Ramkrishna Forgings Ltd
(BSE Code: 532527) (CMP: Rs.562.45) (FV: Rs.10) (TGT: Rs.675+)
Incorporated in 1981, Kolkata-based Ramkrishna Forgings Ltd (RFL) manufactures die forgings of carbon and alloy steel, micro alloy steel and stainless steel. It offers crown wheels/ ring gears, I-beams, crankshafts, connecting rods,
knuckles, center wedges, steering and tie rod arms, stub axles, brake flanges, wheel hubs, yokes, front engine mounting arms, tooth products, hammer bars, bearing caps, counterweights, ring gear carriers, pinions, front hubs, shafts, coupling flanges, gears, clutch collars, etc. It also provides screw couplings, bolster suspensions, side frame keys and draw gear assemblies. Its products find application in various industries including automotive, earth moving and mining, farm equipment, steel plants, railways, general engineering, bearing, oil and gas as well as OEMs (original equipment manufacturers).
With growth coming from North America and Mexico, we expect RFL’s export business to grow further. Exports to Europe are expected to kick in from Q4FY19. Higher exports will supplement higher machining capacity utilisation, driven by demand from customers in Europe and North America. We expect revenue to grow at 14% CAGR over FY1820, primarily driven by a 32% export CAGR to Rs.7250 million in FY20, up from Rs.4120 million in FY18. We expect EBIDTA to grow at 17% CAGR over FY18-20. Also, the greater proportion of exports will ensure better working capital (debtor days in Europe are 60-70 v/s 162 for North America). Continuing export traction in FY19 and FY20, a shift in the geographic mix to European markets from higher press-lines and diversification to light commercial vehicles (LCVs) and passenger vehicles augur well for RFL’s long-term growth and margin expansion.
We believe that its domestic growth will be driven by market-share gains and addition of new customers. The management plans to incur capex of Rs.4840 million over the next two years towards LCVs, passenger cars, the Railways and forging parts for bearings. We expect operations to go commercial from September 2020 and believe that this is a positive move.
Technical Outlook: The stock looks good on the daily chart for medium-term investment. It has formed a downward channel pattern and trades below important moving averages like the 200 DMA level on the daily chart. Start accumulating at this level of Rs.562.45 and on dips to Rs.535 for medium-to-long term investment and a possible price target of Rs.675+ in the next 12 months.