Ramkrishna Forgings Ltd. share price target

We are NEUTRAL on RK Forgings (1) While the CV segment outlook is mixed, diversification initiatives will de-risk the business model. The expected acquisition of ACIL will provide access to tractor/2W customers (2) The co is sustaining market share in the domestic segment, amidst a sedate demand environment. In 2QFY20, RK Forgings EBITDA margin at 18.1% (-90bps YoY) continued to be impacted by a weak demand environment. The co is diversifying beyond CVs through expansion into new segments/inorganic initiatives. We recently upgraded the stock to NEUTRAL post the sharp stock correction and the risk-reward is more favourable. We are lowering estimates by ~2% and set a revised TP of Rs 275 (@12x Sep-21 EPS).

We downgrade to SELL and lower our PE multiple to 12x (14x earlier) to factor in the challenging demand environment. (1) The domestic CV sales cycle is expected to remain weak, with the pre-buy having a limited impact over 2HFY20 (2) While the company's expansion into new markets/segments is expected to contribute towards incremental volumes, the demand outlook in the US is softening as new order intake has been weak over the year. The export volumes will be increasingly at risk over FY21E. In 1QFY20, Ramkrishna Forgings EBITDA margin at 19% (-200bps YoY) fell to multi quarter low. We expect the domestic demand environment to remain weak. Also, the new order intake for Class 8 trucks remains muted in the US. Downgrade to SELL with a revised TP of Rs 380 (at 12x FY21 EPS, 14x earlier). We lower our earnings estimates by 29/20% for FY20/21 to factor in the above.

Led by lower volume, Ramkrishna Forgings (RFL) has delivered a weak performance in 1QFY20 with its revenue declining by 8% YoY and 14% QoQ to Rs3.8bn (vs. our estimate of Rs3.9bn). Its volume declined by 14% YoY and 6% QoQ to 28,558 tonne owing to slower M&HCV; sales in the wake of higher axle load norm, production cut by OEMs and ongoing economic slowdown. While EBITDA dropped by 17% YoY and 19% QoQ to Rs722mn (slipping our estimate by 4%), EBIDTA margin contracted by 204bps YoY and 112bps QoQ to 19% owing to 100bps YoY (-235bps QoQ) rise in RM/sales to 49.8%, despite 25bps YoY reduction in other Expenditure/Sales to 24.8%. However, staff cost/sales increased by 130bps YoY and 75bps QoQ to 6.4% due to negative...

RK Forgings is in the midst of a volatile demand environment. The company is tiding over the same by expanding into new markets / segments with European clients expected to contribute towards incremental volumes. RK Forgings has improved its product mix post the commissioning of its 12,500T press. The balance sheet has strengthened post the capital raise, with gearing ratios now at ~1x. We have a BUY recommendation on the stock. Ramkrishna Forgings reported a weak 4Q as the slowdown in the domestic CV segment impacted volumes. The domestic tonnage was lower due to 1) the decline in M/HCV sales, which were down 5% YoY 2) the adverse impact of the change in product mix, due to higher sales of lower tonnage vehicles (post the change in axle load norms). We are lowering our earnings by ~12% over FY20/21E to factor in the above. Our revised TP is Rs 620 as we value the company at 14x PE on FY21 earnings. We have a BUY rating on the stock. The companies initiative of expanding its export customer base (in Europe and USA) will partially offset the weakening demand from existing customers.

Ramakrishna Forgings (RMKF) 4QFY19 revenue was broadly in line with our estimates. EBITDA margin contracted by 68bps on YoY basis to 20.2%, due to a negative operating leverage, while PAT was suppressed by a higher depreciation and interest cost. The company is aspiring for higher growth in the export markets, which will offset the weak industry growth domestically. Also, the management has learnt from the past and is taking steps to keep debt levels under check. Thus, the company is executing its capex in a calibrated manner announced capacity expansion (capex of...

We maintain BUY and expect RMKF to grow market share in new geographies as well as increase its content per vehicle. Ramkrishna Forgings (RMKF) reported another strong quarter with Revenue/EBITDA/ PAT growth of 23/31/22%YoY. Net revenue at Rs 4.9bn was aided by higher volume (+13% YoY at 37k tons) and improved realizations (+9% YoY). Domestic and export volumes stood at 28k (+9%) and 9.29k tons (+26%), respectively. EBITDA margin improved 225bps YoY/32bps QoQ to 21.5% led by a ramp up of the heavytonnage press line as well as increased contribution from exports.

Ramkrishna Forgings Ltd. (RKFL) reported net sales of INR 4615 mn in 2Q FY19 (36.4% jump over INR 3382 mn YoY) and a PAT of INR 328 mn (INR 235 mn YoY) on the back of pickup in both domestic and export volumes. Domestic/Export/Total realization for the quarter has improved by 15.3%/18.3%/15.8% while export contribution has decreased by 95 bps YoY to 21.3% (flat QoQ). EBITDAM has improved by 181 bps YoY despite lower contribution of high margin export business. RM cost as % of sales increased by 315 bps. Operating & Manufacturing Expenses as % of sales declined 274 bps YoY on the back of positive operating leverage. Results are largely in line with our estimates. We expect RKFL to register Revenue/PAT growth 19.9%/30.7% from FY18 to FY20E. At CMP of INR 558 the stock is trading at 5x FY20E EBITDA. We have reduced our FY20 EBITDA and EPS estimates by 5.6% and 6.1% respectively. We have valued RKFLs stock at 8x FY20E EBITDA and recommend BUY with a TP of INR 710 (INR 882 earlier) in 18 months....

We value the stock at Rs 908 (18x Sept-20E EPS). Maintain BUY Ramkrishna Forgings (RMKF) reported another strong quarter with revenue/EBITDA growth of 36/29% YoY. Net revenue at Rs 4.6bn, aided by higher volume (+18% YoY at 35k tons) and improved net realization (+6% YoY). Domestic and export volumes stood at 27.5k (+19.3%) and 7.4k tons (+13%), respectively. Management expects exports contribution to increase in 2H led by an increase in content per vehicle.

We value the stock Rs 908 (18x Sept-20E EPS) and recommend a BUY. Ramkrishna Forgings (RMKF) sailed through tough times and posted impressive recovery in FY18. During FY15-FY17, RMKF's profits dropped substantially (APAT slid from Rs 673mn in FY15 to Rs 110mn in FY17) owing to (1) Slowdown in US class 8 trucks, (2) Delayed ramp-up of its new plant due to elongated approval time from OEM's, and (3) Sharp jump in interest/depreciation cost driven by capex of Rs 7bn for new press line.

Robust Performance; Double-digit Volume Growth to Drive Bottom-line Ramkrishna Forgings (RFL) has delivered a strong performance in 4QFY18, with its revenue growing by 57% YoY and 10% QoQ to Rs4.4bn led by 41% YoY and 8% QoQ growth in volume to 35,812tonne. While EBITDA surged by 97% YoY (+19% QoQ) to Rs917mn, EBIDTA margin...