Rapicut Carbides Ltd- small but steady

Rapicut Carbides Ltd, promoted by a group of experienced technocrats was  incorporated in April '77 .It commenced production of tungsten carbide products in Oct. '79.

The name Rapicut Carbides is an abbreviation for  Rapid Cutting Carbides

Product range:  

Tungsten Carbide Tips, Tungsten Carbide Inserts, Wire Drawing Nibs, Bar and Tube drawing Pellets, Tungsten Carbide Rings, Flats, Bushes, Jute Eyelets, Solid Carbide Cutters and a wide range of Tool Room Products. For the mining sector, it manufactures tungsten carbide drill steel inserts, coal auger and integrated drill steel rods. Also deals in Brazed, Shrink Fitted and Ground, Lapped, Finished Tungsten Carbide Products, Cobalt Metal Powder .

Installed capacity :

90,000 kgs ( FY11)

1,04.000 kgs (FY 12)

1,43,000 kgs (FY 13)-expected

Product Applications :

Its products find application in the mining, rock drilling, oil exploration,automobile and general engineering industries.. Its  extrusion rods, coupling sleeves, adaptors and cross bits are mainly used in underground tunnelling work. For the ball bearing and fastener industry, it  manufactures cold heading dies.

Competitors :

Sandvik, Widia, Tough Carb (Electronica). These companies. make tungsten tools & equipment whereas Rapicut only manufacturers consumables. 

Employee strength: 140

Promoter holding: 34.63%  ( No shares pledged)

Manufacturing plant :

Based at Ankleshwar in Gujarat and spread over an area of approximately 19,000 square metres ( 4.7 acres)

Sales & Marketing :

A network of 5 sales offices in India-Mumbai, New Delhi, Chennai, Kolkata, Pune

5 dealers.

A large % of sales are through the tendering process.

A bit about Tunsten Carbide:

Tungsten carbide is known for its hardness and high melting point. On the Mohs scale for testing hardness, tungsten carbide receives a rating of nine, surpassed only by diamonds, which have a hardness of 10. This hardness makes tungsten carbide highly scratch-resistant.. The melting point of tungsten carbide is around 2,600 degrees Celsius. By itself, tungsten carbide is not a naturally occurring material, it is only produced by combining the elements of tungsten and carbon.Cutting tools for drilling, mining and construction often incorporate the use of tungsten carbide.Filaments from light bulbs are made out of tungsten because of its resistance to heat.

Key points:

1)       Rapicut’s products  are primarily used in the mining sector which contributes 3/4^th  of the total revenues with the  largest customer being Neyveli Lignite Ltd. which accounts for around 15% of the turnover. The remaining 1/4th sales come from the Industrial Sector. The fortunes of this company are tied up to the domestic mining sector & the greater the mineral production in the country, the higher will be its revenues. PSU’s contribute nearly 35% - 40% of sales .

2)      The annual demand of Tungsten consumables by the domestic mining sector is estimated at 1200 tonnes p.a. Rapicut has about 7-8% market share currently.

3)      The company manufactures consumables for Coal, Granite and Oil & Gas sectors. These consumables have a short life span & after certain hours of usage, they need to be replaced.

4)      Import duty on products manufactured by Rapicut is 12.5%.

5)      Till last year, 80% of RM was imported . Tungsten is a rare earth mineral & is not found in India. It is imported from China which is the largest global producer of Tungsten. With the depreciation of the rupee company has modified its sourcing and now imports around 50% of RM.The rest is procured through domestic tungsten scrap processors.

Financial snapshot:

	2008-09	2009-10	2010-11	2011-12
Revenue rs.cr	19.11	20.73	25.02	30.11
Depreciation rs.cr	0.23	0.25	0.27	0.37
Interest rs.cr	0.52	0.27	0.30	0.44
PBT rs.cr	1.36	2.56	3.84	4.48
Tax rs.cr	0.38	0.69	1.26	1.44
PAT rs.cr	0.98	1.87	2.58	3.04
EPS (Rs.)	3.67	8.70	12.01	14
Payout ratio %	32	21	21	21
Dividend per share (Rs.)	1.20	1.80	2.50	3
Equity (rs.cr)	2.15	2.15	2.15	2.15

Current Market price: Rs.53

Market cap:  Rs.11.4 cr

Debt : Rs.2.25 cr

EV : Rs.13.65 cr

Some other tit bits:

Pramod Chaudhari, CMD of Praj Industries Ltd in his autobiography ‘As is what is’ talks about how he left Widia to join Rapicut sometime in 1981. At that time, the company had just commenced production and was perennially short of cash. He talks about how he had to leave the company due to a plan hatched by one Chigteri (one of the original promoters of Rapicut)  due to his insecurities .He goes on to add how later Chigteri was hospitalized and treated for mental instability. His references to Jagdish Bhatia, the current MD ( who was the Finance head then in the 80’s) are all positive and talk about the struggle faced then and the efforts made by Bhatia to get the company off ground.

Valuation:

At the current market price of Rs.53, Rapicut is available at a dividend yield of about 5.66 %.The company operates in a niche space and the nature of its products ( consumables) to a certain extent cushions it from the vagaries of the  capex cycle. Rapicut is also expanding capacity in a phased manner . Installed capacity is likely to be doubled to about 1,80,000 kgs within 24-30 months. The 5 year (FY12-17) Capex Plan is about  5.5Cr. (out of which 75% is a term loan from SBI @ 12.5% floating). Total  Debt is unlikely to go beyond 5 cr.

If the company is able to maintain its steady growth performance of the last 5 years over the next 2-3 years, the stock has the potential to give good returns.

At the time of writing this report, the author /his family have an investment interest in the stock mentioned above. Under no circumstance does the information in this report represent a recommendation to buy or sell the above-mentioned stock.  This report has been prepared and issued on the basis of publicly available information, internally developed data & other sources believed to be reliable. This is just a suggestion solely for information purposes and does not constitute a solicitation to any person to buy or sell a security. While the information contained therein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Readers using the information contained herein are solely responsible for their actions and are advised to satisfy themselves before making any investments.