th ramkrishna forgings ltd isin… · ramkrishna forgings ltd is an india-based company engaged in...

Document code: FOTL_261120184_2 Copyright © 2016 Firstobject Technologies Ltd. All rights reserved

RAMKRISHNA FORGINGS LTDResult Update (PARENT BASIS): Q2 FY19

CMP: 559.00 NOV 26th, 2018

Overweight ISIN:INE399G01015

Index Details SYNOPSIS

Ramkrishna Forgings Ltd is an India-basedcompany engaged in the manufacture of screwcouplings, draw gear assembly, snubber assembly,hanger, block hanger side frame key and variousother forgings items of railway coaches and wagon.

Revenue for the quarter increased by 36.55% at Rs.4614.72 mn as against Rs. 3379.41 mn, whencompared with the prior year period.

During Q2 FY19, EBIDTA is Rs. 984.82 mn asagainst Rs. 662.65 mn in the corresponding periodof the previous year, up by 39.31%.

During Q2 FY19, Profit before tax increased to Rs.498.96 mn from Rs. 274.44 mn in Q2 FY18.

During Q2 FY19, net profit jumps to Rs. 327.80 mnagainst Rs. 235.80 mn in the corresponding quarterending of previous year.

EPS of the company stood at Rs. 10.06 a shareduring the quarter as against Rs. 7.22 in previousyear quarter.

Revenue of the company registered a growth of41.95% at Rs. 8719.47 mn in H1 FY19 ascompared to Rs. 6142.46 mn in H1 FY18.

During H1 FY19, PAT rose by 85.51% at Rs.604.99 mn as against Rs. 326.13 mn in H1 FY18.

Net Sales and PAT of the company expected togrow at a CAGR of 24% and 30% over 2017 to2020E, respectively.

Sector Other Industrial ProductsBSE Code 532527Face Value 10.0052wk. High / Low (Rs.) 891.00/528.00Volume (2wk. Avg.) 495Market Cap (Rs. in mn.) 18218.65

Annual Estimated Results(A*: Actual / E*: Estimated)Years (Rs. in mn) FY18A FY19E FY20ENet Sales 14533.27 18893.25 21538.30EBITDA 2884.34 3746.50 4254.72Net Profit 946.60 1337.02 1568.76EPS 29.04 41.02 48.13P/E 19.25 13.63 11.61

Shareholding Pattern (%)

As on Sep 2018 As on June 2018

Promoter 44.78 44.41

Public 55.22 55.59

Others -- --

1 Year Comparative Graph

RAMKRISHNA FORGINGS LTD S&P BSE SENSEX

PEER GROUPS CMP MARKET CAP EPS(TTM) P/E (X)(TTM) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)Ramkrishna Forgings Ltd 559.00 18218.65 37.60 14.87 2.40 10.00Precision Wires India Ltd 224.00 5180.50 17.73 12.63 2.19 90.00Grindwell Norton Ltd 495.05 54811.90 14.95 33.11 5.58 100.00

Mahindra CIE Automotive Ltd 252.80 95715.50 3.69 68.51 2.73 0.00


QUARTERLY HIGHLIGHTS (PARENT BASIS)

Results updates- Q2 FY19,

(Rs. in millions) Sep-18 Sep-17 % Change

Revenue 4614.72 3379.41 36.55%

Net Profit 327.80 235.30 39.31%

EPS 10.06 7.22 39.31%

EBIDTA 984.82 662.65 48.62%

The company’s net profit registered a growth of 39.31% at Rs. 327.80 million as against Rs. 235.30 million in the

corresponding quarter ending of previous year. Revenue for the quarter increased by 36.55% at Rs. 4614.72 million from

Rs. 3379.41 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs.

10.06 a share during the quarter as against Rs. 7.22 in the corresponding quarter of previous year. Profit before interest,

depreciation and tax is Rs. 984.82 million as against Rs. 662.65 million in the corresponding period of the previous year.

