ICICI Direct Says To Buy The Stock Of Ramkrishna Forgings, Here's Why

Brokerage firm, ICICI Direct has a buy call on the stock of Ramkrishna Forgings with a price target of Rs 1590 on the stock. Ramkrishna Forging reported a healthy performance in Q2FY23. On a consolidated basis, net sales for the quarter were at Rs 824 crore, up 18% QoQ. Total tonnage come in at 32,180 tonnes up 6% QoQ .

Reasons to buy the stock, key triggers

According to ICICI Direct, with new capacity addition under execution and strong demand across geographies, we build 23.5% sales CAGR for FY22-24E. "With stabilisation of raw material costs, healthy exports order wins and internal efficiencies at bay we see margins stabilising at ~20-22% mark," the brokerage has said. ICICI Direct also sees strong endeavour to grow revenues at 20% CAGR over FY22-25. "Healthy double digit return-ratio profile amid stable 20%+ margin profile, increasing share of exports & greater machining in sales mix, going forward," the brokerage has said.

Healthy financial performance

Ramkrishna Forging reported a healthy performance in Q2FY23. On a consolidated basis, net sales for the quarter were at | 824 crore, up 18% QoQ. Total tonnage came in at 32,180 tonnes up 6%. The QoQ EBITDA for Q2FY23 was at Rs 175 crore with corresponding EBITDA margins at 21.3%, down 10 bps QoQ primarily tracking higher other expenses (ocean freight due to rise in exports). EBITDA/tonne came in all-time high at Rs 54500/tonne in Q2FY23 vs. Rs 49000/tonne in Q1FY23.

Debt reduction to continue

According to the ICICI Direct report, the company remained focus on deleveraging balance sheet and has reduced Rs 110 crore of net debt with further target of reducing by Rs 100 crore net debt during H2FY23. Overcall, it is focused on being near net debt free by FY25E.

"The management expects to close ACIL acquisition this fiscal amounting to ~| 110 crore wherein ACIL has machining capacities in 2-W & tractor component space and remains confident over new customer wins. Further, details with respect to revenue would be disclosed in due course of time," the brokerage has said.

Expansion plans

During FY23-24E, the company is planning to add ~56,000 tonne cold & warm forging press line, which is technologically advanced and different from its existing lines. Capex envisaged for this incremental capacity is pegged at Rs 300-320 crore, with the company already incurring Rs 153 crore on this in H1FY23. Further 50% of this capacity would be ready for use by March 2023 & remaining by September 2023.