Ramkrishna Forgings Ltd Q3 FY2024 Concall Summary

Key Takeaways

• Domestic strength offsets export softness: Domestic revenue grew 32% against 9% underlying M&HCV production, while exports slowed to 4.1% YoY on seasonal European/US destocking.
• Margin expansion intact, 25% target in sight: EBITDA margin expanded ~90 bps YoY in Q3, marking 16 consecutive quarters above 22%. Management sees no headwinds and aspires to 25%+.
• Heavy CAPEX cycle underway: Rs. 1,000 crores QIP completed, an 8,000-ton press approved, and consolidated FY25 CAPEX guided at Rs. 400–450 crores as the company builds capacity ahead of demand.
• Restructuring to simplify the group: ACIL acquisition closed; plan to merge ACIL and JMT into RKFL, leaving only one 100% subsidiary (casting). First phase: land acquisition for trailer axle assembly.
• What to watch next quarter: FY25 guidance (promised post full-year results), JMT Auto production ramp starting mid-April, and any quantification of Red Sea logistics cost sharing with customers.

Domestic vs Export Performance

• Domestic outperformance was broad-based: Railway revenue rebounded strongly from earlier quarters, the Highway segment did extremely well, and automotive gained market share plus new components like suspension parts for M&HCV.
• Export slowdown is seasonal, not structural: Q3 exports declined sequentially as Christmas holidays and lower consumption in Europe and US reduced offtake. Management called this a recurring pattern: Q3 is every time flattish or degrowth QoQ, while Q4 and the first two quarters do extremely well.
• New customer wins supported exports: The 4.1% YoY export growth was driven by new customers where supplies started in Q3, offsetting the seasonal drag from existing accounts.
• M&HCV tonnage shift is a tailwind: Management believes higher-tonnage vehicles, which require more axles, are the industry's direction, supporting volume growth independent of unit sales.
• No order book for auto, only schedules: The company clarified it does not maintain a firm order book for automotive or off-highway segments. Export customers provide 6-month forward schedules, domestic customers 2 months. Only railways carries a firm order book, currently ~Rs. 250 crores.

Naresh Jalan: "As far as we are concerned, we don't see any slowdown in RKFL."

Margin Trajectory & Profitability

• 16-quarter consistency: The company has held 22%+ EBITDA margins for 16 consecutive quarters, with Q3 expanding ~90 bps YoY and the 9-month period expanding ~60 bps.
• Non-auto mix shift helps: The non-auto segment carries a better margin profile, so as its percentage of sales increases, overall profitability should rise.
• 25% aspiration with no visible headwinds: Management stated it can safely maintain the current margin trajectory and aspires to be a 25%+ EBITDA margin company, though it declined to bifurcate tailwinds from company-specific efforts.
• Red Sea logistics: cost-sharing in progress, no pass-through clause: Increased logistics costs from Red Sea disruptions have no contractual pass-through mechanism. The company is working with customers to share the increase and expects a positive outcome, citing cooperation during the Ukraine war, but provided no quantification.

Naresh Jalan: "I don't see any headwinds to our margin trajectory while we do not say what is the tailwind which can happen to it, but I can very safely say that we aspire to be 25% plus EBITDA margin making company, while we will be able to safely maintain the current margin trajectory going forward."

Capacity Expansion & CAPEX

• QIP funded the war chest: Rs. 1,000 crores raised via QIP with overwhelming institutional response, providing capital for the expansion cycle.
• 8,000-ton press is the headline project: A new 8,000-ton press will be operational by December 2024, alongside a 4,000-ton press and two smaller presses in warm and hot forging.
• Ring rolling line running hot: Utilization hit 150% on 24,000-ton installed capacity. VA/VE reengineering will increase capacity to 30,000 tons, bringing utilization to a still-elevated 110–115%. No further capacity addition planned beyond this debottlenecking.
• Warm forging expansion imminent: Existing capacity of 10,000 tons; an additional ~3,000 tons is being added with CAPEX already completed, and the line will commence very shortly.
• Consolidated FY25 CAPEX: Rs. 400–450 crores: Management guided this range at the consolidated level, with a similar ~Rs. 400 crores expected from free cash flow. Exact numbers will be finalized post full-year results and budget finalization.
• New capacity utilization timeline: Full utilization of the entire 25,000-ton warm/cold forging capacity is expected from Q4 FY25, with considerable utilization starting Q3 FY25 and 90%+ by Q4 FY25.

Subsidiary Restructuring & Turnaround

• ACIL acquisition closed: NCLT approval secured during Q3, and the acquisition was completed in January 2024. ACIL is expected to contribute good revenue in FY25 with positive EBITDA; more detail promised after full-year results.
• JMT Auto ramp begins mid-April: CAPEX has been running for 3 months with 3 more to go. Production starts in a phased manner from mid-April FY25, with reapproval processes with customers already underway. Revenue potential pegged at Rs. 500–600 crores.
• JMT margin target: ~25% by FY26: Management aims for Rs. 400–500 crores revenue and ~25% margin from JMT Auto by FY26, though it declined to predict near-term margin trajectory while capacity is still ramping.
• Multitech Auto casting scale-up: Targeting capacity increase from 24,000 tons to 70,000 tons by FY25 end, with Rs. 600–650 crores revenue in the coming year and an 18% EBITDA aspiration.
• Group simplification underway: The restructuring plan will see ACIL merged into RKFL, JMT merged into other subsidiaries, and ultimately only one 100% subsidiary remaining (the casting division). The first phase is acquiring land of Mal Metalliks Private Limited to commence trailer axle assembly. More details expected end of February.
• Oil & gas business to return: JMT's oil & gas business, previously over Rs. 100 crores, is expected to be regained soon and consolidated into the RKFL balance sheet.

Naresh Jalan: "We will not be maintaining so many subsidiaries like ACIL, JMT, MultiTech, Mal Metalliks. So, this is only the first phase of consolidation which is happening, but the overall consolidation in terms of ACIL getting merged in RKFL or JMT getting merged in other subsidiaries we will only be carrying 100% subsidiary of our RKFL which is going to be the casting business and rest all the businesses are going to get merged in RKFL very soon."

Railway & New Verticals

• Railway revenue set to double: Management expects to almost double railway revenues in the next 2 years, calling it "a very small thing" relative to the opportunity pipeline. The railway wheels plant will be commissioned by FY26, but revenue and EBITDA projections were declined as too early.
• EV kit development in trial stage: The company acquired TSUYO, a motor and controller startup, and is developing its own motor controller and e-axle with transmission. Currently in vehicle trials, the aim is to develop the entire kit for three-wheeler and four-wheeler markets in the next 2–3 years. More information expected in 3–6 months.
• Carbon emission preparedness: Carbon emission norms for the steel sector are effective 2024; for forgings, January 2026. The company stated it is getting prepared.
• Solar partnership for carbon neutrality: A 7.82 MW Solar Rooftop Power Project was announced with Prozeal Green Energy as part of the carbon neutrality initiative.

Guidance & Commitments

Key Metrics