This forging giant is set to bloom in the infrastructure boom

RAMKRISHNA FORGINGS LIMITED

Know the Company

Ramkrishna Forgings Limited (RKFL) is the second largest forging company in India, with a legacy spanning nearly four decades in the manufacturing and supply of closed-die forgings industry in India. The Company is specializing in carbon and alloy steel, micro-alloy steel, and stainless-steel forgings. RKFL caters to diverse customer requirements, with Forged, Heat Treated, Machined, and Fully Assembled components.

Established in 1981 in Kolkata, RKFL operates seven state-of-the-art manufacturing facilities spread in Jharkhand, West Bengal and in Jamshedpur.  The company also has expanded its footprint internationally, with presence in the US, Mexico, Turkey, and Belgium. Its international offices situated in Detroit (USA), Toluca and Monterrey (Mexico), and Istanbul (Turkey), along with warehousing facilities in Hagerstown, Louisville, and Detroit (USA), Toluca and Monterrey (Mexico), and Westerloo (Belgium).

RKFL supplies forging products to several Original Equipment Manufacturers (OEMs) across India and globally. The company’s diverse clientele spans sectors such as Automotive, Railways, Farm Equipment, Bearings, Oil & Gas, Power and Construction, Earth Moving, and Mining companies. It is a critical supplier of safety components for railway passenger coaches and locomotives, and a preferred partner to major OEMs like TATA Motors, Ashok Leyland, Daimler in India, as well as Volvo, Iveco, DAF, Scania, MAN, and Ford Otosan, etc in overseas.

Key Strengths

Ramkrishna Forgings has firmly established itself as a key player in the forging industry over the past four decades, driven by a strong emphasis on quality, technological advancement, and customer satisfaction. The company boasts a diverse portfolio of over 2,000 products, catering to both auto and non-auto components segments. RKFL’s strong international footprint spans 22 countries, with significant presence in North America and Europe, highlighting its global reach and international market influence.

The company’s commitment to quality and safety standards is underscored by its certifications in TS 16949, OSHAS 18001, and ISO 14001. Over the years, RKFL has expanded its forging and die-making capacities, incorporating advanced machining and heat treatment facilities, including isothermal annealing. This technological advancement enables the company to manufacture high-precision components for Original Equipment Manufacturers (OEMs).

Capacity Expansion with Large Order Wins

RKFL continues to diversify its product portfolio and expand its market presence. The Company is also in the process of adding a capacity of 14,250 tons, consisting of up-setter forgings. Plans are underway to set up a cold forging line and an 8,000-ton hot forging press line, along with smaller press lines, which will further enhance the company’s capacity by 65,000 tons.

Presently, 15% of RKFL’s revenue comes from Europe, a significant increase from virtually zero revenue two years ago. This growth is a testament to the company’s successful expansion strategy and its ability to penetrate new markets. In Q4FY24, RKFL’s board approved the establishment of a new manufacturing facility in Mexico. This strategic move will enhance the company’s ability to serve newer geographies more efficiently.

A consortium of Ramkrishna Forgings and Titagarh Wagons Ltd received a Letter of Offer and Acceptance for the manufacturing and supply of forged wheels for Indian Railways, with an order size of Rs 12,226 crores for 20 years. The consortium is planning to build Asia’s largest train wheel manufacturing plant using state-of-the-art German technology. The facility will have a capacity of over 200,000 wheels, expected to generate around Rs 28,000 crores in revenue over the next 20 years.

RKFL already signed an agreement to supply powertrain components to the USA’s largest electric passenger vehicle producer, marking its debut in the US electric vehicle market. This deal signifies RKFL’s entry into the electric vehicle segment with a focus on powertrain components. Additionally, RKFL secured an order valued at Rs 270 crore for the supply of Vande Bharat Trainsets from the BHEL-TRSL consortium. This project involves developing and validating the Bogie Frame for the sleeper version of the Vande Bharat Trainset. Further, RKFL’s recent contract worth US$220 million in the North American market reflects its strategic expansion and focused approach, reinforcing its position as a global leader in the forging industry.

