SmallCap Hunter : Trying to find the dark horses with triggers

Hello everyone. Came across this company called Raghav Productivity Enhancers.

Basic Background:

RPEL is engaged in the manufacturing of quartz based ramming mass, quartz powder, silica ramming mass and tundish board. It sells its products under the brand name of “Raghav” in domestic market as well as in foreign markets (majorly African and Asia Pacific countries).

Few graphs:
image.png

*Here 10 is FY21

Pros:

Commodities boom and metal prices skyrocketing

High promoter holding at around 73%

Last 3 years average ROCE is about 30%

Last 3 years average ROE is about 27%

Almost debt free

Operating margins at around 20 to 25%

5 years CAGR profit growth is 66%

No significant divergence between operating cash flow and profit

Exports opportunity(currently 18% of revenue)

Cons:

High debtor days at > 100 days

Capital intensive sector

Inventory turnover declined from 13x in FY15 to 3.7x in FY20

35x P/E multiple

5.5x P/B multiple

Company is paying zero dividends

Fixed assets turnover declined from 15x in FY14 to 2.4x in FY20

Large working capital requirements

Company has issued preferential equity shares to certain entities (including promoters) at a 20% discount to CMP

Non-cooperation with credit rating agency

Other interesting factors:

Mr Utpal Sheth is holding around 7% stake in the company

Mr Ashok Bhandari(CFO and president of Shree Cement for 25 years) is chief economic advisor to the company and visits the company every quarter

Customers:

R.L. Steel

Mahalakshmi TMT

Varsana SPA

Shreeyam Power and Steel Industries Ltd

United Steels Company

Rajuri Steel Pvt Ltd.

More customers

Sail, Tata, Essar, Jindal Stainless, Jindal Steel & Power, Rathi, Shah Alloys, Lloyds,

Facor, Electro them, Synergy

(from a brochure on their website. No direct link available)

Pros:

  1. Financials

  2. Gross Margin has been fairly consistent since Q2 2019 i.e. 10 quarters

  3. Operating and Net margins have fluctuated a bit but they also got stable since Q1 2020 except Q4 2020 and Q1 2021 (lockdown effect)

  4. YoY sales growth is consistently improving for last 5 years

  5. Consistently spending on R&D. They spent ~1Cr till Dec 2020 in FY 2020-21

  6. A total of over 10Cr has been spent by them, FY 2017 - 2020

  7. its R&D centre is the only one to be recognised by the Department of Scientific and Industrial Research (Government of India)

  8. a technical collaboration with Sweden-based JWK AB. JWK AB is a technology consulting Company with a formidable R&D track record in the field of silica used in refractory applications.

  9. Their ramming mass capacity is the largest in the world. The nearest competitor is not even half their size.

  10. Products selling at a premium of 20% compared to competitors (Annual Report 2020, page 29)

  11. They are organising analyst meets. For a company of their size, it’s surprising.

Cons:

  1. They increased non-current borrowings by ~INR 89 lac. It’s unclear what this money is being used for.

  2. Couldn’t find any investor communication channel. The investor presentation is missing which they supposedly uploaded on BSE on 6th November

  3. Corporate presentation on their website is inaccessible

  4. What is the difference between raghavsteel.com and rammingmass.com?

  5. https://www.raghavsteel.com/

Something seems odd. Everywhere they mentioned they started Raghav Ramming Mass in 2009 and later changed it into Raghav Productivity Enhancers.

  1. But this youtube video uploaded by them mentions Raghav Ramming Mass was established in 1977.
  2. Youtube: Ferro Alloys, Pig Iron and Ramming Mass by Raghav Ramming Mass Private Limited, Jaipur

RPEL has the following charges registered. The most interesting one is INR 19.26cr amount and a couple other hypothecated motor vehicles. (A charge is basically mortgaging an asset)

Can we find out what these motor vehicles are? I wouldn’t be surprised if these are some fancy cars being used for personal use.

26th April 2021

Following are the people who attended the conference call on 7th November 2020.
Param Capital Research Pvt. Ltd.

Lucky Investments Pvt. Ltd.

Emkay Global Financial Services Limited

Mr. Nishid Shah

Ramesh S Damani

Relativity Investment Advisor LLP

These are the various contact details of the company:

Email:

rammingmass@gmail.com

cs@rammingmass.com

raghavsteel1@gmail.com

whistleblower@rammingmass.com

info@rammingmass.com

Phone:

9829011963

9829019963

2235760

2235761

Contact details of people for some third party/channel checks:

Customers:

sales@rajuristeels.com

accounts@rajuristeels.com

admin@rlsteels.com,

sunil@rlsteels.com,

nitin@rlsteels.com,

corporate@rlsteels.com

sales@smwispat.com

ajayarora@sail.in

ravi.dinde@kirloskar.com

Auditors:

bpmundraco@bpmundra.com

bgmca@yahoo.com

Lawyers:

rajranibhalla@gmail.com

Here is the link of their DRHP https://www.bseindia.com/downloads/ipo/2016125144222DP%20RRML.pdf

Interest free unsecured loans from promoter is a clear green flag

Promoters’ personal guarantee for 15 Cr loan is green flag

Interacted with Mr Govind Saboo

Did not get many answers, as he said there are certain limitations to what can be disclosed on a one on one basis

He said that you will have to do my own independent research (especially about competitors)

But few things which he said were:

Exports is direct sales, there is no broker or agent

Around 70% is induction furnace and 30% is foundry

In that, RPEL is catering to induction furnace

Industry is unorganized, so despite only 6% market share, RPEL is a market leader

Mr Bhandari is an advisor to the company; whatever management needs help with, they ask him

Private placement price was based on automated algorithm of past few months average stock price, and management did not decide that price

Raghav Steel is a promoter group company, and raghavsteel.com is the trade website of RPEL

Corporate gifting box on website is a designing mistake and they will change it soon

Around 90%+ customers are steel companies, but made some inroads in cement

Product reduces electricity requirement by a range but broadly 20%+

Fixed deposits to be utilized soon is going to be capex

About 300 players, broadly yes because it is unorganized sector

No patents as of now

JWK of Sweden helps in product development

Exports entry is long term strategic decision

Marketing people cannot comment

Some key questions:

Inviting comments

4 Likes