Ramkrishna Forgings Ltd Q1 FY2024 Concall Summary

Key Takeaways

• Strong quarter, guidance raised: Revenue grew 28% YoY to INR 836 Crores, and management is now extremely confident of exceeding the growth expectations set at the end of FY23.
• The non-auto pivot is accelerating: The Multitech acquisition and cold forging capacity build-out are deliberate moves to shift from component supplier to assembly and product-platform player, targeting trailer axles and differentials.
• Margins are grinding higher, not leaping: EBITDA margin expanded 35 bps YoY to 22.4%, with management aspiring to a 50-100 bps annual improvement trajectory, while warm forging promises a step-up only from H2.
• Capacity is being built against sold-out order books: The new cold forging line is fully sold for 7 years before operations even begin, and the railway wheel JV has a firm contract from the Ministry of Railways.
• What to watch next quarter: The pace of Multitech consolidation and margin improvement, any update on the JMT Auto and ACIL NCLT approvals, and whether the 15-20% volume growth guidance holds through the seasonally weaker second half.

Growth & Volume Outlook

• Volume engine running hot: The company is tracking 15% to 20% volume growth and expects to better its guidance, with management very confident of sustaining this pace year-on-year for the next 3-4 years.
• Export momentum: Exports are growing better than expected year-on-year as new orders convert to revenue, with North America cited alongside India as an extremely robust market.
• Mix stability: The domestic-export mix is expected to hold at roughly 60-40 or 62-38, with both sectors performing extremely well.
• PAT trajectory: Net profit grew 63% YoY to INR 77 crores, aided by a lower tax rate; the CFO expects the PAT run rate to improve from here on the back of volume growth.
• No equity dilution: Management was emphatic that operational cash flows will fund growth, with no equity dilution contemplated.

Naresh Jalan: "What we see as a market is extremely robust right now within India as well as in North America. And in terms of RKFL, we are extremely confident to exceed growth expectations, which we had set at the end of FY '23 full year results."

Non-Auto & Product-Platform Strategy

• The assembly ambition: Management's stated goal is to move from being a component supplier to an assembly supplier, entering product platforms by combining its own forgings with acquired casting capabilities.
• Multitech acquisition: The deal, signed this quarter with handover by month-end, is the casting piece of the puzzle, enabling entry into trailer axles and differentials rather than just supplying components. At least 8 months of consolidation will fall in this fiscal year.
• Multitech financials: Management expects Multitech to contribute an additional INR 500-600 crores of revenue in the first two years and is extremely confident of improving its standalone margins by at least 200-250 bps over the same period.
• Trailer axle as brand play: This is a non-OEM, B2C business where the company expects to leverage the Ramkrishna brand in the CV industry, targeting 15% to 20% market share in the next 2-3 years. Approvals are expected by March, with own production hitting the market next year and peak volumes taking at least 2 years.
• Differential product line: The company is targeting its own differential product line for passenger vehicles, commercial vehicles, and electric vehicles within the next 2 years, using the TSUYO acquisition as a stepping stone into complete e-axles and motor controllers.
• Non-auto road map intact: The target to reach 30% non-auto business on a standalone RKFL basis remains in place; Multitech currently has only 5-7% non-auto, while JMT Auto has a meaningful non-auto presence but details await NCLT approval.

Naresh Jalan: "our entire endeavor to buy casting was with the mindset of -- in the next two years to get into a complete assembly, the assembly supplier are when being a component supplier, being -- getting into product platforms and casting, manufacturing our own casting and assembling it with forging, we are going to enter two biggest markets of trailer axle and differentials."

Capacity Build-Out

• New capacity commissioned: Commercial production began on a 13,700-ton RA shaft press line and a 10,100-ton 5-inch Upsetter, adding 23,800 tons per annum and taking total production capacity to 210,900 tons per annum.
• Cold forging sold out before start: The company is installing cold forging capability from scratch, targeting EV and PV applications, and has already received a firm order book for the entire capacity for 7 years. Operations begin in Q1 FY25, so revenue contribution starts only next fiscal.
• Warm forging ramp-up: Bulk supplies to commercial vehicles have already started, with samples submitted in the tractor and PV industry. This facility targets extremely high margins and will begin showing in the balance sheet from Q3 and Q4 of this year.
• Railway wheel JV: The consortium with Titagarh Rail Systems signed a contract with the Ministry of Railways for supply of 0.15 crore forged wheels under the Aatmanirbhar Bharat initiative. Production is expected to start by mid-calendar year 2026, with the first batch for approval.
• Capex plan: RKFL standalone capex is pegged at INR 300-350 crores for FY24, with acquisition investments separate and pending NCLT approval.

Margins & Costs

• Margin expansion delivered: EBITDA margin of 22.4% expanded 35 bps year-on-year, and management is confident of sustaining and improving this level.
• Aspirational trajectory: Management is targeting at least 50 bps to 100 bps of year-on-year margin improvement, with aspirations to move into a much better margin trajectory over time.
• Raw material headwind: Raw material cost per ton increased 3.3% sequentially, driven by annual press maintenance in early April, extreme heat through mid-June causing labor fatigue and production slowdowns, and higher alloy element pricing for nickel and moly.
• Other income quality: Higher other income included a forex gain of INR 3 crores on foreign exchange loans; export incentives within other income are sustainable.

Balance Sheet & Capital Allocation

• Debt reduction with growth: Management is targeting a debt-to-EBITDA ratio of 1:1 by the end of FY25, while explicitly prioritizing growth over becoming a zero-debt company. The view is that operating cash flows are strong enough to both service debt and fund fresh capacity.
• Interest rate view: Management believes interest rates have peaked and expects marginal corrections in the next 2-3 quarters, with a credit rating revision possible after 3 or 1-2 more quarters.

Naresh Jalan: "We will generate enough cash to pay back the debt. And still, if you see, if we are generating that kind of cash and if we do not augment fresh capacity and we keep the growth stable as where it is now, obviously, we will have enough money to pay off the debt. But I think we would rather want to grow the company, grow the balance sheet rather than being debt zero Company."

Guidance & Commitments

Key Metrics