Ramkrishna Forgings Ltd Q3 FY2023 Concall Summary

Key Takeaways

• Strong quarter, ambitious targets: Revenue grew 24% YoY and net profit 27.6% YoY, while management laid out a path to ₹5,000 crores revenue by FY25, a ~25% CAGR.
• Export momentum is building: Three new orders worth ₹366 crores from North America and Europe, including an EV component win, underpin a 15–20% export growth expectation for the coming year.
• Non-auto diversification is working: Railways, mining, and earthmoving are all growing and management sees the current scale as "just a start," with a stated ambition to shift the revenue mix to 70% auto / 30% non-auto within 6–7 quarters.
• Margins held despite commodity lag: EBITDA margin dipped only slightly to 22.10% as domestic steel prices have not yet corrected; management is committed to maintaining 22%-plus margins.
• What to watch next quarter: Whether the delayed domestic steel price pass-through materializes, the pace of railway segment scaling, and closure of the JMT Auto NCLT process.

Growth & Revenue Roadmap

• Topline trajectory: Q3 revenue grew 24% YoY and 9M grew 35% YoY, driven by steady Commercial Vehicle demand after the festive season and high fleet utilization from infrastructure activity.
• The ₹5,000 crores ambition: Management's "earnest desire" is to reach this figure by FY25, implying a 25–26% CAGR over two years; full-year guidance will be provided at full-year results.
• Capacity expansion to fuel it: A 56,300-ton capacity addition in cold and warm forging is expected by September 2023, taking total capacity to roughly 2,35,000–2,40,000 tons. The new line targets near-net-shape components with better realization and margins, and optimal utilization is expected within 1.5 years of start.
• Export growth engine: Exports are expected to grow 15–20% in the coming year, driven by new customers, new geographies, and contracts won this year entering production. The export volume/topline mix is expected to remain at 35–40% of total.
• Geography mix shift: North America's revenue share fell from 21% to 17%, not because of an absolute decline but because Europe and Asia Pacific grew faster, as previously indicated.

Naresh Jalan: "Yes, company basically is visualizing, our company is basically, earnest desire of the management is to touch those figures. And probably, we will be able to throw much more light into it when we end this year and when we start, are able to give you a full year guidance in the full year results."

Non-Auto Diversification

• Railways is the breakout segment: Management described the current railway revenue as "just a start" and expects it to keep adding in percentage and absolute sales every quarter, with Q4 already tracking "much better" than Q3.
• Broad-based non-auto strength: Earthmoving, mining, and farm equipment segments are all performing extremely well, and the non-auto segment has grown and will continue to grow with significant scaling expected in coming quarters.
• Oil & gas traction: Revenue share grew from 0.9% in the last full year to close to 1.6% in nine months, indicating strong early traction in a new vertical.
• The 70/30 mix target: Management aims to shift the revenue mix from the current auto-heavy split to 70% auto and 30% non-auto within the next 6–7 quarters.

Naresh Jalan: "I think it is just a start of the growth right now. You will see every quarter, the railway will keep on adding in terms of percentage and absolute sales as well as the earthmovings equipment side."

Margins & Cost Structure

• EBITDA margin held near flat: Q3 EBITDA margin was 22.10% versus 22.30% QoQ, a slight decline. Management is committed to maintaining 22%-plus margins as the company grows, based on the current order book and commodity outlook.
• The steel price lag is the pinch point: EBITDA per kg was slightly lower QoQ because export commodity prices have fallen but domestic automotive steel prices have not yet corrected. Management is still negotiating with steel plants and expects the pass-through to happen "anytime," though no quantum can be quantified.
• Employee expenses normalized: The QoQ decline in employee expenses reflects normalization after the prior quarter's bonus and increment impact, and this level is expected to hold next quarter.
• Interest cost headwind: Interest costs rose due to a 250 bps RBI rate rise and a 225 bps Fed rate rise, with long-term loan interest decisions hitting in September/October and working capital costs also climbing.
• Forex tailwind: A ₹11 crores forex gain was booked in Q3 as the dollar moved from ₹81.38 to ₹82.73, with unhedged debtors restated at current rates plus hedging gains.
• Tax rate shift ahead: The tax rate is expected to move to the 22% plus surcharge bracket in FY24, down from approximately 32% in FY23.

Naresh Jalan: "We want and we are committed to maintaining these margins of 22-plus percentage as we continue to grow."

Acquisitions & EV Push

• TSUYO Manufacturing: A 51% stake was acquired to strengthen the company's foothold in the EV space. TSUYO makes motor controllers, differentials, e-axles, and complete powertrains, and is also looking at high-wattage motors for higher-weight vehicles.
• JMT Auto: The plan to acquire JMT Auto received approval from the Committee of Creditors, subject to NCLT New Delhi approval. Once the plant is handed over, approximately 18–20 months are needed to get it into full production.
• Acquisition financing is ring-fenced: Both ACIL (₹85 crores) and JMT Auto (₹70 crores cash outflow) are expected to be self-sustaining, servicing their own debt without loading RKFL's balance sheet. Neither is yet in possession.
• EV revenue trajectory: EV currently contributes 2% of auto revenue, with a target of 3–3.5% in the next ~12 months. Overall, EV is expected to contribute ~5% of the total balance sheet from the auto side within two years, with more growth on the export side across North America, Europe, and India.

Naresh Jalan: "These will be the self-sustaining company, and they will be able to service the debt taken for investment in these companies. So there will be no load on the RKFL balance sheet in terms of debt consolidation."

End-Market Demand

• Class 8 trucks: The market is expected to remain strong but flattish in calendar year 2023 versus 2022 levels, with no growth but no decline either.
• Domestic MHCV: Management noted a lot of traction in the domestic industry, supporting the steady CV segment performance.
• Realization dipped on commodity pass-through: A 5% QoQ decline in realization was mainly due to the fall in commodity prices flowing through, not a demand signal.

Naresh Jalan: "I think for Class 8 trucks, we see this market to remain strong. And I think with the same levels, I think what we ended year '22. I think '23 also will be same. I don't think the industry is going to grow from what it has been in '22, but it's going to remain flattish in calendar year '23."

Balance Sheet & Capital Allocation

• Debt reduction on track: The company plans to reduce debt by another ₹50 crores by 31st March, and the net debt-free target is still maintained for FY25–26.
• FY24 capex: Planned at ₹150–200 crores, including maintenance capex.
• Export incentives: ₹6 crores were booked in the quarter, representing ~2% of exports, comprising duty drawback (1.6%) and RoDTEP (0.7%).

Guidance & Commitments

Key Metrics