Midcap Mania: Strong client base makes Rajratan Global Wire an attractive bet

Rajratan Global Wire is the largest manufacturer of tyre bead wire (TBW) in India and the only manufacturer and sole supplier of TBW to various global players in Thailand.

The TBW is a crucial link through which the vehicle load is transferred from rim to the tyre, which prevents vibration during driving.

Going by FY18 numbers, Rajratan holds approximately 35 percent of the market followed by Tata Steel and Ludhiana-based Aarti Steel. Imports constitute approximately 20 percent of the bead wire market in India.

Reason for stock coming on ‘MIDCAP MANIA’ radar is that it had a stellar Q1FY19 and promoters have bought nearly one percent from the open market in the past one year.

The company will be in focus as major tyre manufacturing companies like MRF, Apollo Tyres, CEAT and Major Alliance Tire Group are adding capacities.

To cater to the enhanced capacity in India and Thailand, the company is doubling capacities in the country and in Thailand by 30 percent.

Biggest clients of Rajratan Global Wire include MRF, Apollo Tyres and CEAT, which constituted nearly 60 percent of business in India and Thailand.

Rajratan Global Wire is also the largest supplier to Japan-based Sumitomo Rubber Industries and caters to 40 percent of its bead wire requirement.

India’s tyre industry is approximately Rs 60,000 crore and raw material constitutes nearly 50 percent of this number and the bead industry in the country is just Rs 1, 000 crore odd.

In Q1FY19, the company reported a stellar set of numbers on all parameters with ROCE (Return on capital employed) coming at an annualised 25 percent that compares with the 15 percent ROCE delivered in FY18.

Principal reasons for the performance improvement include increased operating efficiency, superior product quality, stable raw material costs, robust customer relationships and better interest coverage.

Now on valuations, the stock trades at a PE of 22x but approximately 12x FY19 estimated earnings per share (EPS). The debt in book is likely to move to Rs 150 crore odd owing to capacity expansion.

The key risks to company include lag effect in pass through of steel prices and in case of a slowdown in tyre industry.