The Ramkrishna Forgings stock has been on a tear of late with a 40 percent gain in the last 3 months. The company also posted a very good set of earnings in the second quarter as strong volume growth drove revenues.
To know what is keeping the stock so active and the outlook going forward, CNBC-TV18 spoke to Naresh Jalan, MD, Ramkrishna Forgings.
When asked if increase in raw material prices would impact their margins in second half, he said any increase in prices would be passed on, so does not impact them but the only thing that impacts the balance sheet is the time taken by OEMs to decide on price hikes.
For the first half FY18 the revenues were up 58 percent at Rs 590 crore and margins were up at 19.6 percent versus 18.9 percent.
The extraordinary jump seen in the revenues was because the compnay managed to increase their market share and content per vehicle on back of capacity expansions.
The company is into manufacturing of forging and pressing parts and majority of their revenues come from commercial vehicle segment, while 15 percent of domestic revenues come from Earth-moving and railways equipment. Exports to US, UK constitute of 27 percent of the revenues. The total capacity stands at 1.5 lakh tonne.
Jalan said the company has large exposure to Class 8 and Class 5 trucks in US market and their total exposure to exports currently is 30 percent and domestic is 70 percent but by FY18, it will be 35 percent exports and 65 percent domestic.
Moreover, realisations in the export market are higher by 100-150 basis points, he added. Both the US and UK market source largely from India.
For the forging industry the hike in exports have increased by around 30 percent to the US market, said Jalan, adding that this momentum is likely to continue in 2018 as well.
In terms of tonnage, the company has already guided for 1.10 to 1.15 lakh tonnes in FY18 as compared to 80 tonnes done in FY17, which is a jump of 30 percent, he said. Total utilisation capacity stands at 1.50 lakh tonnes.
Therefore, utilisation in FY18 would be around 70 percent, he said. As utilisiation improves, there will be improvement in both bottomline and topline as overhead costs come down. By FY19 the utilisation would be closer to 100 percent, said Jalan.
When asked if they were looking at inorganic growth in terms of the stressed asset sales, he said the QIP done by company a few months back was with an intention of inorganic growth and they are cash ready to grab any such opportunity for a right price. The first place to look at would the NCLT cases, he said.
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