4 Reasons To Buy This Small Cap Stock For Good Gains

Ramkrishna Forgings is one company that has delivered a strong performance over the last few quarters. The company's performance in the next few quarters are also expected to be good. Here are 4 reasons according to Anand Rathi why this stock could be a good buy.

New contracts won, strong export momentum

In the quarter, the company secured six contracts of Rs2.2 billion from various regions. Since Mar'21 it secured contracts of Rs 6 billion.

"We continue to expect exports to accelerate in FY23 on its strong order book and recent contracts won from various regions. Domestic M&HCVs and LCVs have started to normalise, and we expect the company to grow ahead of the industry primarily since it has consistently improved its content per vehicle. For its non-auto business, its new fabrication plant at Jamshedpur commenced production; this would further help increase its operations in mining & earthmoving and Railways. Accordingly, we expect strong, 71%, growth in FY22, and 29% in FY23," Anand Rathi has said.

FY23 margin expansion

The Q3 FY22 EBITDA margin contracted 91 basis points sequentially to 23%. "We expect FY22 margins to stabilise at 23.3% (23.4% for 9M FY22) as the order book is full and capacities are at ~75% utilization. Strong export momentum, a superior product mix and high capacity utilisation would aid margin expansion. Accordingly we expect 23.7% margins in FY23. Introducing FY24e. We expect FY24 revenue to grow 12% y/y, margins to expand to 24%; and earnings to grow 21% y/y to Rs3 billion," the brokerage has added.

Strong domestic, consistent export performance

According to Anand Rathi, contracts won from various regions and in business verticals are highlights for the quarter for Ramkrishna Forgings.

"Consistent domestic & export growth, and a rich product mix led to strong margins. With a new plant coming up for mining &earth-moving equipment and the recent MoU regarding patented EV-motor technology, we expect strong growth in the next two years. Accordingly, we upgrade our rating to a Buy with a target price of Rs. 1,315 (14x FY24e)," the brokerage has said.

The shares of Ramkrishna Forgings was last seen trading at Rs 1014 on the NSE.

Disclaimer

Investing in equities is risky and investors must therefore understand the risk. The author and Greynium Information Technologies Pvt Ltd would not be responsible for any losses caused based on the article. The author and is family do not hold shares in all of the above mentioned company.