Break up of Expenditure

Break up ofExpenditure

Value in Rs. Million

Q2 FY19 Q2 FY18 %Change

Cost of MaterialsConsumed 2359.55 1764.76 34%

Employee BenefitExpenses 266.35 254.78 5%

Power & Fuel 367.24 296.90 24%

Depreciation &AmortizationExpenses

279.98 198.30 41%

Other Expenditure 646.17 554.11 17%


Strategic Update:

Continuous focus on improving content per vehicle and strengthening of existing relationship with OEMs and Tier I

players.

Continuous focus on improving profitability and return ratio’s

RKFL has continued to de-risk its geographical presence by penetrating into European OEM.

Company to augment its enhanced forging capacity by greenfield & brownfield project to enter into new territory of

LCV & PV.

First phase of the project to go live in 1st quarter of FY20 and Company is confident of completing the entire project

in next one year time.

COMPANY PROFILE

Ramkrishna Forgings Ltd is an India-based company engaged in the manufacture of screw couplings, draw gear assembly,

snubber assembly, hanger, block hanger side frame key and various other forgings items of railway coaches and wagon.

They manufacture and supply of open, and closed plain carbon and low alloy steel forgings in the as- Forged, Heat

Treated and Machined condition for Railways, Automobile and General Engineering Purposes.

The company’s products include forgings for railway coaches, wagons and locomotives; forgings for automobiles, mining

and general engineering; forgings for valve bodies; transmission items; track links, master links and trade rollers; drop

forgings from 1 kilogram to 125 kilograms, and forged and fabricated spares for railway wagons, coaches, diesel and

steam locos, such as hanger, screw coupling, side frame key, shackle stone, guide, lower spring seats, draw gear assembly,

snubber assy, block hangers, draw hook and drawbar.


FINANCIAL HIGHLIGHT (PARENT BASIS) (A*- Actual, E* -Estimations & Rs. In Millions)Balance Sheet as of March 31, 2017 -2020E

FY17A FY18A FY19E FY20EASSETS1) Non-Current Assets

a) Property, Plant and Equipment 10130.70 10654.83 11187.57 11858.83b) Capital Work in Progress 504.24 435.57 1145.44 1466.16c) Intangible Assets 33.75 24.23 18.90 16.06d) Financial Assets

i) Investments 193.03 193.03 202.68 216.87ii) Loans 125.75 122.22 119.78 116.19iii) Other Financial Assets 138.60 2.59 6.09 9.45

e) Other Non-Current assets 51.37 204.58 364.16 455.19Sub - Total Non- Current Assets 11177.44 11637.06 13044.62 14138.75

2) Current Assetsa) Inventories 2285.62 2993.88 3682.47 4345.32b) Financial Assets

i) Trade Receivables 3937.37 4721.95 3399.80 2957.83ii) Cash and Cash Equivalents 2.04 3.67 13.01 19.52iii) Bank Balance other than Cash 8.73 0.12 6.45 8.26iv) Loans 9.59 8.61 32.54 41.65v) Other Financial Assets 19.79 394.71 256.56 205.25

c) Current Tax Assets 10.41 2.30 2.42 2.51d) Other Current Assets 664.59 381.75 236.68 194.08Sub - Total Current Assets 6938.14 8506.97 7629.94 7774.41

Total Assets (1+2) 18115.58 20144.03 20674.56 21913.16EQUITY AND LIABILITIES1) EQUITY

a) Equity Share Capitalb) Other Equity 286.70 325.92 325.92 325.92

Total Equity 4408.78 7265.87 8602.90 10171.662) Non Current Liabilities 4695.48 7591.79 8928.82 10497.58

a) Financial Liabilitiesi) Borrowings 4233.11 3860.78 3765.08 3576.83ii) Other Financial Liabilities 101.75 0.00 0.00 0.00

b) Deferred Tax Liabilities 228.93 344.42 475.29 617.88c) Other Non-Current Liabilities 206.42 382.62 363.49 345.32

