Buy Ramkrishna Forgings; target of Rs 555: Emkay Global Financial

Emkay Global Financial's research report on Ramkrishna Forgings

Ramkrishna Forgings (RKFL) reported a strong Q1FY24 performance, with revenue up 28% YoY (despite Q1 being seasonally weak; flat QoQ) and 25% YoY rise in volumes on stronger exports. RKFL is undertaking several initiatives (refer to our report) to structurally boost its growth prospects, thus moving into higher value-add assemblies and diversifying by exploring complementary products & assemblies, apart from future-proofing itself in the EV-shift together with high focus on BS deleveraging, even as it incurs calibrated growth capex/bolt-on acquisitions.

Outlook

Driven by healthy volume growth (15-20% guidance for 3-4 years), continued diversification, and improving financials (higher return ratios/reducing leverage), we increase our EV/EBITDA to 11x (~35% premium to the 5-year average of 8x; ~16.5x for BHFC), with 21% EPS CAGR over FY23-26E. We raise FY24E/FY25E EPS by 7%/5% and maintain our BUY rating with revised TP of Rs555/sh (Rs390 earlier).