Buy Ramkrishna Forgings Ltd For Target Rs.400 - ICICI Direct
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About the stock: Ramkrishna Forgings (RKF) is a Kolkata based forging company, incorporated in 1981. It has six manufacturing plants in India concentrated around Jamshedpur and Kolkata with installed capacity of 1,87,100 tonnes as on date.
* FY23 mix: Asia 60%, Europe 15%, North America 25%
* FY23 segment mix: auto ~79% (CV space); non-auto ~21%
Q4FY23: RKF reported a healthy performance in Q4FY23.
* Consolidated sales were up 14.7% QoQ to | 892 crore, with EBITDA at | 194 crore, up 12.1% QoQ. EBITDA margins came in at 21.8%, down 50 bps QoQ
* Sales volume in Q4FY23 came in at 38,588 tonnes, up 15.6% QoQ with corresponding EBITDA/tonne at | 50,276/tonne
* Consolidated PAT in Q4FY23 was up 12.1% QoQ to | 68.5 crore
What should investors do? RKF’s stock price has grown at ~16% CAGR in the past five years from | 160 in April 2018, vastly outperforming the Nifty Auto Index.
• We retain BUY rating amid strong new order wins, unchanged vision to grow in high double digit in coming years, sustainable margin profile of ~20%+ and RoCE accretive organic as well as inorganic expansion plans
Target Price and Valuation: Upgrading our estimates, we now value RKF at | 400 i.e. 15x P/E on FY25E EPS of | 26.6 (earlier target price of | 335 per share).
Key triggers for future price performance:
* With brownfield expansion to add ~56,300 tons capacity in FY24 amid inorganic acquisitions on anvil, we build 15.6% sales CAGR in FY23-25E
* Order win in JV format (~| 12,500 crore over 20 years) for manufacturing forged wheels for Indian Railway to provide growth longevity
* With healthy exports order wins, value added products in focus and internal efficiencies at play, we see margins stabilising at the ~22% mark
* Persistent focus on diversifying into non-auto business including engineering as well as oil & gas space amid steady global CV outlook
* Focus on deleveraging b/s and moving up the value chain through increase in machining mix to lead to healthy double-digit return-ratio profile (~20%
Alternate Stock Idea: In our auto universe, we also like Mahindra & Mahindra. • Focused on prudent capital allocation, UV differentiation & EV proactiveness • BUY with target price of | 1,665
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