Reduce Ramkrishna Forgings; target of Rs 233: Dolat Capital

Dolat Capital's research report on Ramkrishna Forgings

Ramkrishna Forgings (RMKF) Q1FY21 performance was dismal. A sharp decline in domestic M&HCV sales due to lockdown adversely affected its domestic revenue (-82% YoY). Export revenue also plunged 46% YoY, driven by slowdown in the Class 8 truck segment and impact of lockdown. RKF reported an EBITDA loss of Rs 15mn due to a negative operating leverage. APAT loss of Rs 265mn was attributed to higher depreciation and interest cost. The company is in the midst of a demand slump in the domestic MHCV segment while the Class 8 truck segment has witnessed some uptick in volume in last two months. The company is focusing on cost control measures to reduce fixed costs Rs 250mn to tide over the tough business environment. Management stated that Export is ramping up well and are expected to reach peak historic tonnage of 10,000MT by Q3FY21 due to a robust order book. Commissioning of the LCV capacity will help de-risk its portfolio. RMKF is focusing on expanding business across different geographies and customers with new capacities in place to cater to Railways, LCV and PV segment (expected to be complete by Dec-20). The railways segment is expected to draw additional revenue of Rs 2.5-3bn by FY22 end, with significant progress in the coming 2 quarters.

Outlook

Rising debt concerns are paramount in a down cycle given higher working capital requirements and weak earnings. Company has taken additional borrowings of Rs 1.5bn to cater to its working capital requirements. We Maintain Reduce rating on the stock, with TP Rs 233 (based on 13x FY23E EPS).

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