An Overview on Rajratan Global Wire Limited (RGWL)

Rajratan Global Wire Limited (RGWL) is positioned for significant growth in the near future, driven by strategic capacity expansions, favorable market dynamics, and a strong market position, though it also faces some challenges.

Here's an analysis of the company's near-future growth:

Growth Drivers and Opportunities:

Capacity Expansion & Utilization:

Rajratan has ambitious expansion plans in both India and Thailand. The company expects to double its capacity to 72,000 tonnes in India, with bead wire capacity at 60,000 tonnes. Its total capacity (India + Thailand) after expansion is projected to be 106,800 TPA.

In Thailand, capacity increased from 26,000 TPA to 34,800 TPA and further plans are to increase it to 60,000 tonnes per annum, expected to commence operations by mid-2023 (as of a May 2022 source). A more recent April 2021 source also indicates plans to expand capacity in Thailand by ~75%.

The new Chennai plant, which will have a capacity of up to 60,000 TPA (with 30,000 TPA currently being installed in Phase 1), is expected to drive significant volume growth in FY26 due to its proximity to customers and increased exports. Management expects the Chennai plant to reach breakeven from the next quarter (Q1 FY26). The Pithampur and Thailand plants operated at 85-90% utilization in Q4 FY25, with Chennai's utilization also improving.

The company is able to add capacity at a significantly lower cost (Rs. 14,000/tonne) compared to greenfield capacity (Rs. 70,000/tonne or $1000/tonne/year), giving it a key competitive advantage.

Market Share Gains & Reduced Competition:

Rajratan is the second-largest bead wire manufacturer in Asia (excluding China) and the only manufacturer of bead wires in Thailand.

In India, Rajratan has significantly increased its market share, reaching 50% (from 38-39%) and even 57-58% in some months.

The shutdown of a competitor in India (Feb 2019) with a capacity of 8,000-9,000 tonnes per year for tyre bead wire, presents an opportunity for higher growth and pricing power for Rajratan. This "vacuum" is seen as a significant catalyst.

The company believes it can gain market share from existing players due to its larger bead wire capacity, strong order book (especially in Thailand), and enduring customer relationships.

Positive Sectoral Outlook & Trade Dynamics:

The Indian automotive industry is projected to grow substantially, trebling in size to Rs. 16-18 lakh crores by 2026, contributing to almost 12% of GDP. The Indian auto markets are expected to grow at 12% until 2026.

The tyre industry in India is expected to grow at 5-6% and globally, the bead wire market is expected to expand from 120,000 T to 150,000 T over the next 3-4 years.

US tariffs on Chinese tyres and the "China+1" policy are a "booster shot" for the Thailand tyre industry and benefit companies like Rajratan, as US companies seek alternative suppliers. Thailand is Asia’s largest and an emerging global tyre manufacturing hub, with 37% of global raw rubber supply.

Anti-Dumping Duties on Chinese Tyre Imports to India also protect the domestic market.

Strong Customer Relationships & Entry Barriers:

Rajratan has "sticky customers," with 85% of revenue generated from customers of more than 5 years. They serve almost all major tyre manufacturers, including MRF, Apollo, CEAT, BKT, Bridgestone, Sumitomo Rubber, and Yokohama. Approvals from major tyre companies for the Chennai facility are progressing.

The bead wire industry has high entry barriers, including a very long product approval cycle (e.g., 10 years in Japan) and a long learning curve. Creating new greenfield capacity is significantly more expensive and less viable for new entrants. This consolidates power with existing players like Rajratan.

Customers prioritize quality over price for bead wire, as it constitutes a small percentage (3-4%) of the total tyre manufacturing cost. Rajratan's focus on quality gives it pricing power.

New Product Line (Wire Ropes):

Rajratan has announced a new initiative to manufacture wire ropes at its Pithampur facility.

This project aims to convert 12,000 TPA of black wire capacity into 10,000 TPA of wire rope with an investment of approximately Rs. 50 crore, expecting to generate Rs. 100 crore in revenue. This adds value to the black wire business and diversifies beyond bead wire. Production is expected to start in about one year (from April 2025).

Management Outlook and Financial Projections:

Management is confident of 20-30% volume growth for the next two years (as of May 2019) and 15-20% CAGR sales target for the next two years (as of Oct 2020). More recently (April 2025), they "conservatively" expect 25% revenue CAGR over the next 3-4 years, citing very high demand.

Analysts forecast Rajratan Global Wire to grow earnings by 29.2% per annum and revenue by 16.1% per annum. Its earnings are forecast to grow faster than the Indian market (14.9% per year) and revenue faster than the Indian market (9.3% per year).

EBITDA margin is expected to improve slightly (1-2 percentage points) due to better utilization of the Chennai facility. The company will try to maintain current EBITDA margins.

Potential Risks and Challenges to Growth:

Chennai Plant Stabilization: The Chennai plant is in its initial phase, and there is a project risk associated with its completion and stabilization. The Chennai facility incurred a loss of around ₹11-12 crore in FY25, impacting the bottom line.

Raw Material Price Volatility: Prices of key raw materials like steel, copper, and zinc can fluctuate sharply, affecting profitability, as raw material cost comprises 60% of operating income. While the company can pass on hikes, there is a lag (about three months, but sometimes faster).

Cyclicality of End-User Industry: Performance is linked to demand for tyres, which is tied to the cyclical auto industry and overall economy. Although 70% of demand comes from the more stable replacement market, economic slowdowns could affect the company.

Pricing Pressure: Realizations stayed flat for the first two months of Q4 FY25 due to increased manufacturing capacities among bead wire manufacturers and stiff competition. Prices are expected to remain under pressure due to extra capacity in the market.

Debt Levels: While the financial risk profile remains strong, the company may continue to incur debt-funded capex, and higher debt levels coupled with lower realizations have moderated interest coverage and cash accrual in fiscal 2025. Bank limit utilization averaged 75% for 12 months through March 2025.

Logistics Costs: Logistics can be a problem for exporting large quantities to distant places. However, the new South India plant is being brought up partly to address logistics challenges for South India customers and for exports.

Tax Holiday Expiry in Thailand: The tax hedge on Thai operations for production exceeding 22,000 TPA was expected to expire by 2025. A Q2 FY21 concall note states the tax holiday is over in Thailand, and the average tax rate will be 16-17%. However, new investments in Thailand will be tax-free.

In conclusion, Rajratan Global Wire is positioned for robust growth in the near future, driven by strategic expansions, its dominant market position, and favorable industry trends, particularly in the tyre sector and shifts in global supply chains. The successful ramp-up of the Chennai plant and effective management of raw material costs and competition will be key to realizing these growth projections