RESULTS REVIEW 4QFY16

24 MAY 2016

Ramkrishna Forgings
BUY
INDUSTRY

AUTOS

CMP (as on 23 May 2016)

Rs 376

Target Price

Rs 619

Nifty

7,731

Sensex

25,230

KEY STOCK DATA

Bloomberg

RMKF IN

No. of Shares (mn)

29

MCap (Rs bn) / ($ mn)

11/159

6m avg traded value (Rs mn)

27

STOCK PERFORMANCE (%)

52 Week high / low

Rs 781/265
3M

6M

12M

Absolute (%)

16.4 (29.4)

(34.3)

Relative (%)

8.7 (27.1)

(24.5)

SHAREHOLDING PATTERN (%)

Promoters

50.40

FIs & Local MFs

14.71

FIIs
Public & Others
Source : BSE

Navin Matta
navin.matta@hdfcsec.com
+91-22-6171-7322
Sneha Prashant
sneha.prashant@hdfcsec.com
+91-22-6171-7336

7.11
27.78

Minor dent; still shining

Ramkrishna Forgings (RKFL) 4QFY16 EBITDA at Rs
429mn (-3% YoY) missed estimates by 14% as net
sales witnessed 7% YoY decline on weak export
volumes and 3% dip in net ASPs. EBITDA margin
expanded 70bps QoQ as weak gross margins
(-220bps) were offset by operating leverage gains.
RKFL is confident of ramping up volumes with higher
content/vehicle and the addition of new customers
in export markets. The company expects approvals
from domestic/exports customers between Jul and
Aug-16 and order ramp-up from 2HFY17.
While we cut our volume estimates by 4% each for
FY17-18E, our earnings are largely intact as we
expect net ASPs to rise on account of a richer mix
and pass-through of commodity cost inflation.
Despite a slowdown in export markets, the scope for
RKFL to increase content/veh in heavy-duty forgings
with ~50% capacity headroom continues to excite us.
Maintain BUY with a revised TP of Rs 619 based on
14x Mar-18E (earlier Dec-17E).

Highlights of the quarter

Robust volume outlook: RKFL has maintained its

FY17 volume growth guidance at 115k MT.
Approvals from export/domestic customers in
2QFY17 could improve utilisation from its new
lines. The management has visibility of domestic
orders for its 12.5k MT press, which will ensure
50-60% utilisation in FY17.

RKFL is broad-basing its export market presence

beyond North America (currently ~70% of exports)
and is supplying to Class 5 and LCVs.

Margins to improve: With an improvement in the

product mix (higher share from 12.5k MT press)
and operating leverage benefits owing to 30% YoY
rise in tonnage sales, RKFLs EBITDA margins can
grow.

Near-term outlook: Despite a seasonally soft

quarter, we think RKFL will post decent volumes
with a ramp-up on new orders.

Financial Summary
(Rs mn)
Net Sales
EBITDA
PAT
Diluted EPS (Rs)
P/E (x)
EV / EBITDA (x)
RoE (%)

4QFY16
2,260
429
111
3.9

4QFY15
2,416
441
346
12.6

YoY (%)
(6.5)
(2.7)
(68.0)
(69.4)

3QFY16
1,993
364
91
3.2

QoQ (%)
13.4
17.9
21.6
21.6

FY15
7,408
1,267
673
24.5
15.4
13.8
18.3

FY16P
8,971
1,725
548
19.1
19.7
11.2
12.4

FY17E
12,044
2,504
945
33.0
11.4
7.6
18.5

FY18E
14,022
2,976
1,267
44.2
8.5
6.2
20.9

Source: Company, HDFC sec Inst Research

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters

RAMKRISHNA FORGINGS : RESULT REVIEW 4QFY16

RKFL reported weaker-thanexpected topline

performance as export
volumes disappointed
Overall tonnage sales grew
16% QoQ on the back of 33%
QoQ rise in domestic.
However, net ASP fell on
account of higher sale of
forged components
EBITDA at Rs 429mn missed
estimates by 14% as gross
margins declined 220bps
QoQ
Interest and dep expenses
rose with 12.5k MT press
coming on stream. As a
result, APAT at Rs 111mn
declined 69% YoY
With samples being supplied
to domestic/export
customers from its heavy
press, RKFL is expecting
robust new order wins in
2HFY17

