Ramkrishna Forgings: Riding the Growth Wave

“Our consortium with the TWL has signed a significant contract work with Ministry of Railway Government of India under Aatmanirbhar Bharat initiative. This contract entails the supply of Ramkrishna Forgings Limited 1.54 million forged wheels further solidifying our commitment to supporting the growth and modernization of the Indian railway sector. We take immense pride in contributing to the development of our nation’s infrastructure and being a part of this transformative initiative. The Board has also approved acquisition of Multitech Auto Private Limited and its wholly owned subsidiary Mal Metalliks Private Limited. The company has a capacity to manufacture 21,600 metric ton per annum machine SG & CI castings and bar draw facility of 6,000 metric ton per annum. This acquisition marks a significant step forward in the Company’s growth strategy and expanding its product line and fortifying its presence in the passenger vehicle, light commercial vehicle and heavy commercial vehicle segments.”

– Mr. Lalit Khetan, Whole-Time Director & CFO, Ramkrishna Forgings Ltd on Q1FY24 ConCall

Stock Data
Ticker	RKFORGE
Exchange	NSE
Industry	FORGING

Price Performance
Last 5 Days	+1.24%
YTD	+174.18%
Last 12 Months	+250.61%

*As of 11.09.2023

Company Description:

The second-largest forging business in India is called Ramkrishna Forgings Ltd (RKFL). The company was established on November 12th, 1981, and started producing as a small-scale manufacturing unit in 1984. It initially produced forgings for the railroads.

The production and sale of forged parts for autos, railroad wagons & coaches, and engineering equipment is the foundation of the company’s business strategy. It has industrial plants in Jamshedpur, Jharkhand; Gamaria; Adityapur Industrial Area; Baliguma; Dugni at Saraikela; and Liluah, West Bengal.

In India and overseas, RKFL is a significant component supplier to the commercial vehicle market. Through a succession of acquisitions and collaborative ventures, the corporation hopes to treble its top line in three years. On a conservative basis, it hopes to end 2025–26 with revenues of Rs 6,000 crore, up from Rs 3,000 crore in 2022–23.

The business anticipates that the acquisitions of Multitech Auto through negotiation and JMT Auto, an Amtek Auto Group company, from the insolvency court will mark the beginning of a new period of expansion. A committee of the company’s creditors has also acknowledged it as the highest bidder for ACIL (formerly Amtek Crankshaft India Ltd.), and the Supreme Court will decide the case.

RKFL wants to raise the share of the non-auto segment, diversify its product offering, climb the value chain, and dominate the casting market. Even if the company’s share of non-car business is expected to increase from 22% to 30%, the auto industry will still be its primary focus. The company anticipates maintaining its emphasis on the export market, which would make for 40% of total revenue.

The company will spend Rs 350 crore in this fiscal year to increase its forging capacity from 210,900 tonnes to 243,000 tonnes. Additionally, a 25,000 tonne cold forging process is being added, and it is planned for service in the first quarter of 2024–2025. The estimated capex for the upcoming year is Rs 200 crore.

RKFL will be able to advance up the value chain in the auto component market and become a supplier of aerospace and oil and gas components thanks to the JMT Auto acquisition.

Financial Results:

Ramkrishna Forgings Ltd reported Revenues for Q1FY24 of ₹892.00 Crores up from ₹699.00 Crore year on year, a rise of 27.61%.

Total Expenses for Q1FY24 of ₹793.00 Crores up from ₹622.00 Crores year on year, a rise of 27.49%.

Consolidated Net Profit of ₹79.00 Crores up 54.9% from  ₹51.00 Crores in the same quarter of the previous year.

The Earnings per Share is ₹4.90, up 52.65% from ₹3.21 in the same quarter of the previous year.

Key Strengths:

Cutting-Edge Press Line: RKFL possesses a state-of-the-art press line for manufacturing a variety of items such as Axle Beams, Knuckles, Crankshafts, and more. This advanced machinery enables the company to efficiently produce top-quality products.

Highly Skilled Engineering Team: The company boasts a strong engineering team, strategically divided into various processing areas. This division of labor ensures that experts handle each aspect of the production process, leading to superior quality control and efficiency.

Effective Management of New Product Development: RKFL excels in managing its new product development team. This team is responsible for innovation and the introduction of new products, ensuring the company remains competitive.

Pioneering Position: The company enjoys the advantage of being a pioneer in an increasingly crowded marketplace. The rapid introduction of new products has significantly expanded RKFL’s market share in the Misc. Fabricated Products industry.

Global Reach: The company had a global presence, exporting its products to various countries. This international exposure allowed it to tap into diverse markets and benefit from global demand fluctuations.

Robust Manufacturing Facilities: Ramkrishna Forgings had modern and well-equipped manufacturing facilities, which enabled efficient production processes and the ability to scale up production as needed.

Key Challenges:

Industry Competition: The manufacturing industry, especially in the automotive and heavy machinery sectors, is highly competitive. The company may face intense competition from both domestic and international players.

Raw Material Price Volatility: Fluctuations in the prices of raw materials, particularly metals like steel, can impact production costs and profitability.

Supply Chain Disruptions: Disruptions in the supply chain, such as delays in the delivery of raw materials or components, can impact production schedules and customer commitments.

Customer Concentration: Dependence on a few major customers can be risky. Losing a significant customer or facing reduced orders from key clients could have a substantial impact on revenue.

Debt and Financial Leverage: If the company has a high level of debt or financial leverage, it may be vulnerable to changes in interest rates and have limited financial flexibility.

Labor Relations: Labor disputes, strikes, or challenges in managing a skilled workforce can disrupt operations and affect productivity.