28 JUNE 2016
SECTOR: AUTO ANCILLARY
Ramkrishna Forgings Limited
BSE SENSEX
26525
S&P CNX
8127
(INR CRORES)
CMP: INR410 TP: INR490 (+20%)
Buy
Y/E MARCH
Revenue
EBITDA
EBITDA Margin
NP (Adj.)
EPS (Adj.)
EPS Growth
Core ROE (%)
Core ROCE (%)
P/E (x)
P/BV (x)
FY16
881
180
20.5%
55
19.0
-20%
13
11
21.5
2.6
FY17E
1,140
235
20.7%
79
27.4
44%
16
14
14.9
2.2
FY18E
1,404
294
21.0%
118
41.1
50%
20
17
10.0
1.8
KEY FINANCIALS
Diluted Shares (cr)
Market Cap. (Rs cr)
Market Cap. (US$ m)
Past 3 yrs Sales Growth (%)
Past 3 yrs NP Growth (%)
2.9
1,174
173
53%
152%
STOCK DATA
52-W High/Low Range (INR)
Major Shareholders
Promoter
Institutions
Public & Others
Average Daily Turnover(6 months)
Volume
Value (Rs cr)
1/6/12 Month Rel. Performance (%)
1/6/12 Month Abs. Performance (%)
779/265
50.4
21.3
28.4
48,155
1.9
7/-24/-31
6/-22/-36
We recommend to BUY Ramkrishna Forgings Limited for a
target of INR 490 - 12x on FY18E EPS (+20% Upside).
Foray into heavy press forging to enhance scalability:
Ramkrishna Forging has commissioned a 12500Tonne press that allows
it to manufacture complex and heavy forged components including
newer exports-oriented products. This will allow it to tap new
opportunities worth INR30-35bn across US, Europe and India. Peak
revenue potential of the 3 newly added 80,000tonne production capacity
is ~2x FY16 revenue of INR9.4bn. Realisations in complex forged
components are ~10-15% higher versus traditional forgings, thus
entailing superior margins. The company has already secured orders
from global as well as local OEMs for this vertical. RKFL has been
chosen by Tata Motors as an alternate supplier of crankshafts and
front axle beams (after Bharat Forge).
Deepening exports to insulate against domestic cyclical
surprises:
Over the years RKFL has increased exports significantly
and today domestic market contribution has dipped to 57% in FY16
from 75% in FY10. The company has bagged orders from tier 1
component supplier Dana Corp (USD100mn per annum deal) and inked
an annual contract of USD14mn (with potential to scale up to USD30mn
per annum over next 2 years) with another global OEM. We expect
the exports revenue mix to sustain at ~50% levels over the next 3
years as the company ramps up its exports revenues from the new
press lines. Further, with CV cycle recovery expected, the domestic
business is also slated for sharp improvement from current levels.
Revenue to grow at a CAGR of 26% over FY16-18E:
We
estimate a robust 25% production vol CAGR over FY16-18 (vs 3%
over FY12-15) as share of new press lines in the production mix jumps
significantly (to~70% from 10% in FY15) by FY18E. Moreover, higher
share of superior realization complex products will catapult RKFL's
revenue CAGR to 26% over FY16-18, with profits growing (post FY16
dip) at a 47% CAGR over FY16-18. ROE is expected to improve to
20% post a sharp dip in FY16.
Valuations & View:
While there are near-term headwinds in NAFTA
class 8 truck markets, we believe RKFL's prudent shift from
manufacturing lower-end to complex and heavy forged components
lends heft to its medium- to long-term growth trajectory. RKFL's entry
in heavy forged components will raise its ability to compete in the
global forging industry substantially. We expect a healthy PAT CAGR
of 47% from FY16-18E. We maintain the TP of INR 490 valuing the
company at 12x FY18E EPS.
