CRISIL Research has assigned a CRISIL IER fundamental grade of 3/5 to Ram Ratna Wires (RR Wires). The grade indicates that the company's fundamentals are 'good' relative to other listed equity securities in India. Our fair value of the stock is Rs 59 a share. At the current market price of Rs 47 a share, our valuation grade is 5/5 indicating that the market price has strong upside from the current levels. The grades are not a recommendation to buy, sell or hold the graded instrument, or a comment on the graded instrument’s future market price or its suitability for a particular investor.

The assigned fundamental grade reflects RR Wires' position as one of the leading players in the copper winding wires industry in India. The company markets and sells its products under the brand name RR Shramik, which is popular among the dealers and OEMs. The grade also factors in the low client concentration risk; the company has a large client base with no client constituting more than 5-6% of the overall revenues. The grade takes into account healthy growth in the future; the company is expected to achieve double-digit growth during FY15-17 driven by the revival in demand from the capital goods and consumer electrical industries, and increased focus on expanding the dealer network.

The grade also factors in the company's focus on cost-cutting measures including reduction in power cost, which is expected to result in improved margins. The grade is, however, constrained by high leverage (debt: equity of 1.9 as on Mar. 31, 2014) and intense competition in the industry from organised and unorganised players. Volatility in raw material prices, mainly copper, is another key risk.

Consolidated revenues are estimated to grow at a three-year CAGR of 11.3% to Rs 9,646 million by FY17. EBITDA is expected to grow at a higher rate, CAGR of 22.5%, due to improvement in operating margin from 4.1% in FY14 to 5.4% in FY17. Adjusted PAT is estimated to increase to Rs 202 million in FY17 from Rs 70 million in FY14.
CRISIL Research has valued RR Wires by the discounted cash flow method and assigned a fair value of Rs 59 a share. At the current market price of Rs 47, the valuation grade is 5/5.

Shares of the company declined Rs 0.5, or 1.08%, to trade at Rs 46. The total volume of shares traded was 477 at the BSE (11.13 a.m., Friday).