IGI Logo

Ramkrishna Forgings

Seeding growth lever with changed FMEG revenue mix; retaining a Buy

For RK Forgings, export opportunities continue to increase as the company acquires new customers, enters new regions and further grows its order book. It plans to add 56,000-tons in the near term, which would primarily cater to North American and European markets for EVs. Domestic demand remains robust and is expected to continue. Accordingly, we maintain a Buy at a revised TP of Rs385 (13x FY25e).

Strong export momentum to continue. Historically, exports have grown at a 30% CAGR over FY17-22. For the next two years, we expect exports to grow 25% CAGR on the back of 1) growth in the existing business, 2) new order wins of Rs3.6bn in Q3 FY23, and 3) revenues from the new 56,000-ton capacity would accrue from FY24. With respect to the Rs3.6bn order, we expect revenues to accrue from FY25 onwards and peak until FY28. With respect to the new 56,000-ton capacity we expect a peak revenue of Rs8-9bn, which would accrue from FY24 itself over a period of 5 years. It plans to manufacture components like e-axles, differentials and motor controllers from the new capacity, targeting the EV segment.

For domestic markets, demand remains robust and we expect revenues to grow at a 17% CAGR over FY22-24 backed by continued replacement demand of trucks and expected new demand. This augurs well for long-term growth and creates opportunities to improve the share of business with customers. Accordingly, we expect revenue to grow by 20% in FY24 and 22% in FY25.

Profitability to inch up. Q3 FY23 margins held at 22%. On the back of the expected higher proportion of exports and machining content, we expect profitability to inch up. Accordingly, we expect margins of 23% in FY24 and 23.5% in FY25.

Valuation. We expect a 21% revenue CAGR over FY22-25, and 40% earnings growth, leading to Rs29.6 EPS. We retain a Buy, with a Rs.385 TP (13x FY25e).

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at  https://www.rathi.com/LeadGenerate/Static/disclaimer.aspx
SEBI Registration No.: INZ000170832

Above views are of the author and not of the website kindly read disclaimer