Sub - Total Non Current Liabilities 4770.21 4587.82 4603.86 4540.023) Current Liabilities

a) Financial Liabilitiesi) Borrowings 4306.17 3451.61 2588.71 2200.40ii) Trade Payables 2757.61 2830.92 2972.46 3061.64iii) Other Financial Liabilities 1486.28 1547.16 1454.33 1482.79

b) Provisions 23.59 29.08 12.21 9.16c) Current Tax Liabilities 0.00 41.11 43.16 44.89d) Other Current Liabilities 76.25 64.55 71.00 76.68Sub - Total Current Liabilities 8649.89 7964.42 7141.88 6875.56

Total Equity and Liabilities (1+2+3) 18115.58 20144.03 20674.56 21913.16


Annual Profit & Loss Statement for the period of 2017 to 2020E

Value(Rs.in.mn) FY17A FY18A FY19E FY20E

Description 12m 12m 12m 12mNet Sales 9520.43 14533.27 18893.25 21538.30

Other Income 81.54 41.94 30.19 33.21

Total Income 9601.97 14575.20 18923.44 21571.51

Expenditure -7942.23 -11690.87 -15176.94 -17316.79

Operating Profit 1659.74 2884.34 3746.50 4254.72

Interest -749.80 -698.20 -754.06 -791.76

Gross profit 909.94 2186.13 2992.44 3462.96

Depreciation -747.28 -844.02 -970.62 -1096.81

Profit Before Tax 162.66 1342.11 2021.81 2366.15

Tax -53.43 -395.51 -684.79 -797.39

Net Profit 109.23 946.60 1337.02 1568.76

Equity capital 286.70 325.92 325.92 325.92

Reserves 4408.78 7265.87 8602.90 10171.66

Face value 10.00 10.00 10.00 10.00

EPS 3.81 29.04 41.02 48.13

Quarterly Profit & Loss Statement for the period of 31st Mar, 2018 to 31st Dec, 2018E

Value(Rs.in.mn) 31-Mar-18 30-June-18 30-Sep-18 31-Dec-18E

Description 3m 3m 3m 3mNet sales 4401.08 4104.76 4614.72 5353.07

Other income 8.40 5.78 6.08 6.39

Total Income 4409.48 4110.54 4620.80 5359.46

Expenditure -3484.55 -3239.96 -3635.98 -4280.32

Operating profit 924.92 870.58 984.82 1079.14

Interest -246.13 -174.95 -205.88 -189.41

Gross profit 678.80 695.63 778.94 889.73

Depreciation -177.03 -267.39 -279.98 -296.78

Profit Before Tax 501.76 428.23 498.96 592.95

Tax -158.60 -151.05 -171.16 -201.96

Net Profit 343.17 277.19 327.80 390.99

Equity capital 325.92 325.92 325.92 325.92

Face value 10.00 10.00 10.00 10.00

EPS 10.53 8.50 10.06 12.00


Ratio Analysis

Particulars FY17A FY18A FY19E FY20E

EPS (Rs.) 3.81 29.04 41.02 48.13EBITDA Margin (%) 17.43% 19.85% 19.83% 19.75%PBT Margin (%) 1.71% 9.23% 10.70% 10.99%PAT Margin (%) 1.15% 6.51% 7.08% 7.28%P/E Ratio (x) 146.72 19.25 13.63 11.61ROE (%) 2.33% 12.47% 14.97% 14.94%ROCE (%) 6.89% 13.69% 18.16% 19.40%Debt Equity Ratio 1.82 0.96 0.71 0.55EV/EBITDA (x) 14.79 8.85 6.55 5.63Book Value (Rs.) 163.78 232.94 273.96 322.10P/BV 3.41 2.40 2.04 1.74

Charts


OUTLOOK AND CONCLUSION

At the current market price of Rs. 559.00, the stock P/E ratio is at 13.63 x FY19E and 11.61 x FY20E respectively.

Earning per share (EPS) of the company for the earnings for FY19E and FY20E is seen at Rs. 41.02 and Rs. 48.13

respectively.

Net Sales and PAT of the company expected to grow at a CAGR of 24% and 30% over 2017 to 2020E, respectively.

On the basis of EV/EBITDA, the stock trades at 6.55 x for FY19E and 5.63 x for FY20E.

