Ramkrishna Forgings Ltd Q3 FY2025 Concall Summary

Key Takeaways

• Volume growth intact, margins pinched by one-offs: Standalone volume grew ~8% in 9M, below the 15-20% guide, but the miss is largely explained by a cold forging line delay. EBITDA margin dipped ~30 bps QoQ, with Rs. 5 Cr Mexico startup cost and a one-time Rs. 7 Cr wage hike masking underlying improvement.
• The capacity super-cycle is about to deliver: After delays, the 25,000 MT cold forging line starts serial production in late January, and a cascade of new plants (casting, aluminum forging, subsidiary forging) will go live between now and July 2025, taking total capacity from ~267k MT to over 392k MT.
• Order book diversifying away from auto: Rs. 697 Cr in new orders this quarter, with Rs. 600 Cr from mining and earth moving exports, signaling a deliberate shift into non-auto sectors.
• Gross margin story is the one to track: Management promises substantial, continuous gross margin expansion from new value-added products like trailer axles and large assemblies, with trailer axle sales expected to double next year.
• What to watch next quarter: The ramp-up curve of the cold forging line, the pace of casting plant utilization (targeting 70% by Q3 FY26), and whether the promised H2 CY25 CV demand recovery materializes.

Volume & The Cold Forging Delay

• Standalone volume shortfall: RKFL standalone volume grew only ~8% over nine months against a 15-20% guidance, primarily because the 25,000 MT cold forging line did not start in September 2024 as planned.
• Delay mechanics: The plant arrived three months late due to Red Sea shipping disruptions, and equipment commissioning took another six months because of the line's automation complexity. Samples have been made since December, with serial production starting in the last week of January 2025.
• What the delay cost: Management estimates the cold forging line would have added roughly 6,000 MT of volume in Q3 alone had it started on time.
• Q4 uptick expected: A significant standalone volume uptick is expected in Q4 because cold forging is now starting and will contribute volume.
• Export seasonality: Export volumes declined sequentially every Q3 because customers operate on a January-December calendar, leaving only 2.5 months of working after the 15-day Christmas/New Year holiday. This is a recurring, non-structural phenomenon.

Naresh Jalan: "I think we have not delayed the plant. It is basically because of the Red Sea issue, first of all, the plant came in three months delayed and because of the kind of automation and complexity it is to establish the plant, the equipment manufacture took almost six months' time and now since December we are already making samples and other things."

Margin Walk: One-Offs Masking Improvement

• EBITDA margin moderated ~30 bps QoQ, but the headline masks two distinct stories: a Rs. 5 Cr drag from the newly operational Mexico subsidiary and a Rs. 7 Cr one-time labour wage increase (VDA arrears from October 2024, paid in one stroke due to election-related back effect). Together these hit EBITDA by ~2.5%.
• Other one-off expense: Rs. 6 Cr was spent on the Hanover Germany trade fair, an event that occurs once every three years.
• Gross margin improved considerably QoQ and is expected to expand continuously, driven by the mix shift toward value-added products like trailer axles, suspensions, and large assemblies.
• Steel pass-through mechanics: The company maintains 30-40 days of export inventory. On the invoice date, the prevailing steel price sets the realization. A Rs. 3 steel price decline means getting paid on Rs. 97; a Rs. 3 increase means getting paid on Rs. 103. This one-month lag creates a temporary headwind when steel prices fall, as they did this quarter (down Rs. 3,000/tonne domestic, Rs. 4,500/tonne export).
• Realization decline: For the nine-month period, realization is lower by 3% purely due to raw material price increases being passed through; revenue would have been 3% higher otherwise.
• Currency gains are structural but partial: The company hedges 50-60% of exports, and import packing credit offsets some gains. Net currency gain for nine months was ~Rs. 20 Cr. Crucially, prices reset quarterly with a +/-5% currency band, so the entire depreciation gain does not flow to the P&L: passing some back to customers is necessary to stay competitive globally.

Naresh Jalan: "if there is a steel decrease, in Rs. 100, if there is Rs. 3 steel decrease, then I get paid on Rs. 97 and if there is a Rs. 3 increase, I get paid whether I bought it at Rs. 100, I will get it at Rs. 103."

Capacity Expansion: The Cascade of Go-Lives

• The big picture: Total capacity is expanding from 266,750 MT to over 392,000 MT, with almost all of it complete by July 2025. After that, no significant CAPEX is expected in FY26; any further capacity addition will happen only in FY27.
• Cold forging (25,000 MT): Serial production starting last week of January 2025.
• 14,250 MT upsetter: To commence within Q4 FY25.
• Subsidiary forging (18,000 MT, RKCSL): Under commissioning, to be added before March 2025.
• Casting plant (Plant No. 8, 28,000 MT): 80% go-live by April 2025, balance by July 2025. Management targets 70% utilization by Q3 FY26 and 85-90% by Q4 FY26, with average realization of ~Rs. 150/kg for machined castings.
• 8,000-tonne press and aluminum forgings: Go-live by July 2025.
• Utilization ambition: Management is targeting 80%+ consolidated utilization by the last quarter of FY26.
• Mexico subsidiary: Operations have commenced and a ~USD 5 Mn conversion order has been received. The ramp-up is slightly delayed but on track to go "full on" in the coming year.

Diversification: Non-Auto, New Verticals & ACIL

• Order book shift: Of the Rs. 697 Cr in new orders secured this quarter, Rs. 600 Cr came from mining and earth moving (entirely export), Rs. 54 Cr from oil and gas, and Rs. 43 Cr from railways. All are non-auto sectors, to be executed over four years.
• Trailer axle gaining traction: Quarterly sales reached Rs. 28 Cr over nine months, with the product well accepted by the market. Management expects to almost double sales in the coming financial year on a QoQ basis.
• Two-wheeler and passenger vehicle entry: Set to launch in the upcoming period, adding growth avenues in automotive while reducing dependence on commercial vehicles.
• ACIL turnaround: The subsidiary incurred ~Rs. 5 Cr in losses until last quarter but is expected to turn profitable from Q4 onwards, with most two-wheeler and farm equipment products approved by end-December 2024. Next year's revenue target is Rs. 200 Cr+, with at least 25-30% topline growth and significant bottom-line improvement.
• CV demand outlook: Management expects the second half of calendar year 2025 to be very robust for commercial vehicles, post budget allocation.

Naresh Jalan: "we are looking at almost doubling our sales from trailer axle in the coming financial year. I think this sector is doing extremely well. Our product launches have been extremely good. The product has been well accepted by the market."

Balance Sheet & Cost Structure

• Consolidated debt: Expected to be close to ~Rs. 1,240 Cr by financial year-end, flattish from current levels as a reduction in debtor days is anticipated this quarter.
• Working capital improvement: Management expects a fairly good reduction in debtor days in Q4.
• Depreciation: The lower YoY depreciation reflects a useful-life correction made in March 2024 for machine assets; the current quarterly run rate is sustainable.
• Cost-saving program: Management says benefits are at a "quite advanced stage" and will show in the P&L in the upcoming year, but declined to elaborate when asked where the benefits are currently visible.
• CRISIL upgrade: The company received a Double A Stable rating for long-term debt and A1+ for short-term debt during the quarter.

Guidance & Commitments

Key Metrics