Anand Rathi Is Bullish On This Small Cap Castings & Forgings Stock, Suggests Buy For 62% Gains

Anand Rathi, a renowned brokerage, in its report published on July 21, on Ramkrishna Forgings Ltd, a castings & forgings company. The brokerage recommended buying the stocks of the company for a target price of Rs 287 apiece, seeing potential gains of 62% in 12 months. Ramkrishna Forgings is a small cap casting & forgings company with a market capitalization of Rs 2,864 crore.

Stock Outlook

The Current Market Price (CMP) of Ramkrishna Forgings Ltd is Rs 177.40 apiece, it was opened at Rs 177.50 per share. The previous close was 173.20 apiece. Trading at 2.42% above the previous close. The 52-week low is Rs 146 apiece, recorded on June 20, 2022, and the 52-week high is Rs 252 apiece, recorded on October 11, 2021. The CMP of the share is trading Rs 31.4 above the 52 week low recorded last month.

The shares of the company in the past 1 week gained has gained 12.05% and in the past 1 month 19%, respectively. In the past 1 year, its share price moved up nearly 14.61% and 90.56% in past 3 years. It has gained 68.92% in the past 5 years. The ROE is 18.36%. PE ratio is 12.64. The PR ratio is 2.57.

Strong overall performance

Q1 FY23 revenue grew 56% y/y, but declined sequentially 5% to Rs6.5bn. Domestic revenue grew 110% y/y to Rs4bn, while exports grew 13% y/y to Rs2.5bn. The company won orders of Rs3.9bn (four contracts) from America/Europe with an estimated execution period of 3/5 years. For EVs, it is aiming at a business of ~3% of FY23 revenue, and 6% by FY24. For Railways, it expects revenues to double in FY23 to ~Rs1bn on recent tendering.

Domestic demand for CVs continues to grow strong. Volumes continue to be robust across M&HCVs and LCVs and has picked up consistently m/m, fuelled by demand in sectors like mining and cement almost back to pre-Covid levels. Also, it is diversifying into PVs in the near term, which augurs well for long-term growth. Hence, we expect 24% growth in FY23, and 12% in FY24.

Margin pressure to ease

During the quarter, the EBITDA margin was unchanged at 22% sequentially. We expect margins to improve in subsequent quarters as capacities are ramped up. Also, the company continues to have a strong order book, a better product mix and rising content per vehicle. Accordingly, we expect margins of 23.7% in FY23, and 24.4% in FY24.

Valuation and view

RK Forgings continued to grow strong during the quarter. Growth was driven by volumes and value addition. Geographically, domestic sales and exports continued to outperform the industry and management expects similar momentum to prevail in the near term. The order book is still robust and the company continued to win orders from North America and Europe. The outlook for commercial vehicles is strong.

The brokerage said, "We expect 18% revenue CAGR over FY22-24, and 26% growth in earnings, leading to Rs 20.5 EPS. We maintain our Buy rating, with an unchanged Target Price of Rs.287 (14x FY24e)."

Disclaimer

The stock has been picked from the brokerage report of Anand Rathi. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.