Maximum Buy Price :INR415
Dharmesh Kant (Dharmesh.Kant@motilaloswal.com); Tel: +91 22 30102470 (Earlier Covered by: Ravi Shenoy)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Ramkrishna Forgings Limited
CONCERNS
Delayed recovery in the domestic automotive sector:
RKFL derives ~56% revenue from the domestic
automobile industry (CV segment). Any slowdown in CV segment can adversely impact the company's revenue
and margin. However, near-term prospects for growth for this industry seem robust and implementation of 15
year life for CVs that has been recommended will boost the prospects for domestic CV OEMs and hence for
RKFL.
Forex exposure:
RKFL derives 43% of its revenues from export (FY16) and hence is exposed to forex
movement. Although the company hedges 30-50% of its exports on a rolling basis, any significant appreciation
of INR against USD/EUR/GBP will impact the financials of the company materially
Execution risk:
The company commissioned the 12,500 tonne press at cost of INR3.5bn. Any delays in
scale-up with impact earnings as the depreciation and interest cost are being currently factored into the P&L
statement.
BACKGROUND
RKFL, set up in 1981, primarily caters to OEMs and tier-1 auto-component suppliers in the CV segment. The
company has 5 manufacturing facilities-3 in Jamshedpur (Jharkhand), 1 in Saraikhela? Saraiwan (Jharkhand)
and 1 in Kolkata. In the domestic market, it supplies auto components to all CV manufacturers such as Tata
Motors, Eicher Motors and Ashok Leyland with the exception of M&M. Internationally, Arvin Meritor is
RKFL's key client. Product portfolio includes forged as well as machined and now pressed components of
engine, steering, gearbox and axle components. The company has current capacity of ~1.5 lakh tone, of which
ring rolling is 24K tonnes, forging 45K tonnes and press lines another 80K tonnes.
INRCr
Total Income
Expenditure
EBITDA
Other Income
Interest
Depreciation
PBT
Tax
Adj. PAT
EBITDA (%)
Tax rate (%)
4QFY15
242
197
44.1
1
8
9
27.7
-7
34.6
18.7%
-25%
3QFY16
199
163
36.5
1
12
13
12.4
3
9.2
18.7%
26%
4QFY16
226
183
42.3
1
15.4
14.4
13.2
2
11.1
19.6%
16%
-68%
21%
98%
55%
-52%
27%
8%
6%
yoy
-7%
-7%
-4%
qoq
13%
13%
16%
Quarterly Performance
Ramkrishna Forgings (RKFL) reported revenues of INR226cr for Q4FY16 (-7% YoY & +13% QoQ).
Domestic revenues were up 26% QoQ at INR 161cr owing to uptick in volumes +33% QoQ to 16,028 tonnes;
going forward the company sees good traction from tier-1 domestic clients.
Exports revenues were down -12% QoQ [volumes -15% QoQ to 5,485 tonnes] at INR 72cr as the weakness
in the NAFTA clas 8 truck market continued. The company adjusted its production in line with customer's
inventories which led to decline in export volumes. The inventories at customer's end have started depleting
and going forward the company expects export volumes to pick up.
The operating costs of the company have peaked in this quarter and going forward increased utilisation at
new press will improve margins as operational leverage kicks in. The company expects the raw material price
to stablise in the near term.
Interest costs came in at INR 15.4cr [+98% YoY & +27% QoQ] & depreciation increased to INR 14.4cr
[+55% YoY] with the new press lines capitalised in the books.