Price to Book Value of the stock is expected to be at 2.04 x and 1.74 x for FY19E and FY20E respectively.

Hence, we say that, we are Overweight in this particular scrip for Medium to Long term investment.

INDUSTRY OVERVIEW

Forging industry:

Forging is about shaping metal blocks into desired shapes by applying compressive forces. This technique enhances the

mechanical properties of the block giving it significant additional strength. Hence, forging is generally preferred over

other metal shaping techniques.

The Indian forging industry is recognized globally for its technical capabilities. With an installed capacity of around 37.7

lakh TPA, the Indian forging industry has a capability to forge variety of raw materials like carbon steel, alloy steel,

stainless steel, super alloy, titanium and aluminum. As a result, forgings are used by almost the entire manufacturing

sector, positioning the forging space as an important contributor to the stability and growth of the manufacturing sector.

The Indian forging industry is highly fragment with more than 80% of the units featuring in the small and very small

category i.e. below 12,500 TPA capacity. The automotive sector currently accounts for about 60% of the forging sales. To

reduce its dependence on the automotive sector, the Indian forging industry is consciously making efforts towards

upgrading technologies and diversifying product range to expand its customer base to emerging sectors including


aerospace, energy, oil & gas, heavy engine parts, defence, construction equipment, power generation, power transmission

and distribution.

The Indian forging industry is likely to grow at CAGR of 9.5% by 2018, production wise, and reach to 2.97 mn MT in FY

2017-18 from 2.25 mn MT during FY 2014-15, according to Association of Indian Forging Industry. This optimism is

primarily due to the Government thrust on the manufacturing sector with initiatives like ‘Make in India’ and ‘Skill India’

promising to catalyze demand over the medium term. Many global OEMs and Tier-I players are setting up purchasing

offices in India to procure high quality forging products.

Since the Indian forging industry is primarily influenced by the automotive sector, globally and in India, it would be

relevant to analyze its performance and prospects in light of the automotive sector. Moreover, as Ramkrishna Forging has

Overall, it is expected that CV sales could rise at a CAGR of 4.6% over the 2017-21 forecast period. The strongest growth

is likely to be in Latin America and the Transition Economies (both 6.2%) as they rebound from their slumps, with Asia

not far behind on 5.5%. The slowest CAGR over the forecast period is expected to be in Western Europe (1.7% in 2017-

21), as it can fall back from the current surge. However, low commodity prices will continue to affect companies in many

resource dependent emerging markets, notably Russia, Brazil and the Middle East, preventing them from regaining all the

lost ground. A business-critical exposure to the commercial vehicle space globally and in India it would be more

appropriate to focus the discussion on this vertical within the automotive space.

After two years of decline that encompassed nearly every major developing market, the global commercial vehicle (CV)

market returned to growth in 2016. It is estimated that new CV registrations across 60 markets rose by a combined total of

3.7% to 13.3m, nearly at par with 2013’s record. Even Latin America and the Transition Economies reported a growth,

although it was not strong enough to make up for their recent slumps. Nevertheless, a few key markets continued to

decline in 2016, including Brazil and Indonesia. They were joined by the US, where weak business investment prompted a

10.7% fall in sales of medium and heavy vehicles.

Overall, it is expected that CV sales could rise at a CAGR of 4.6% over the 2017-21 forecast period. The strongest growth

is likely to be in Latin America and the Transition Economies (both 6.2%) as they rebound from their slumps, with Asia

not far behind on 5.5%. The slowest CAGR over the forecast period is expected to be in Western Europe (1.7% in 2017-

21), as it can fall back from the current surge. However, low commodity prices will continue to affect companies in many

resource dependent emerging markets, notably Russia, Brazil and the Middle East, preventing them from regaining all the

lost ground.

Government Initiatives:

The Government of India’s Automotive Mission Plan (AMP) 2006–2016 has come a long way in ensuring growth for the

sector. Indian Automobile industry is expected to achieve a turnover of $300 billion by the year 2026 and will grow at a

rate of CAGR 15 per cent from its current revenue of $74 billion.

