10 MARCH 2016
SECTOR: AUTO ANCILLARY
Ramkrishna Forgings Limited
BSE SENSEX
24794
S&P CNX
7532
(INR CRORES)
CMP: INR338 TP: INR490 (+44%)
Buy
Y/E MARCH
Revenue
EBITDA
EBITDA Margin
NP (Adj.)
EPS (Adj.)
EPS Growth
BV/share
Core ROE (%)
Core ROCE (%)
P/E (x)
P/BV (x)
FY16E
886
182
20.5%
57
20.5
-25%
168
13
11
16.5
2.0
FY17E
1,144
247
21.6%
90
32.5
58%
197
18
14
10.4
1.7
FY18E
1,411
308
21.8%
122
44.3
36%
238
20
16
7.6
1.4
We recommend to BUY Ramkrishna Forgings Limited (RKFL)
for a target of INR 490 - 15x on FY17E EPS (+44% Upside).
Foray into heavy press forging to enhance scalability:
RKFL
commissioned a 12500Tonne press to manufacture complex and heavy
forged components including newer products for exports. This will
open up new opportunities worth INR30-35bn across US, Europe and
India. Peak revenue potential of 3 newly added 80k tonne production
capacity is ~2.5x FY15 revenue of INR7bn. 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 cyclicality:
Over
the years RKFL has increased exports significantly and today domestic
CV contribution has dipped to 33% of revenues in FY15 from 75% in
FY10. The company bagged a USD100mn p.a. Dana Corp and a
USD14mn (potential to scale up to USD30mn p.a. over next 2 years)
with another global OEM. We expect the exports revenue mix to sustain
at ~50% levels as the company ramps up its exports revenues from
the new capacity. Further, with CV cycle recovery, the domestic
business is also slated for sharp improvement from current levels.
Revenue to grow at a CAGR of 30% over FY15-18E:
FY16 is
likely to see revenues jump by 34% but profit is likely to be impacted
by commissioning of new capacity that has boost depreciation and
interest. We estimate a robust 25% production volume CAGR over
FY15-18 (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 29% over FY15-18, 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:
RKFL is the second company (other than Bharat
Forge) in India which has a heavy press lines. RKFL's entry in heavy
forged components will raise its ability to compete in the global forging
industry substantially. With stable return ratios and strong profit growth
post the FY16 dip, we expect current valuations to sustain. We initiate
coverage with 'BUY' recommendation and target price of INR 490,
assigning PE of 15x on FY17E EPS (upside of 44%). Any rerating
will add to investor returns.
KEY FINANCIALS
Diluted Shares (cr)
Market Cap. (Rs cr)
Market Cap. (US$ m)
Past 3 yrs Sales Growth (%)
Past 3 yrs NP Growth (%)
2.8
933
137
35%
207%
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
47,643
2.4
(20)/(42)/(13)
(18)/(44)/(29)
Maximum Buy Price :INR350
Ravi Shenoy
(ravi.shenoy@MotilalOswal.com); Tel: +91 22 30896865
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 44% of its revenues from export (FY15) 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
E/O Gain
PBT
Tax
P\L of Associates
Adj. PAT
EBITDA (%)
Tax rate (%)
3QFY15
213
175
38.0
0
9
8
0
21.8
4
0
17.7
20.1%
19%
2QFY16
236
188
48.3
1
13
13
0
24.1
7
0
16.9
21.1%
30%
3QFY16
199.3
162.8
36.5
1
12
13
0
12.4
3
0
9.2
18.7%
26%
-48%
-45%
-43%
-48%
35%
74%
-5%
5%
yoy
-7%
-7%
-4%
qoq
-16%
-13%
-24%
Quarterly Performance
Export revenues declined 29% QoQ (volumes fell 21% QoQ to 6,450tn), led by inventory correction in
NAFTA class 8 truck markets. Export revenues are expected to be muted in Q4FY16 as well.
Key negative during the quarter was the 200bps QoQ decline in EBITDA margin due to unfavorable
product mix (lower machining volumes and exports) apart from some inventory loss due to drop in raw
material prices. Hence, EBITDA for Q3FY16 at INR365mn was down 4% YoY and 24% QoQ.
We expect 4QFY16 to be a repeat of 3QFY16 in terms of YoY profit performance, but believe that this is
factored into the price.
10 March 2016
2

Ramkrishna Forgings Limited
IVRCL: Financials and Valuation
Ramkrishna Forgings Limited. Financials & Valuation
INCOME STATEMENT
Y/E MARCH
FY14
(INRCR)
FY15 FY16E FY17E FY18E
RATIOS
Y/E MARCH
FY14
FY15
FY16E 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
BALANCE SHEET
Y/E MARCH
379
659
886 1,144 1,411
4% 74% 34% 29% 23%
228
370
380 494
604
33
50
76
86
104
43
56
71
86
106
59
130
182 247
308
15.7% 19.7% 20.5% 21.6% 21.8%
25
32
53
67
74
2
5
3
4
5
23
32
51
56
64
13
4
34%
72
81 128
175
4
24
38
52
5% 30.0% 30.0% 30.0%
57
-25%
90
58%
122
36%
8.7%
(INRCR)
FY14
FY15
FY16E 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
3.3
123
1.0
30%
1.4
102.8
2.7
0.3%
5%
3%
131
189
184
136
27.5
149
2.0
7%
1.7
12.3
2.3
0.6%
10%
19%
165
130
154
142
20.5
168
1.4
7%
1.5
16.5
2.0
0.4%
11%
13%
160
135
144
151
32.5
197
2.3
7%
1.2
10.4
1.7
0.7%
14%
18%
155
139
158
136
44.3
238
3.1
7%
1.0
7.6
1.4
0.9%
16%
20%
155
143
155
143
9
75
7% 779%
2.3% 11.4%
6.4% 7.8%
CASH FLOW
(INRCR)
FY14
FY15 FY16E FY17E FY18E
Y/E MARCH
Share Capital
Share warrants
Reserves
Networth
26
7
289
322
27
6
377
410
28
6
429
462
28
6
511
545
28
6
624
657
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
10 March 2016
0
0
0
715 785 835
29
29
29
6
6
0
1,212 1,365 1,521
792 750 706
0
0
0
0
0
0
187 250 314
388 486 599
22
105 182
62
80
99
22
29
35
0
0
0
682 949 1,229
312 384 465
370 565 765
50
50
50
1,212 1,365 1,521
PNI
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
81
50
79
(72) (125)
(2)
50
48
85
(4) (24)
44
61
(19)
0
3
(16)
0
(11)
(32)
(5)
23
(24)
21
1
22
128 175
111 122
(82) (129)
0
0
157 168
(38) (52)
118 116
(24)
0
4
(21)
0
70
(51)
(7)
(27)
(15)
83
22
105
(30)
0
5
(25)
0
50
(56)
(10)
3
(13)
77
105
182
(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
3

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