Best Steel Stock: APL Apollo Tubes vs Ratnamani Metals

India is the world's second-largest producer of crude steel, with a production of 125.32 metric tonnes as of financial year 2023.

Out of the total steel India produces, around 10% is consumed by the steel pipes industry.

Currently, the steel pipes industry is worth Rs 500 billion (bn) and is expected to grow at a compound annual growth rate (CAGR) of 9% in the next five years to reach Rs 750 bn.

Several tailwinds such as the government's National Infrastructure Pipeline of Rs 111 trillion and growing demand for steel pipes in solar, aerospace, agriculture, defence, railways and warehousing industries, are expected to drive the growth.

To add to this, India has the advantage of the low cost of production, which is pushing the export orders upwards.

With such favourable prospects, the steep pipes industry will thrive in the years to come.

Keeping that in mind, we look at the major players in the steel pipes manufacturing industry - APL Apollo Tubes and Ratnamani Metals and Tubes.

Business Overview

#APL Apollo Tubes

Headquartered in Delhi NCR, APL Apollo Tubes is one of the leading branded steel manufacturers in India.

It has a portfolio of over 1,500 products, which includes black pipes, galvanised tubes, pre-galvanised tubes, and structural steel tubes.

The company's products find use in construction, irrigation, solar plants, greenhouses, and engineering activities.

It has ten manufacturing facilities with a capacity to produce 3.6 million tonnes of steel and a pan-India distribution network of over 800 distributors and 50,000 retailers.

# Ratnamani Metals and Tubes

Established in 1985, Ratnamani Metals and Tubes is the largest manufacturer of nickel alloy, stainless steel, and titanium pipes and tubes.

It is also a leading manufacturer of carbon steel pipes in India.

The company's products are used in multiple industries, including refineries, petrochemicals, oil and gas, water and infra, power, and chemicals.

It has three manufacturing facilities with a capacity to produce 61,500 tonnes per annum of steel pipes and tubes and 5,10,000 tonnes per annum of carbon steel pipes.

Apart from a strong pan-India presence, the company exports its products to over 35 countries, including the UK, Germany, France, Canada, Netherlands, Spain, and the USA.

Particulars	APL Apollo Tubes	Ratnamani Metals & Tubes
Market Cap (in Rs billion)*	392.5	216.5
Market Share **	50%	NA
Order Book (in Rs billion)**	NA	29

Source: Equitymaster, company presentation|*as on February, 20, 2024|** as of September 2023

Between the two companies, APL Apollo Tubes has a higher market cap of Rs 392.5 bn compared to Ratnamani Metals, which has a market cap of Rs 216.5 bn.

APL Apollo Tubes has a market share of 50% in the steel construction pipes segment, whereas Ratnamani Metals and Tubes is the largest manufacturer of carbon steel pipes in India.

If we compare the performance of the two companies on the stock market, Ratnamani Metals is leading with 47% return in the last year, compared to the 12% returns from APL Apollo Tubes.

# Revenue

In terms of revenue and revenue growth, APL Apollo Tubes is leading.

The company's revenue is almost 3.6 times that of Ratnamani Metals, and the revenue has grown at a compound annual growth rate (CAGR) of 17.7% in the last five years.

The primary reason for this is the high growth in sales volumes. In the last five years, the volumes grew at a CAGR of 15%.

Ratnamani Metals' revenue has grown at a CAGR of 10.2% in the last five years.

The company also witnessed strong volume growth, especially in the carbon steel pipes segment.

If we compare the two companies, APL Apollo Tubes is clearly leading ahead of Ratnamani Metals & tubes.

Revenue

Net Sales (in Rs m)	Mar-19	Mar-20	Mar-21	Mar-22	Mar-23	5-Year CAGR
APL Apollo Tubes	71,523	77,232	84,998	1,30,633	1,61,660	17.70%
Ratnamani Metals & Tubes	27,549	25,857	22,981	31,388	44,744	10.20%

Source: Equitymaster

# Profitability

In terms of profitability as well, APL Apollo Tubes outpaces Ratnamani Metals.

