c60e-4a01-8165-8caf84e06701.pdf)

Margins have expanded even further:

Revenue: 240 cr
EBITDA: 51cr.,margins 21%
PAT: 33cr.

Going by their press release it seems that realisations are up 10% qoq.Volumes are up 20% qoq to 24k.Company had guided for 90-95k T volumes in FY22 and at this rate they will achieve it.However,given that realisations continue to rise the revenue growth will be even better.So it seems company is on course to do ~900 cr topline this FY with much better margins.Other expenses have pinched this qtr but operating leverage and better pricing seems to have nullified that.Auto market continues to be tepid,hit by semiconductor shortage globally.In this backdrop it will be tougher to grow at such rates without the mother market clocking better growth.It’s been a dream run for the company with each quarter better than the last one on profitability which is why even after the good stock price run,it still looks reasonably valued given it’s competitive position.

Disc.: Invested.Views are biased.

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have they paid 21 cr for land in TN MENTIONEd in cash flow under investment ?

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Rajratan concall concluded just now.Some highlights:

→ Sold 9700 T in Thailand & 14300 T in India in Q2.Company continues to witness very strong demand from clients.Facing severe capacity constraints at the India plant.Thailand capacity increase will happen by end-FY22,expect full utilisation within few months.All capacity addn. is customer led.Will finish FY22 with 90k+ volumes and will have a total capacity of 120,000 T bead wire.

→ Chennai land possession getting delayed due to bureaucratic reasons(maybe?) Plan to roll out first coil within 1 year of possession.Cost will be 300cr.Ramp-up to 60,000 T capacity will take 2-3 years.Have additional land at Chennai in case more capacity is needed.

→ Feel these are the margins companies like Rajratan should be making. Co. has told all clients that they won’t expand if current pricing is not maintained.Thus,margins are sustainable at current levels.

→ Inspite of strong ocf,company will take 100 cr. Term loans @6.5% interest for Chennai plant,will be availed as a measure of prudence.Spend of 28 cr. was towards capacity addn. in both India & Thailand(mgt didn’t give a very specific answer)

→ Already supplying to some US clients and current volumes are just tip of the iceberg.This is all spontaneous gain,RR hasn’t done any marketing at all.Can expect good ramp-up post Chennai plant commissioning.One European customer sent an aircraft to pick supplies from Thailand.Such is the demand!

→ Indian steel continues to be cheaper than most other markets.In Thailand,Chinese imports are now costlier than RR.This has never happened before and thus there is more market share gain. Co. was able to crack some Chinese customers in Thailand.It took only 3-4 months for approval.Mgt feels China vacating global markets is a structural trend.

→ Company is completely sold out and volume growth from here(October levels) will be tough.Will do small debottlenecking but no significant addition in India.Mgt is not aware of any new capacity coming up in India.

→ From the Thailand unit,clients have agreed to share logistic costs so ocean freight cost added to contract cost.Or clients take care of ocean freight while RR supplies.Only need to supply and dispatch on time.

→ Currently,bead wire cost is Rs. 100,000/T and customer is paying Rs. 70-80k/T more just on freight.Company used to supply some volume from Thailand to India but it’s uneconomical in current scenario.

→ Price negotiations happen every quarter but seeing faster pass throughs these days.RM inflation won’t be an issue(just like previous quarters) Expect Steel prices in India to remain elevated for atleast a few years,but in case there is a price drop RR will have to pass it on.Company still expects to maintain 20% kind of EBITDA,though it’s hard to commit.

Management continues to be upbeat on growth and company looks set to deliver 20%+ volume growth even in the next fiscal.

Disc.: Invested.Views are biased.

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Can some one help with tax expiry/Holiday date for Thailand Plant.
What would be tax rate rate post expiry.

I sent an email to management but after 3-4 yes no they did not reply

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Don’t know if it is good news or bad news.
Getting approval take lot of time and this was one of the entry barrier for new player.

since they already have approval from all major Tire producers(minus Michelin), approval are coming faster. But if it is otherwise then there is room for new entrant.

This is broadly inline with Chinee Bead wire becoming costlier , New Demand can come from anywhere and Management is already thinking in that direction.

70% of Bead Wire is going for replacement Tires o Chip shortage impact is not hampering much of the demand.

seeing a consistent Cash Generator till new Capacity comes up.

Invested and Biased.

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I think you are missing the point here.RR already has a good rep in the markets and with all the advantages they offer,approvals will always be faster for them even with new clients.Similarly,if Tata Steel wants to scale up bead wire some day I don’t think they’ll have such long approval cycles either.The long approval cycle is for new entrants and cos. which are yet to create some goodwill for themselves.Here,the fact that RR is more competitive on pricing vs. China so much so that Chinese clients have themselves started giving them orders is a very significant point.The possibility remains that RR can gain some decent mkt share at a global level once the Chennai plant is commissioned.

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Correct me if I am wrong but the comparison of Auditing fees with PAT comes out to be 0.1% Should this be a matter of concern. Besides there’s always the independent auditors report to cross verify whether the internal auditors have hidden some crucial matters of concern

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Here’s a thread I compiled covering all the structural changes in detail

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