Rising EV Trends Will Erode Demand Amid Global Trade Risks

Key Takeaways

• Heavy reliance on traditional bead wire and a saturated market limits future growth opportunities, while diversification efforts are still nascent.
  
• Rising competition, protectionist trade policies, and alternative materials threaten margins and demand, challenging long-term profitability and sustainability.
  
• Strategic diversification, capacity expansions, customer proximity, export advantages, and careful cost control position the company for improved margins, market share, and sustained long-term growth.

Catalysts

Engages in manufacturing and sale of tyre bead wires in India and Thailand.

• The rapid global shift toward electric vehicles poses a structural risk to Rajratan's core bead wire business, as EVs generally require less or no traditional bead wire, creating a long-term overhang on revenue growth and sustainability.
  
• The company remains heavily overdependent on a single product-tire bead wire-with management conceding that its addressable market is close to saturation, meaning future topline growth may be limited while the newly announced wire rope pilot remains small and unproven.
  
• Rising global protectionism and potential trade barriers represent a significant threat to Rajratan's export ambitions, especially as the company looks to grow exports from India and Thailand to the US and Europe, potentially curtailing future revenue streams if tariffs or local sourcing mandates increase.
  
• The ongoing entry of both domestic and international competitors, as highlighted by recent large capacity additions from Tata, Aarti Steel, and Bansal Wire, could lead to industry overcapacity. This heightens the risk of persistent pricing pressure and diminished margins despite management's efforts to improve cost structure.
  
• Advancements in alternative materials-including polymers and composites for tire reinforcement-may substitute steel bead wire in the long run, directly reducing demand for Rajratan's main products and undermining the company's ability to maintain historical earnings and profitability.

Rajratan Global Wire Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Rajratan Global Wire compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Rajratan Global Wire's revenue will grow by 15.1% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 6.3% today to 9.3% in 3 years time.
• The bearish analysts expect earnings to reach ₹1.3 billion (and earnings per share of ₹26.0) by about July 2028, up from ₹588.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 22.0x on those 2028 earnings, down from 37.5x today. This future PE is lower than the current PE for the IN Metals and Mining industry at 23.4x.
• Analysts expect the number of shares outstanding to grow by 0.07% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.91%, as per the Simply Wall St company report.

Rajratan Global Wire Future Earnings Per Share Growth

Risks

• The company is addressing its previous overdependence on bead wire by investing in a new wire rope business, which has a significant addressable market and higher value addition, thereby diversifying revenue streams and reducing vulnerability to shifts in tire manufacturing technology; this could support long-term revenue and net margin growth.
  
• Major capacity expansions in Chennai and Thailand are nearing full utilization, with Chennai set to break even and transition to profitability from previously loss-making status, and Thailand targeting improved customer mix and higher-margin business, both of which are likely to bolster overall earnings and operational margins.
  
• Rajratan is successfully gaining and accelerating customer approvals from leading tire manufacturers in India and internationally, particularly due to its proximity advantage and ability to provide just-in-time supplies, which can strengthen its market share, secure order flows, and drive steady revenue increases.
  
• The imposition of higher U.S. tariffs on Chinese competitors benefits Rajratan, as its products from India and Thailand become much more price-competitive in key export markets, particularly the U.S. and Europe, potentially expanding its export volumes and supporting top-line growth.
  
• The company has demonstrated financial discipline in scaling new product lines cautiously and improving margins (evident from freight optimization, operational efficiencies, and above-industry EBITDA levels in bead wire), which, if maintained, can protect and even enhance net profitability as the business grows and diversifies over the long term.

Valuation

• The assumed bearish price target for Rajratan Global Wire is ₹394.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Rajratan Global Wire's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹714.0, and the most bearish reporting a price target of just ₹394.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be ₹14.3 billion, earnings will come to ₹1.3 billion, and it would be trading on a PE ratio of 22.0x, assuming you use a discount rate of 13.9%.
  
• Given the current share price of ₹434.3, the bearish analyst price target of ₹394.0 is 10.2% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.