Ramkrishna Forgings Ltd Q1 FY2027 Concall Summary

Key Takeaways

• Strong top-line, margin uptick: Revenue grew ~20% YoY and EBITDA margin improved ~85 bps QoQ to 17.96%, driven by better operating leverage and improved product mix.
• The export engine is firing: North America and Europe demand is robust, with management calling FY27 exports the highest ever at ~35% of revenue and guiding for 20%+ export growth this year.
• New capacities are now live: The casting plant, Mexico facility, and rail wheel trial production have all started, setting the stage for a multi-quarter utilization ramp and significant revenue from Q3 onwards.
• Balance-sheet repair is a stated priority: Management committed to reducing leverage by at least ₹500 crores this year while improving working capital days, even as growth investments continue.
• What to watch next quarter: The pace of the casting and Mexico revenue ramp, progress on the ₹500 crore debt reduction, and whether the rail wheel plant submits its first samples to Indian Railways on schedule in August.

Growth Drivers & New Capacity Ramp

• Mexico plant: Production has started and the facility is expected to clock significant revenues from Q3 FY27 onwards, adding a new geography-linked growth leg.
• Casting integration: The casting plant was capitalized last quarter and production has begun; utilization will increase gradually over the next three quarters, with realizations expected to recover after a one-off dip from initial ramp-up components.
• Rail wheel plant: Trial production has started and the company expects to submit the first 300 wheel samples to Indian Railways in August 2026, with full-fledged bulk supply targeted by September or October 2026.
• Rail wheel utilization: The order book of 1,10,000 wheels (80,000 for Railways plus 25,000 for a JV partner) will absorb capacity through the end of FY28; management is already working with export customers beyond Europe and North America for the balance capacity.
• Ring rolling: Utilization is running at 127% and is expected to stay near peak for at least the next two to three years, with no plans to add capacity.
• Cold forging: Capacity utilization is being ramped and is expected to cross 70% by the third quarter.
• Press line: A new press line takes four to five quarters to install, by which time existing press capacity utilization is projected to be around 80%.

Naresh Jalan: "...these 1,10,000 wheels manufacturing will take us till end of FY28. And beyond that, we are already working with our export customers and other beyond Europe and North America where we see lot of traction in terms of wheel requirements."

Demand Environment & Order Book

• Export demand: International business improved, led by stronger demand from North America and improving customer engagement across Europe; the operating environment became considerably more stable and management sees no deflection in demand despite geopolitical tensions.
• Domestic demand: Healthy production schedules, greater policy clarity around regional supply chains, robust GST collections, and healthy consumption trends are supporting domestic strength; the next half looks extremely exciting.
• Order momentum: Sustained customer confidence is reflected in healthy order wins, with traction across existing and new customers supported by an expanding manufacturing footprint and broader product portfolio.
• Non-auto share: The share of non-automotive business in the order book continued to improve, reflecting the strategic focus on a more balanced portfolio.
• PV segment: The passenger vehicle order book is split roughly 50% ICE and 50% EV; exports are currently more EV-weighted but bulk supplies to the ICE side are also starting.
• New order wins: The company received ₹278 crores of orders from the auto segment (domestic two-wheeler and passenger vehicle) and a ₹228 crore PV order entirely from the domestic EV side.

Naresh Jalan: "We are quite optimistic for next seven quarters, means next two years, FY27 and FY28. We are confident with the current order book... we are flooded and we are very, very in exciting times right now in terms of overall demand..."

Margins: Bridge, Headwinds & Outlook

• Q1 margin walk: EBITDA margin improved to 17.96% from 17.11% QoQ, driven by better operating leverage and an improved product mix, not just price revisions.
• Currency impact: Rupee depreciation was only 1% to 1.5% and all currency contracts are pass-on, so currency did not drive the margin improvement; it came from internal working, operating leverage, and productivity gains.
• Gross margin: Gross margin at 54% is sustainable and management expects improvement going forward, assuming energy prices do not cross peak levels again.
• Cost headwinds: Energy costs and shipping costs could not be passed on, which is why gross margin improvement did not flow proportionately to EBITDA; shipping costs saw abnormal increases and the company is working with customers on absorption but has no definite answer.
• Subsidiary margins: Subsidiaries' EBITDA margin improved to 21%, partly due to higher elimination; the underlying margin improvement is 50 to 100 bps higher than the previous quarter.
• Casting realizations: Realizations dipped QoQ because new capacity came up and, to improve utilization, the company did some components that did not yield the right realization; this is one-off and realizations are expected back or higher in coming quarters.
• Margin aspiration: Management declined to guide on profitability, citing the challenging environment, but expects continued improvement every quarter driven by higher utilization and an improving export product mix; the aspiration is to return to old margins sooner or later, with no timeline given.

Naresh Jalan: "Our intention and our aspiration is to go back to the old margins, which we were already achieving. So, I think sooner or later we will touch that margin, but I cannot give how many quarters it may take to get to that margin."

New Ventures & Product Diversification

• Non-ferrous forging: The company is looking at new ventures in non-ferrous products (aluminum, titanium, Inconel, nimonic grades) for aerospace, robotics, and semiconductors; bulk supplies in aluminum forging have already started.
• RFQ activity: The company has started quoting for RFQs from aerospace, semiconductors, and robotics sectors and expects to build an order book in these verticals over the next two years.
• Stainless steel: A significant portion of stainless-steel forging will start from the fourth quarter of this financial year.
• Inconel and titanium: Meaningful contribution is at least two years away (eight to 10 quarters); current RFQs require only ₹10 to 20 crores of capex for heating arrangements, with no major capex needed.
• Capex trigger: Any major capex announcement will only come by end of FY28 when there is clear visibility on the order book and approvals in aerospace and other new verticals; existing capex is sufficient for the next two years of significant growth.

Naresh Jalan: "We will only announce any major capex by end of FY28 when we have a clear visibility in terms of order book and approvals in place in these verticals."

Balance Sheet & Capital Allocation

• Debt reduction: The company is on track to reduce leverage by at least ₹500 crores in this financial year, with net debt expected to be ₹1,500 crores by year-end; the endeavor is to continue reducing leverage while growing, not targeting zero debt but keeping debt in significant check.
• Working capital: Operational cash flow after working capital was about ₹840 crores last year, the highest in company history; Q1 saw a slight elevation in working capital days due to the West Asia crisis, shipping costs, and transit time.
• Working capital targets: Internal targets are set for a 15 to 20 day total improvement (debtor days down 5 to 10, inventory days down 5, creditor days up 10), with a plan for 10 days improvement each year; this may take one year or a little bit more.
• ROCE targets: FY27 target is 12% to 15%, with FY28 target at 20%.
• Capital allocation philosophy: The focus is on sweating assets through higher utilization, improving asset turn, and generating stronger operating leverage while reducing leverage and deploying capital for growth investments and maintenance capex.
• Capacity utilization threshold: Management indicated it is safe to assume 75% to 80% capacity utilization before needing the next round of capex; 100% utilization is very difficult to achieve.

Guidance & Commitments

Key Metrics