Its earnings before and interest tax and depreciation (EBITDA) have grown at a CAGR of 21.3% in the last five years.

The company's EBITDA/ton is Rs 4,700 at the end of December 2023 as against Rs 2,923 in the financial year 2020.

Healthy growth in sales realisations and cost-cutting initiatives have helped support the growth of EBITDA per tonne.

APL Apollo Tubes is also leading in terms of net profit growth, which is 34%, whereas Ratnamani Metals' net profit grew at a CAGR of 15.2%.

Ratnamani Metals outpaced APL Apollo Tubes in terms of profit margins. The company's five-year average gross and net profit margin is 16.3% and 11%, respectively, whereas APL Apollo Tubes' gross and net margins averaged 6.6% and 3.8%, respectively.

Profitability

EBITDA (in Rs m)	Mar-19	Mar-20	Mar-21	Mar-22	Mar-23	5-Year CAGR
APL Apollo Tubes	3,887	4,773	6,787	9,453	10,216	21.30%
Ratnamani Metals & Tubes	4,062	4,265	3,990	4,947	7,754	13.80%

PAT (in Rs m)	Mar-19	Mar-20	Mar-21	Mar-22	Mar-23	5-Year CAGR
APL Apollo Tubes	1,483	2,560	4,077	6,190	6,419	34.00%
Ratnamani Metals & Tubes	2,529	3,075	2,760	3,226	5,123	15.20%

Gross Profit Margin	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023
APL Apollo Tubes	5.40%	6.20%	8.00%	7.20%	6.30%
Ratnamani Metals & Tubes	14.70%	16.50%	17.40%	15.80%	17.30%

Net Profit Margin	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023
APL Apollo Tubes	2.10%	3.30%	4.80%	4.70%	4.00%
Ratnamani Metals & Tubes	9.20%	11.90%	12.00%	10.30%	11.40%

Source: Equitymaster

# Debt Management

Ratnamani Metals & Tubes is debt-free stock, whereas APL Apollo Tubes has minimal debt.

Both companies are investing heavily in capex but are maintaining very low debt levels, which is commendable.

Ratnamani Metals & Tubes announced capex plans of Rs 3.3 bn to expand its manufacturing capacities of stainless steel and carbon steel pipe.

It also acquired a company for Rs 1 bn to foray into manufacturing forged and turned bearing rings and gear blanks.

On the other hand, APL Apollo Tubes has invested around Rs 10 bn to set up its biggest manufacturing plant in India, spread across 400 acres. It will be launching several new products which are first of a kind in India.

The company also plans to expand in Dubai by establishing a manufacturing facility.

It is also investing in debottlenecking initiatives at all its existing plants to become more efficient in operations.

Given the kind of capex plans the company has, a debt-to-equity ratio of 0.1x is manageable.

Debt Management

Debt to equity ratio (x)	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023
APL Apollo Tubes	0.2	0.3	0.1	0.1	0.1
Ratnamani Metals & Tubes	0	0.1	0.1	0	0

Source: Equitymaster

# Financial Efficiency

We must look at two important ratios to measure how efficiently a company runs its business.

They are return on capital employed (RoCE) and return on equity (RoE). The higher the ratios, the better the company can generate returns with limited capital.

The five-year average RoCE and RoE of APL Apollo Tubes are 28.9% and 21%, respectively, whereas the ratios for Ratnamani Metals & Tubes are 22.5% and aand16.5%, respectively.

Clearly, APL Apollo Tubes is generating higher returns for its shareholders than Ratnamani Metals.

However, over the last five years, the return ratios of Ratnamani Metals have increased consistently.

