Ramkrishna Forgings is a preferred supplier of forged and rolled components for the railways,
automobile, mining, earthmoving, oil exploration, farm equipment, wind energy, bearing and general engineering industry.
The company has emerged as one of the leading producer of forged components in India, with a large presence in the overseas market, supplying to Tier-I vendors as well as OEMs,mostly for CV.
In the past 3 years, the company has done a capex of around Rs 700 crore, out of which major portion has completed. It had completed Rs 600-640 crore of capex till FY14. Balance capex left is only Rs 40-50 crore which will be completed in the first half of FY15.
The capex has helped increase capacity to 1,50,000 Tons from ~70,000 Tons, when the CV market was seeing stress with sales volume across the globe plummeting. However, major capex for the company is done and capacity is on stream now. Four press line were planned, one with 3,100 Tons and another with 4,300 Tons went on stream in July 2014. The bigger press line with 12,500 Tons has started trial production from May, 2015 and is likely to start commercial production from Q3FY16.The last press line with 6,300 ton press line has started commercial production with effect from August 2015.
ICRA has revised upwards the long term and short term credit ratings of the company.
1Q15 profit jumped 200% to 17.7 crore compared with 5.90 crore rupees in the same quarter a year ago. Sales rose 91% to 235.5 crore rupees during April-June compared with 123.2 crore in the year ago period. Profit was boosted mainly by the four-fold rise in exports to 130 crore rupees.
Management expects the FY15-16 growth to be in the range of 60-70% with improved margins (helped by exports)
Negatives: Debt of around 700 seems a bit on the higher side.
The management will focus next 2 years on optimising capex spend. At full capacity it has ability to do Rs 2,000 crore topline. Last 12 months revenues stand at 800 crores only.
Given the huge potential and growth prospects the stock is trading relatively cheap (despite the run-up) at 675 rs ( LTM P/E of 21x) and looks like a exciting play for the next couple of years. Revenues for FY15-16 should be in the range of 1100-1200 crore with profits of around 110-120 crore (10-11% margins - this is likely to be higher as guided by management)
Would like to hear thoughts from fellow members on this.
Disc: Small tracking position