Net profit declined 68% YoY to INR 11.1cr on account of higher interest and depreciation expenses
28 June 2016
2

Ramkrishna Forgings Limited
IVRCL: Financials and Valuation
Ramkrishna Forgings Limited. Financials & Valuation
INCOME STATEMENT
Y/E MARCH
FY14
FY15
(INRCR)
FY16 FY17E FY18E
RATIOS
Y/E MARCH
FY14
FY15
FY16 FY17E FY18E
Net sales
Growth
COGS
Employee Cost
Other Expenses
EBITDA
EBITDA Margin
Depreciation
Other Income
Interest Cost
PBT
- TAX
Rate
Adjusted PAT
Growth
PAT Margin
379
659
881 1,140 1,404
4% 74% 34% 29% 23%
228
370
376 494
604
33
50
81
86
104
43
56
71
86
105
59
130
180 235
294
15.7% 19.7% 20.5% 20.7% 21.0%
25
32
53
67
74
2
5
2
4
5
23
32
54
60
57
13
72
75 112
168
4
4
20
34
50
34%
5% 27.2% 30.0% 30.0%
9
68
7% 692%
2.3% 10.3%
55
-20%
79
44%
118
50%
8.4%
(INRCR)
FY14
FY15
FY16 FY17E FY18E
Adjusted EPS (INR)
Book Value
Div Per Share
Dividend Payout
Net Debt / Equity
P/E
P/BV
Dividend Yield
ROCE
ROE
Debtor days
Inventory days
Creditor days
W.Cap cycle
3.0
123
1.0
33%
1.4
136.8
3.3
0.2%
5%
3%
131
189
184
136
26.3
149
2.0
8%
1.7
15.6
2.7
0.5%
10%
19%
165
130
154
142
19.0
160
2.4
13%
1.5
21.5
2.6
0.6%
11%
13%
160
135
144
151
27.4
185
1.9
7%
1.2
14.9
2.2
0.5%
14%
16%
155
139
158
135
41.1
223
2.9
7%
1.0
10.0
1.8
0.7%
17%
20%
155
143
155
143
6.2% 6.9%
BALANCE SHEET
Y/E MARCH
CASH FLOW
(INRCR)
FY14
FY15
FY16 FY17E FY18E
Y/E MARCH
Share Capital
Share warrants
Reserves
Networth
26
7
289
322
27
6
377
410
29
6
423
458
29
6
496
530
29
6
604
638
Minority interest
0
0
Loans
479
703
Less Net Def. Tax Liab
29
33
Less other long term liability 3
6
SOURCES OF FUNDS
833 1,153
Net Fixed Assets
242
532
Capital WIP
347
316
Goodwill
0
0
Inventories
157
176
Debtors
136
299
Cash & Investments
15
1
Loans & Advances
33
51
Other Curr Assets
13
18
Current investments
0
0
Curr. Assets
354
545
Creditors and Prov.
198
290
Net Current Assets
157
255
Other LT assets
87
50
APPLICATION OF FUNDS 833 1,153
28 June 2016
0
0
0
715 680 645
29
29
29
6
6
0
1,208 1,245 1,312
792 750 706
0
0
0
0
0
0
186 250 314
386 484 596
19
22
11
62
80
98
22
29
35
0
0
0
675 865 1,056
309 420 500
366 445 556
50
50
50
1,208 1,245 1,312
NI
Adjustments
(Inc)/Dec in W.Cap
Others
Pre Tax OCF
Tax Paid
CF from Operations
(Inc)/Dec in FA
Net investments
Others
CF from Investing act.
Equity issuance
Inc/(Dec) in Debt
Interest Paid
Divd Paid (incl Tax)
Others
CF from Financing act.
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
13
44
27
(59)
24
(4)
20
72
75
50
80
(72) (124)
(2)
50
48
81
(4) (20)
44
61
(19)
0
2
(16)
1
(11)
(32)
(5)
20
(27)
18
1
19
112 168
114 126
(80) (127)
0
0
146 167
(34) (50)
112 116
(24)
0
4
(21)
(30)
0
5
(25)
(290) (290)
(1)
0
2
5
(289) (286)
5
248
(20)
(3)
52
281
12
4
15
1
224
(23)
(7)
32
228
(14)
15
1
0
0
(35) (35)
(54) (60)
(6) (10)
7
4
(89) (101)
3
19
22
(10)
22
11
3

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