Financial Efficiency

ROCE	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023
APL Apollo Tubes	30.10%	23.00%	32.60%	31.30%	27.30%
Ratnamani Metals & Tubes	25.30%	22.70%	18.10%	19.30%	27.20%

ROE	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023
APL Apollo Tubes	15.50%	19.00%	24.10%	25.20%	21.40%
Ratnamani Metals & Tubes	16.60%	18.00%	13.90%	14.40%	19.70%

Source: Equitymaster

# Dividend

A company distributes its profits to the shareholders in the form of dividends.

A consistent increase in dividend per share is considered a good indicator as it signifies the profits are growing too.

In the last five years, the dividend per share of APL Apollo Tubes grew at a CAGR of 83.5%, whereas for Ratnamani Metals, dividend grew at a CAGR of 5.9%.

In terms of dividend yield and dividend payout, Ratnamani Metals is ahead of APL Apollo Tubes.

The five-year average dividend yield and payout of the company are 0.9% and 17.7%, respectively, whereas for APS Apollo Tubes, the ratios stood at 0.2% and 8.1%, respectively.

Dividend

Dividend Per Share (Rs)	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023	5-Year CAGR
APL Apollo Tubes	0.2	0	0	3.2	5	83.50%
Ratnamani Metals & Tubes	9	12	14	9.3	12	5.90%

Dividend Yield	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023
APL Apollo Tubes	0.20%	0.00%	0.00%	0.30%	0.50%
Ratnamani Metals & Tubes	1.00%	1.10%	1.00%	0.60%	0.60%

Dividend Payout Ratio	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023
APL Apollo Tubes	4.50%	0.00%	0.00%	14.20%	21.60%
Ratnamani Metals & Tubes	16.60%	18.20%	23.70%	13.50%	16.40%

Source: Equitymaster

# Valuations

To understand the actual worth of a company, we must look at its valuations.

Two important valuation metrics are price to earnings (P/E) and price to book value (P/B). These ratios help assess a company's worth. They tell us whether the company's shares are overvalued or undervalued when compared to its peers.

Valuations	APL Apollo Tubes	5-Year Average	Ratnamani Metals & Tubes	5-Year Average
P/E (x)	52	42.5	34.5	21
P/B (x)	11.5	9.5	7.4	3.5

Source: Equitymaster

The P/E ratio of APL Apollo is 52x, whereas Ratnamani Metals & Tubes is 34.5x.

Even in terms of P/BV, APL Apollo Tubes trades at a price to book value multiple of 11.5x, compared to Ratnamani Metals' 7.4x.

Worth highlighting that the 10-year PE multiple of Ratnamani Metals has averaged around 20x. However, given the strides it has taken over the last few years and the improvement in the underlying quality of the business, the higher PE does seem justified.

Keep a close watch on both these company's performance over the next few quarters and see if the growth comes in lower or higher than expected.

Which Steel Manufacturer is Better: APL Apollo Tubes or Ratnamani Metals and Tubes?

APL Apollo Tubes is leading in terms of revenue growth, profit growth, and return ratios.

However, in terms of debt management, profit margins, and dividends, Ratnamani Metals and Tubes outpaced its competitor.

As one of the largest players in seamless and carbon steel pipes, Ratnamani Metals has high growth plans.

It plans to increase its manufacturing capacity in these two segments to cater to the growing global demand.

The company recently opened up a new market segment for itself by catering to the specific needs of oil marketing companies.

It also plans to explore opportunities in various user segments, including fertilisers, nuclear, aerospace, and oil tubing, among others.

On the other hand, APL Apollo Tubes is investing in setting up manufacturing facilities in India and abroad. It is setting up its biggest plant in Raipur for value-added products, which will help the company improve profit margins.

Moreover, it is setting up manufacturing facilities in Kolkata and Dubai to increase its manufacturing capacity to 5 million tonnes by 2025 and to cater to the demand for steel pipes and tubes.

It is also working on new product development to introduce products that are the first of a kind in India.

All this shows that both companies are gearing up for their next leg of growth driven by India's massive infrastructure growth.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...