During the current financial year, the Company is earmarking Rs 350 crore to expand its forging capacity from 210,900 tonnes to 243,000 tonnes. The projected capital expenditure for the next fiscal year is about Rs 200 crore. Once the expansions completed, the company will become the sole entity in India equipped with hot, warm, and cold forging facilities, with substantial diversification opportunities.

Aggressive Fund Raising

Ramkrishna Forgings raised Rs 1,000 crore through a qualified institutional placement (QIP) of its equity shares in November 2023. The allotment comprised 1,62,86,644 equity shares with a face value of Rs 2 each, issued at an issue price of Rs 614 per equity share, representing a premium of Rs 612 per equity share.

Inorganic Growth

RKFL acquired 100% of the shares in the debt-ridden JMT Auto Limited through the IBC route, in 2023. The infusion of Rs 125 crore, with Rs 70 crore upfront and an additional Rs 55 crore over four years, along with an extra Rs 50 crore investment in plant and machinery, underscores the company’s commitment to leveraging the potential of this acquisition.  The acquisition of JMT Auto presents a strategic opportunity for the company to elevate its position in the auto component segment and expand into new markets such as oil and gas and aerospace. With six plants in Jamshedpur and two in Dharwad, JMT Auto brings significant expertise and capabilities to RKFL. JMT Auto’s specialization in heat treatment, gear manufacturing, and a wide array of components for various industries, including oil and gas, complements the company’s existing portfolio. Equipped with advanced CNC technology, JMT Auto has a proven track record in producing high-precision gears and shafts, along with an extensive range of engine components, bearings, and assemblies for commercial vehicles, tractors, and diesel engines.

Moreover, the acquisition of JMT Auto has secured several existing customers, allowing them to resume business operations post-audit of the acquired plant. With a casting capacity of 12,000 MT per annum and a forging capacity of 18,000 MT per annum, the company is well-positioned to capitalize on emerging opportunities in the market. Discussions are underway for the supply of various products to these customers, indicating promising prospects for business expansion. This strategic move not only enhances RKFL’s capabilities but also opens up avenues for diversification and sustained growth in the dynamic automotive and industrial sectors.

RKFL’s strategic acquisition of 100 percent equity in Multitech Auto Pvt Ltd and its subsidiary in Jamshedpur at a valuation of approximately Rs 212 crore, helping the company to expanding its footprint further in the automotive sector.

Multitech Auto Pvt. Ltd. is renowned for its high-quality SG and CI castings and is recognized as a pioneer in introducing Austempered Ductile Iron (ADI) castings in Eastern India. With modern machining facilities, SCADA-controlled heat treatment capabilities, and extensive inspection facilities, Multitech Auto specializes in manufacturing machined cast parts for medium and heavy commercial vehicles and railways, positioning itself as a key player in the automotive components industry.

Multitech Auto has an impressive machined casting capacity of about 21,600 tonnes, RKFL aims to invest Rs 300-350 crore over the next two-three years to scale up the capacity to 100,000 tonnes. This move not only bolsters RKFL’s presence in passenger vehicles, light commercial vehicles, and heavy commercial vehicles segments but also enhances its overall manufacturing capabilities.

RKFL’s trajectory towards inorganic expansion continues as it emerges as the highest bidder for ACIL (formerly Amtek Crankshaft India Ltd), however, the matter is still awaiting finalization in the Supreme Court. Upon completion, the ACIL acquisition promises to be a game-changer, facilitating RKFL’s geographical diversification with its strategic location in Manesar, the automotive hub of North India. ACIL’s significant presence as a supplier to the tractor segment further strengthens RKFL’s foothold in the automotive industry.