Quarterly Financials Snapshot

(Rs mn)
Net sales (incl OOI)
Material Expenses
Employee Expenses
Other Operating Expenses
EBITDA
Depreciation
EBIT
Other Income
Interest Cost
PBT
Tax
APAT
Adj EPS

4QFY16
2,260
972
205
654
429
150
279
5
154
131
21
111
3.9

4QFY15
2,416
1,196
143
636
441
92
349
6
78
277
(69)
346
12.6

YoY (%)
(6.5)
(18.7)
43.4
2.9
(2.7)
61.9
(19.8)
(6.4)
97.6
(52.6)
(129.5)
(68.0)
(69.4)

3QFY16
1,993
813
170
646
364
133
231
13
121
123
32
91
3.2

QoQ (%)
(6.5)
(18.7)
43.4
2.9
(2.7)
61.9
(19.8)
(6.4)
97.6
(52.6)
(129.5)
(68.0)
(69.4)

4QFY16
43.0
9.1
28.9
19.0
15.6
4.9

4QFY15
49.5
5.9
26.3
18.3
(25.1)
14.3

YoY (bps)
(650)
315
262
73
4,076
(943)

3QFY16
40.8
8.5
32.4
18.3
26.2
4.6

QoQ (bps)
223
52
(347)
72
(1,056)
33

Source: Company, HDFC sec Inst Research

Margin Analysis
Material Expenses % Net Sales
Employee Expenses % Net Sales
Other Operating Expenses % Net Sales
EBITDA Margin (%)
Tax Rate (%)
APAT Margin (%)
Source: Company, HDFC sec Inst Research

Page | 2

RAMKRISHNA FORGINGS : RESULT REVIEW 4QFY16

Our FY17-18E estimates are

largely unchanged as we
expect new order inflow to
drive strong demand in
domestic market and offset
weakness in exports

Change In Estimates
Rs mn
Net Sales
EBITDA
Adj PAT
Adj EPS (in Rs)

New
FY17E
12,044
2,504
945
33

Old
FY17E
12,119
2,541
942
33

FY18E
14,022
2,976
1,267
44

FY18E
14,013
3,019
1,274
44

% chg
FY17E
(0.6)
(1.4)
0.3
0.3

FY18E
0.1
(1.4)
(0.6)
(0.6)

Source: HDFC sec Inst Research

Key Assumptions
Our lower volume growth
assumptions in the export
markets have been offset by
higher net ASP growth
assumptions following
recent commodity cost
inflation

Our volume estimates for

FY17 are well below RKFLs
guidance of 115k

Domestic Sales (MT)

% YoY
Exports Sales (MT)
% YoY
Total Volumes (MT)
% YoY
Domestic ASP (Rs/MT)
% YoY
Exports ASP (Rs/MT)
% YoY

FY15
35,095
12
25,413
157
60,508
47
110,992
9
138,210
33

FY16
48,234
37
28,690
13
76,924
27
102,765
(7)
139,935
1

FY17E
65,116
35
34,952
22
100,068
30
106,876
4
145,491
4

FY18E
73,581
13
40,290
15
113,871
14
109,013
2
148,938
2

Source: SIAM, HDFC sec Inst Research

Page | 3

RAMKRISHNA FORGINGS : RESULT REVIEW 4QFY16

Lower Net ASP Partially Offset Strong Vol Growth

Domestic sales (% YoY)

500%

1.4

400%

1.2
300%

1.0
0.8

200%

0.6

100%

0.4
0%
-100%

Q4FY16

Q3FY16

Q2FY16

Q1FY16

Q4FY15

Q3FY15

Q2FY15

Q1FY15

Q4FY14

Q3FY14

Q4FY16

Q3FY16

Q2FY16

Q1FY16

Q4FY15

Q3FY15

Q2FY15

Q1FY15

Q4FY14

0.2

Source: Company, HDFC sec Inst Research

Source: Company, HDFC sec Inst Research

Domestic Mix Increased Sharply

EBIDTA Margins Rose QoQ On Oplev Benefits

Source: Company, HDFC sec Inst Research

Q4FY16

Q3FY16

Q2FY16

Q1FY16

Q4FY15

Q3FY15

46

71

Q2FY15

45

64

Q1FY15

41

52

Q3FY16

Q2FY15

52

32

20%
19%
18%
17%
16%
15%
14%
13%
12%
11%
10%

Q4FY14

41

81

Q2FY16

73

55

48

Q1FY16

74

59

54

EBIDTA Margin % - RHS

500
450
400
350
300
250
200
150
100
50
0

Q3FY14

48

Q4FY15

27

Q3FY15

26

EBIDTA (Rs Mn)