Government has drafted Automotive Mission Plan (AMP) 2016-26 which will help the automobile industry to grow and

will benefit Indian economy in the following ways:-


Contribution of auto industry in the country’s GDP will rise to 13 percent, currently which is less than 10 per cent

More than 100 million jobs will be created in the economy

Companies will invest around US $80 billion as a part of their capital expenditure

End of life Policy will be implemented for old vehicles

Strategic Positioning to Ensure Long Term Growth:

Ramkrishna Forgings Ltd. (RKFL) has manufacturing facilities at Jamshedpur and is among the leading automotive

component manufacturers in India. RKFL supplies a wide range of components and has state of the art equipment backed

by advanced technology.

RKFL’s products find application across markets in both the automotive and non-automotive sectors. These markets

include medium & heavy commercial vehicles, tractors, Railways and the oil & gas sector. RKFL’s customer base

includes global OEM’s and TIER 1 customers.

Over the medium term, RKFL will likely benefit from an rising share of business from market leader in the Medium &

Heavy Commercial Vehicle (M&HCV) segment, higher sourcing of components from cost competitive manufacturing

hubs in Asia (including India), and from development of new product segments and customers. RKFL targets doubling of

revenues over the next three to four years. Richer product mix and economies of scale will drive EBITDA margins higher

by 200-300bps resulting in a margin in the range of 22-24% over the next three years.

Outlook:

The next five years are expected to be brighter for the industry. The Truck and Bus Manufacturing industry is expected to

grow over the next five years. Industry revenue is forecast to rise at an annualized rate of 1.0% to US$30.1 billion over the

five years to 2022. As the global economy continues to improve, international trade and freight levels will rise, creating a

greater need for new trucks. Additionally, ageing fleets will become a concern for trucking operators, and companies will

invest in new trucks as freight demand grows. These new investments will primarily center on hybrid trucks as freight

companies increase demand for cleaner-burning vehicles in anticipation of increased truck regulation.

As the US economy continues to improve, new and replacement demand will support industry growth. Freight demand

depends on nearly every sector of the economy. For example, imports of vehicles, clothing and consumer electronics will

grow over the next five years as consumer confidence continues to improve; therefore, trucks will be needed to transport

these goods. As a result, trucking businesses will keep growing and eventually demand new trucks. Furthermore, a built-

up inventory of old trucks will push demand upward, as new trucks are needed to replace aging fleets and accommodate

the uptick in freight volume.

However, despite expected revenue growth in the United States, emerging overseas economies will continue enticing

manufacturers to focus efforts abroad.


Disclosure Section

The information and opinions in Firstcall Research was prepared by our analysts and it does not constitute an offer orsolicitation for the purchase or sale of any financial instrument including any companies scrips or this is not an officialconfirmation of any transaction. The information contained herein is from publicly available secondary sources and dataor other secondary sources believed to be reliable but we do not represent that it is accurate or complete and it should notbe relied on as such. Firstcall Research or any of its affiliates shall not be in any way responsible for any loss or damagethat may arise to any person from any inadvertent error in the information contained in this report. Firstcall Research and/or its affiliates and/or employees will not be liable for the recipients’ investment decision based on this document.

Analyst Certification

The following analysts hereby state that their views about the companies and sectors are on best effort basis to the best oftheir knowledge. Unless otherwise stated, the individuals listed on the cover page of this report are research analysts. Theanalyst qualifications, sectors covered and their exposure if any are tabulated hereunder:

Name of the Analyst Qualifications SectorsCovered

Exposure/Interest tocompany/sector UnderCoverage in the CurrentReport

Dr.C.V.S.L. KameswariM.Sc, PGDCA,M.B.A,Ph.D (Finance)

Pharma &Diversified No Interest/ Exposure

U. Janaki Rao M.B.A CapitalGoods No Interest/ Exposure

B. Anil Kumar M.B.A Auto, IT &FMCG No Interest/ Exposure

V. Harini Priya M.B.A Diversified No Interest/ ExposureB. Srikanth M.B.A Diversified No Interest/ Exposure

Important Disclosures on Subject Companies

In the next 3 months, neither Firstcall Research nor the Entity expects to receive or intends to seek compensation for anyservices from the company under the current analytical research coverage. Within the last 12 months, Firstcall Researchhas not received any compensation for its products and services from the company under the current coverage. Within thelast 12 months, Firstcall Research has not provided or is providing any services to, or has any client relationship with, thecompany under current research coverage.

