Stock To Buy: Forging Stock That Can Generate Nearly 30% Returns In 1-Year

Brokerage firm, Emkay Global is bullish on the stock of Ramkrishna Forging and believes it has a blowout quarter, with the best ever margins.

Setting a near 30% upside on the stock

Emkay Global sees a near 30% upside potential on the stock of Ramkrishna Forgings from the current levels to a target price of Rs 1,530 and that too in 1-year's time.

"Ramkrishna Forging delivered 26% EBITDA beat versus our Q2 forecasts, driven by a 10% revenue beat and 300bps EBITDA margin beat. Revenue surprise was supported by higher-than-expected sales in industrials, while margin beat was driven by inventory gains. ROE based on H1 annualized profits expanded to a healthy 16%," the brokerage has said. Order bookings according to Emkay Global remained consistent from auto and industrial customers in India and overseas markets.

"Recent orders could add incremental revenues of up to Rs5bn in FY23E/24E, in our view. Beginning the execution of some orders in FY22 can provide an upside risk to our FY22 volume estimates by 5%," the brokerage has said.

Strong quarter

According to Emkay Global revenue grew 129% yoy to Rs5.8bn, above our estimate of Rs 5.3 billion, aided by higher-than-expected revenues in the Industrials segment. Domestic revenue grew 115% to Rs 2.9 billion, led by a 70% volume surge. In comparison, export revenue grew 152% to Rs 2.9 billion, led by a 100% volume jump. EBITDA margin expanded by 600 basis points yoy to 24%, (Consensus est.: 21%) above estimates, led by inventory gains. Consequently, net profits increased from Rs 21 million in Q2FY21 to Rs 0.5 billion in Q2FY22, above the estimate of Rs 0.4 billion," the brokerage has said.

Retain buy with a price target of Rs 1,530

Emkay Global has retained a buy on the stock of Ramkrishna Forging. "With a DCF-based Dec'22 TP of Rs1,530, implying a forward EV/EBITDA of 9x. Operating leverage, B/S deleveraging, diversification and continued order wins/flows are likely to put on Ramkrishna Forging on a sustainable path of profitability. ROE is likely to rise from a low of 3% in FY21 to 23% in FY24E, driven by better margins and asset turnover," the brokerage has said.

According to Emkay Global the key risks include delay in auto sector/macro recovery, client concentration risk and adverse currency.

Disclaimer

The above stocks are picked from the brokerage report of Emkay Global. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.