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Ramkrishna Forgings Ltd

| Q4 & FY '26 Earnings Conference Call

BULLISH SENTIMENT

Report Source

⬤11th May 26

Summary : Ramkrishna Forgings reported strong Q4 FY26 results driven by domestic growth and new orders, with a positive outlook for FY27 supported by new projects and debt reduction plans, despite global macroeconomic challenges.

Management Perspective positive : We are pleased to report an improved performance in the fourth quarter, enabling us to end FY26 on a strong note. We are confident that from the next quarter onwards, we will return to further improved operating trajectory and look to sustain the momentum throughout FY27. We are very confident of doing much better exports than our previous in terms of overall mix of percentage to sales.

Concall Report Analysis & Insights

Business Overview

  1. Q4 FY26 consolidated revenues increased 28% year-on-year to Rs. 1,216.78 crores.
  2. EBITDA for Q4 FY26 rose 111% year-on-year to Rs. 208.19 crores, with margins at 17.1%.
  3. Domestic market performance was strong, supported by resilient international markets.
  4. Railway business share of revenue grew to 7.5% in FY26 from 4.6% a year ago.
  5. Full-year FY26 consolidated revenue was Rs. 4,238 crores, up 5% year-on-year.

Future Growth Prospects

  1. Rail wheel joint venture production is anticipated to commence by Q1 FY27.
  2. Company expects to supply 40,000 wheels to Indian Railways in FY27.
  3. Targeting 85-90% utilization in casting capacity in coming quarters.
  4. Secured new orders worth Rs. 594 crores for a four-year program, diversifying into non-automotive.
  5. Expecting significant improvement in export mix and margins over the next two years.

Management Insights

  1. Management is confident in returning to an improved operating trajectory and sustaining momentum in FY27.
  2. Domestic macroeconomic environment remains favorable, supported by resilient consumption and government capex.
  3. New orders include Rs. 334 crores from the Auto sector (CV and EV) and Rs. 258 crores from the energy segment.
  4. Company aims to reduce debt by Rs. 400-500 crores in the current financial year.
  5. Current EBITDA margins are expected to improve further with increased capacity utilization and export volumes.

Signs of Skepticism

  1. Management was reluctant to provide specific revenue growth numbers for FY27.
  2. Timelines for achieving higher cold forging utilization are uncertain due to global approval processes.
  3. Exact selling price for rail wheels cannot be disclosed due to contract specifics and inflation adjustments.

Risk Factors

  1. Global macroeconomic environment remains challenging, varying across regions and sectors.
  2. Outbreak of conflict in the Middle East adversely impacted operating conditions.
  3. Energy price volatility, persistent inflationary pressures, and supply chain disruptions create uncertainty.
  4. Approvals for cold forging in the global market are taking time, delaying utilization improvement.
  5. Geopolitical issues may affect energy prices, requiring customer compensation discussions.

Good To Know

  1. Profit before tax in Q4 FY26 was Rs. 64.33 crores, reflecting 117% QoQ growth.
  2. Consolidated net profit was impacted by Rs. 10.4 crores due to subsidiary eliminations and Mexico subsidiary loss.
  3. A provisioning of Rs. 42 crores for Expected Credit Loss (ECL) was made, considered a prudent measure.
  4. Shipping costs have increased by 15-20%, and shipping days by 15-20 days.
  5. Aluminum forgings are being supplied to EV equipment manufacturers globally.

Key Drivers

  1. Rail wheel plant production starting soon.
  2. Strong demand for Class 8 trucks.
  3. Significant new orders in energy sector.
  4. Targeted debt reduction of Rs. 400-500 crores.

Key Analyst Discussions

Competitive Environment

  1. Trailer axle business achieved 4-5% market share, targeting 10% in two years.
  2. Company is exploring opportunities to set up capacity for titanium and stainless-steel products.
  3. Bidding for aerospace opportunities in domestic and global markets.

Market Trends & Consumer Behavior

  1. Class 8 truck demand in North America is very strong, expected to sustain for at least two years.
  2. Domestic auto industry, including M&HCV, tractors, and PVs, showed double-digit growth.
  3. EV segment is performing extremely well in both domestic and overseas markets.
  4. Company is aggressively working to improve passenger vehicle portfolio, mainly EV segments.

Financial Highlights

  1. Casting business margins are expected to be around 15-16%.
  2. Aluminum forging margins are close to 14-15% at absolute numbers.
  3. Company targets Rs. 400-500 crores in additional revenue from casting business.
  4. Debt reduction target for FY27 is Rs. 400-500 crores.
  5. FY27 capex is expected to be around Rs. 300-400 crores, mainly for value adds and JV contribution.

Product Composition

  1. New orders from the energy segment are for energy storage devices.
  2. Diversification strategy includes increasing share from non-automotive segments.
  3. Targeting 10% revenue from the passenger vehicle segment (synonymous with EV) in two years.
  4. Export mix is expected to improve, historically at 60:40 domestic:export.

Strategic Considerations

  1. Rail wheel plant commercial production expected by end of May or June.
  2. Overall forging and casting utilization targeted at 80% (350,000 tons) for FY27.
  3. Company aims for 85% utilization in press plant by FY27 year-end.
  4. Raw material price increases are passed on to customers with a quarter lag.
  5. No plans to increase ring rolling capacity in the current financial year.