Within the last 12 months, Firstcall Research has neither provided or is providing any services to and/or in the past has notentered into an agreement to provide services or does not have a client relationship with the company under the researchcoverage.

Certain disclosures listed above are also for compliance with applicable regulations in various jurisdictions. FirstcallResearch does not assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight, Equal-weight, No-Weight andUnderweight are not the equivalent of buy, hold and sell. Investors should carefully read the definitions of all weightsused in Firstcall Research. In addition, since Firstcall Research contains more complete information concerning theanalyst's views, investors should carefully read Firstcall Research, in its entirety, and not infer the contents from theweightages assigned alone. In any case, weightages (or research) should not be used or relied upon as investment advice.An investor's decision to buy or sell should depend on individual circumstances (such as the investor's own discretion, hisability of understanding the dynamics, existing holdings) and other considerations.


Analyst Stock Weights

Overweight (O): The stock's total return is expected to exceed the average total return of the analyst's industry (orindustry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months.

Equal-weight (E): The stock's total return is expected to be in line with the average total return of the analyst's industry(or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months.

No-weight (NR): Currently the analyst does not have adequate conviction about the stock's total return relative to theaverage total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next12-18 months.

Underweight (U): The stock's total return is expected to be below the average total return of the analyst's industry (orindustry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months.

Unless otherwise specified, the weights included in Firstcall Research does not indicate any price targets. The statisticalsummaries of Firstcall Research will only indicate the direction of the industry perception of the analyst and theinterpretations of analysts should be seen as statistical summaries of financial data of the companies with perceivedindustry direction in terms of weights.

Firstcall Research may not be distributed to the public media or quoted or used by the public media without the expresswritten consent of Firstcall Research. The reports of Firstcall Research are for Information purposes only and is not to beconstrued as a recommendation or a solicitation to trade in any securities/instruments. Firstcall Research is not abrokerage and does not execute transactions for clients in the securities/instruments.

Firstcall Research - Overall StatementS. No Particulars Remarks1 Comments on general trends in the securities market Full Compliance in Place2 Discussion is broad based and also broad based indices Full Compliance in Place3 Commentaries on economic, political or market conditions Full Compliance in Place4

Periodic reports or other communications not for public appearanceFull Compliance in Place

5 The reports are statistical summaries of financial data of the companies as and whereapplicable

Full Compliance in Place

6 Analysis relating to the sector concerned Full Compliance in Place7 No material is for public appearance Full Compliance in Place8 We are no intermediaries for anyone and neither our entity nor our analysts have any

interests in the reportsFull Compliance in Place

9 Our reports are password protected and contain all the required applicabledisclosures


10 Analysts as per the policy of the company are not entitled to take positions either fortrading or long term in the analytical view that they form as a part of their work


11 No conflict of interest and analysts are expected to maintain strict adherence to thecompany rules and regulations.


12As a matter of policy no analyst will be allowed to do personal trading or deal andeven if they do so they have to disclose the same to the company and take priorapproval of the company


13Our entity or any analyst shall not provide any promise or assurance of any favorableoutcome based on their reports on industry, company or sector or group



14 Researchers maintain arms length/ Chinese wall distance from other employees ofthe entity


15No analyst will be allowed to cover or do any research where he has financial interest


16 Our entity does not do any reports upon receiving any compensation from anycompany


Firstcall Research Provides

Industry Research on all the Sectors and Equity Research on Major Companiesforming part of Listed and Unlisted Segments

For Further Details Contact:Mobile No: 09959010555

E-mail: [email protected]@firstcallresearch.comwww.firstcallresearch.com

th ramkrishna forgings ltd isin… · ramkrishna forgings ltd is an india-based company engaged in...

Documents