Dolat Capital's research report on Ramkrishna Forgings
Ramkrishna Forgings (RMKF) Q4FY20 performance was weak. A sharp decline in domestic M&HCV sales adversely affected its domestic revenue (-54% YoY). Export revenue also plunged 40% YoY, driven by slowdown in the Class 8 truck segment. EBITDA margin contracted 363bps YoY to 16.5%, due to a negative operating leverage, while PAT (reported loss Rs 63mn) was suppressed by a higher depreciation and interest cost. The company is in the midst of a demand slump in the domestic CV and Class 8 truck segment with no visibility of recovery in the next few quarters. The company is focusing on cost control measure (reduced salary and other overhead cost) to tide over the tough business environment. Despite the positive long term outlook on the business (given its improving capabilities with ramp-up in its heavy‐tonnage press line and foray into different geographies and products), we maintain a cautious view in the near term given the current demand slowdown and highly levered balance sheet.
Rising debt concerns are paramount in a down cycle given higher working capital requirements and weak earnings. Debt has increased to Rs 95bn from Rs 87bn in FY19. We recommend a Reduce rating on the stock, with TP Rs 186 (based on 11x Sept 22E EPS).