The company remains steadfast in its commitment to the automotive segment, even as it anticipates a surge in the share of non-auto business to 30 percent from the current 22 percent.

RKFL’s proposed 50:50 joint venture with Titagarh Rail Systems Ltd to supply forged wheels to Indian Railways marks a pivotal development in its growth trajectory. With an estimated investment of approximately Rs 1,400 crore, the joint venture is poised to revolutionize the Indian railway sector. The forthcoming plant, set to commence operations from 2026-27, signifies RKFL’s strategic foresight and collaborative approach towards meeting the evolving needs of the rail transportation sector.

Strong Financials

For the Q4FY24, RKFL witnessed significant surge in net profit, which rose by 31% to reach Rs 87 crore with a total income increased by 6% to Rs 886 crore, compared to Rs 835 crore recorded in the year-ago quarter. Furthermore, the EBITDA margin for Q4FY2023 stood at 22.5%, marking a sequential expansion of 42 basis points. For the full fiscal year 2023-24, the Company reported a remarkable 38% rise in net profit, amounting to Rs 326 crore, in contrast to Rs 235 crore in FY23. Its total income for FY24 climbed to Rs 3,490 crore from Rs 3,001 crore in FY23. It is notable that, excluding the impact of Deferred Tax, the net profit after tax witnessed a robust increase of 25% from the preceding year.

Outlook

The outlook for the Indian forging industry looks promising, given its critical role as it is the backbone of various core sectors such as automobile, industrial machinery, power generation, construction, mining equipment, railways, and general engineering. As the second-largest manufacturer, any resurgence in the nation’s economic activity well for the Company’s growth trajectory. Moreover, the Indian Rail Freight Industry is witnessing significant advancements, with ambitious plans to enhance capacity, efficiency, and sustainability. The planned increase in annual freight target and the development of PM Gati Shakti Cargo terminals underscore the sector’s growth potential, offering substantial opportunities for forging companies like Ramakrishna Forgings to capitalize on.

RKFL’s strategic initiatives, robust financial performance, and diversified product portfolio, all are favourably for future growth. Despite facing challenges such as economic fluctuations, raw material price volatility, and competitive pressures, the company remains resilient on account of the huge order backlog and long track record. With a focus on innovation, expansion, and capacity ramp-up, Ramakrishna Forgings aims to further enhance its global presence, diversify products for non-automotive customers, and explore high-margin niche products, especially for electric vehicles (EVs).

Additionally, the company’s ambitious revenue target of Rs 6,000 crore by the end of 2025-26 demonstrates its confidence in its growth trajectory and commitment to market leadership. By leveraging its existing capacity, enhancing process efficiency, and exploring avenues for revenue diversification, Ramakrishna Forgings is well-positioned to thrive amidst evolving market dynamics and emerging opportunities in the forging industry.

Risk Factors

RKFL is engaged in the forging industries for the Automobile and Railway component industries, both of which face several risk factors that could impact the company’s operations and profitability. In the auto component sector, major risk factor is the cyclicality of the automotive industry itself.  Overall economic conditions and regulatory changes can lead to volatility in sales, which could directly impact the auto component manufacturers’ revenues and margins. Additionally, intense competition within the sector, both domestically and globally, poses a challenge for companies to maintain pricing power and market share.

Similarly, in the railway component industry, dependency on government policies and funding for infrastructure projects poses a significant risk. Delays or cancellations in government projects, changes in regulations, or budget constraints can directly affect demand for railway components, leading to revenue uncertainties for manufacturers, including RKFL.

Sector: Consumer Discretionary

Market Price: Rs. 703.50 as on today

FV: Rs 2/-

Stock Name: Ramkrishna Forgings Ltd

BSE Code: 532527, NSE Code: RKFORGE

Market Cap.: Rs 12862 Cr.

Book Value: Rs. 148

Segment: Auto Components & Equipments

Incorporation: 1981

Headquarters: Kolkata