RHI Magnesita India shares soared 13% today. Time correction ahead?
RHI Magnesita shares rose 12.62 per cent to hit a high of Rs 666.25, cutting its one-month fall to 1.65 per cent. For the June quarter, the company reported an improved gross margin led by a better product mix, partially offset by lower volumes.
- Aug 16, 2024,
- Updated Aug 16, 2024 11:03 AM IST
Shares of RHI Magnesita India Ltd climbed 13 per cent in Friday's trade after the manufacturer of refractories and monolithic for steel and iron industries increased its sustainable Ebitda margin guidance to 15 per cent-plus against 14–15 per cent earlier. The company management has guided for capex of Rs 80–100 crore year for the next three years. RHI said it has no plans for greenfield expansion, but remains open to inorganic opportunities if they arise.
On Friday, the stock rose 12.62 per cent to hit a high of Rs 666.25, cutting its one-month fall to 1.65 per cent. For the June quarter, the company reported an improved gross margin led by a better product mix, partially offset by lower volumes. Nuvama Institutional Equities has maintained its ‘Hold’ rating on the stock with an unchanged target price of Rs 637, valuing the scrip at 33 times estimated FY26 earnings per share. For the June quarter, the company reported an improved gross margin led by a better product mix, partially offset by lower volumes.
RHI Magnesita has lost market share in stable businesses such as cement and steel of late, due to competition from Chinese suppliers. Besides, there is a delay in shipments of raw materials from China, which would persist in the September quarter. Analysts said RHI Magnesita has strong order books for blast furnace, iron making, tap clay and pellets, whose revenue should reflect Q1FY26 onwards.
"We observe a delay in ramping up acquired assets given languishing consolidated capacity utilisation at 61 per cent. Besides, import pressure from China persists. We believe there could be a time correction in the stock. Maintain ‘HOLD’ with an unchanged TP of INR637, valuing RHIM at 33x FY26E PE," said Nuvama Institutional Equities.
Nuvama said RHI Magnesita's net debt has been reduced to Rs 177 crore from Rs 310 crore in Q4FY24, on the back of improved cash flow from operations and working capital through efficient management of inventories. RHI Magnesita has a capex plan of Rs 80–100 crore a year for the next three years, with 50 per cent towards maintenance and 50 per cent towards modernisation or replacing outdated equipment, which will be funded internally.
It noted that RHI Magnesita's consolidated revenue dipped 7 per cent sequentially, primarily due to lower volume at 114kt, down 8 per cent QoQ, partially offset by a marginal improvement in realisation (Rs 77,084 per tonne, up 1.3 per cent QoQ) owing to improved product mix.
"RHIM’s exports continue to be affected due to poor demand as well as delays emanating from the Red Sea turbulence. Gross margin improved to 45 per cent (from 43 per cent in Q4FY24) driven by a better product mix and one-time high-margin order. Employee cost, at Rs 95.20 crore, rose 2 per cent QoQ as Q4FY24 included a bonus provision while other expenses fell 9 per cent QoQ," Nuvama said.
All this resulted in an Ebitda of Rs 154 crore, up 4 per cent QoQ, leading to an Ebitda margin of 17.5 per cent against 15.7 per cent in Q4FY24).
Shares of RHI Magnesita India Ltd climbed 13 per cent in Friday's trade after the manufacturer of refractories and monolithic for steel and iron industries increased its sustainable Ebitda margin guidance to 15 per cent-plus against 14–15 per cent earlier. The company management has guided for capex of Rs 80–100 crore year for the next three years. RHI said it has no plans for greenfield expansion, but remains open to inorganic opportunities if they arise.
On Friday, the stock rose 12.62 per cent to hit a high of Rs 666.25, cutting its one-month fall to 1.65 per cent. For the June quarter, the company reported an improved gross margin led by a better product mix, partially offset by lower volumes. Nuvama Institutional Equities has maintained its ‘Hold’ rating on the stock with an unchanged target price of Rs 637, valuing the scrip at 33 times estimated FY26 earnings per share. For the June quarter, the company reported an improved gross margin led by a better product mix, partially offset by lower volumes.
RHI Magnesita has lost market share in stable businesses such as cement and steel of late, due to competition from Chinese suppliers. Besides, there is a delay in shipments of raw materials from China, which would persist in the September quarter. Analysts said RHI Magnesita has strong order books for blast furnace, iron making, tap clay and pellets, whose revenue should reflect Q1FY26 onwards.
"We observe a delay in ramping up acquired assets given languishing consolidated capacity utilisation at 61 per cent. Besides, import pressure from China persists. We believe there could be a time correction in the stock. Maintain ‘HOLD’ with an unchanged TP of INR637, valuing RHIM at 33x FY26E PE," said Nuvama Institutional Equities.
Nuvama said RHI Magnesita's net debt has been reduced to Rs 177 crore from Rs 310 crore in Q4FY24, on the back of improved cash flow from operations and working capital through efficient management of inventories. RHI Magnesita has a capex plan of Rs 80–100 crore a year for the next three years, with 50 per cent towards maintenance and 50 per cent towards modernisation or replacing outdated equipment, which will be funded internally.
It noted that RHI Magnesita's consolidated revenue dipped 7 per cent sequentially, primarily due to lower volume at 114kt, down 8 per cent QoQ, partially offset by a marginal improvement in realisation (Rs 77,084 per tonne, up 1.3 per cent QoQ) owing to improved product mix.
"RHIM’s exports continue to be affected due to poor demand as well as delays emanating from the Red Sea turbulence. Gross margin improved to 45 per cent (from 43 per cent in Q4FY24) driven by a better product mix and one-time high-margin order. Employee cost, at Rs 95.20 crore, rose 2 per cent QoQ as Q4FY24 included a bonus provision while other expenses fell 9 per cent QoQ," Nuvama said.
All this resulted in an Ebitda of Rs 154 crore, up 4 per cent QoQ, leading to an Ebitda margin of 17.5 per cent against 15.7 per cent in Q4FY24).