Ramkrishna Forgings (RMKF) delivered a strong performance in 3QFY22 beating our estimates across the parameters. Revenue grew by 51% YoY/5% QoQ to Rs6.1bn (vs. our estimate of Rs5.5bn), on the back of a volume increase of 16% YoY/4% QoQ to 29,520 tonne, owing to healthy export volumes. EBITDA increased by 79% YoY/1% QoQ to Rs1.4bn (surpassing our estimate by 19.3%), while EBITDA margin expanded by 370bps YoY (down 91bps QoQ) to 23.1% (vs. our estimate of 21.3%) on better operating leverage and pricing power. Better product-mix with higher exports contribution led to better operating leverage, which benefited RMKF's margin, despite higher input cost. Its PAT grew 171% YoY (down 10% QoQ) to Rs451mn, 2% higher than our estimates, due to higher than estimated EBITDA margins. We expect a strong CV upcycle over the next 1-2 years, domestically as well as globally. Moreover, its new margin territory coupled with healthy order wins across segments and geographies will support its rerating. Thus, we reiterate our BUY recommendation on the stock, with a revised Target Price of Rs1,650 (vs Rs1,700 earlier).
Cost Control, Higher Export Contribution and New Orders to help EBITDA Margin
RMKF has rationalised various costs post pandemic, which helped it to negate a higher commodity cost inflation. Moreover, the recent new order wins across segments and geographies of ~Rs6bn (annualised) for the next 2-3 years would drive a double-digit revenue growth FY24 onwards. We expect domestic CV to grow by >25% in FY22E, while its export revenue will record a strong ~100% YoY growth in FY22E. The management targets its export/domestic revenue mix to be 60%/40% by FY24. Also, RMKF targets to be a net debt free company in next three years. Improving product-mix, rising export contribution coupled with a favourable exchange rate would support EBITDA margin expansion. We expect its EBITDA margin to improve by 550bps over FY21-FY24E to 23.3%.
Outlook & Valuation
We believe the company will continue to win more new orders in auto and non-auto segment over the coming years on the back of launch of new products and an expanding overseas reach. Moreover, recent traction in Oil & gas (contributing ~10% of revenue) would aid higher growth from high margin non-auto segment. We expect RMKF's volume to clock 27% CAGR over FY21-FY24E. Factoring lower OEM production due global semi-conductor supply issue, we marginally reduce our revenue and EBITDA estimates for FY22E, FY23E and FY24E, while higher interest cost led by rising debt would reduce our PAT estimates by 13%/9%/3% for FY22E/FY23E/FY24E. In view of a CV upcycle and healthy margin profile, we reiterate our BUY on RMKF and revise the Target Price to Rs1,650, valuing the stock at 15x.
Link to the report
Shares of Ramkrishna Forgings Limited was last trading in BSE at Rs. 1030.25 as compared to the previous close of Rs. 1010.75. The total number of shares traded during the day was 17441 in over 2004 trades.
The stock hit an intraday high of Rs. 1040.90 and intraday low of 1002.20. The net turnover during the day was Rs. 17733524.00.