19

Q1FY15

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

Export

Q4FY16

Domestic

Q4FY14

While gross margins saw a

sharp 220bps decline QoQ,
strong operating leverage
drove up EBITDA margins by
70bps QoQ

% YoY - RHS

1.6

Q3FY14

Export volumes saw a sharp

decline on QoQ basis. The
management reckons that
the current volumes are near
the bottom and with higher
content/veh, volumes should
recover in subsequent
quarters

Export Sales (Rs bn)

MHCV Volumes (% YoY)

65%
55%
45%
35%
25%
15%
5%
-5%
-15%
-25%
-35%

Q3FY14

RKFLs domestic volumes

rose sharply as the company
gained new business on its
12.5k MT press

Slowdown And Inventory De-stocking Hit Exports

Source: Company,HDFC sec Inst Research

Page | 4

RAMKRISHNA FORGINGS : RESULT REVIEW 4QFY16

Peer Valuations

Balkrishna Industries
Bharat Forge
Exide Industries
Jamna Auto
Ramkrishna Forgings
Suprajit Engineering

Mcap
(Rs bn)

CMP
(Rs/sh)

Rating

TP

65
166
129
12
11
21

670
711
152
148
376
161

BUY
BUY
NEU
BUY
BUY
BUY

823
869
131
192
619
170

Adj EPS (Rs/sh)

FY16E FY17E FY18E
58.8
53.5
68.6
29.6
32.6
39.5
7.0
7.7
8.7
8.1
10.2
12.3
19.1
33.0
44.2
5.1
6.8
8.3

FY16E
11.4
24.0
21.9
18.3
19.7
31.8

P/E (x)
FY17E
12.5
21.8
19.8
14.5
11.4
23.7

FY18E
9.8
18.0
17.6
12.0
8.5
19.3

EV/EBITDA (x)
FY16E FY17E FY18E
7.3
6.8
5.1
12.5
11.1
9.3
12.5
11.3
9.9
8.6
7.0
5.9
11.2
7.6
6.2
19.3
15.7
12.9

FY16E
22.3
18.5
14.0
29.6
12.4
19.4

RoE (%)
FY17E
17.2
19.7
14.2
30.7
18.5
18.8

FY18E
18.8
20.7
14.7
30.5
20.9
20.0

Source: Company, HDFC sec Inst Research

Page | 5

RAMKRISHNA FORGINGS : RESULT REVIEW 4QFY16

Income Statement Standalone

(Rs mn)
Net Revenues
Growth (%)
Material Expenses
Employee Expenses
Other Operating Expenses
EBITDA
EBITDA Margin (%)
EBITDA Growth (%)
Depreciation
EBIT
Other Income (Including EO Items)
Interest
PBT
Tax (Incl Deferred)
APAT
APAT Growth (%)
Adjusted EPS (Rs)
EPS Growth (%)
EO (Loss) / Profit (Net Of Tax)
RPAT
Source: Company, HDFC sec Inst Research

Balance Sheet Standalone

FY14
4,295
6.3
2,277
292
1,151
576
13.4
(6.5)
249
327
24
223
128
43
85
(23)
3.2
(38.0)
85

FY15
7,408
72.5
3,699
447
1,995
1,267
17.1
120.1
312
955
57
303
710
37
673
695.9
24.5
656.2
(75)
747

FY16
8,971
21.1
3,765
739
2,743
1,725
19.2
36.1
530
1,195
34
483
747
198
548
(18.5)
19.1
(21.9)
548

FY17E
12,044
34.3
5,179
886
3,475
2,504
20.8
45.2
668
1,836
38
524
1,350
405
945
72.4
33.0
72.4
945

FY18E
14,022
16.4
6,100
1,011
3,936
2,976
21.2
18.8
709
2,267
45
503
1,810
543
1,267
34.0
44.2
34.0
1,267

(Rs mn)
SOURCES OF FUNDS
Share Capital - Equity
Reserves & Surplus
Total Shareholders Funds
Long-term Debt
Short-term Debt
Total Debt
Net Deferred Taxes
Long-term Provisions & Others
TOTAL SOURCES OF FUNDS
APPLICATION OF FUNDS
Net Block
CWIP
Investments
LT Loans & Advances
Total Non-current Assets
Inventories
Debtors
Other Current Assets
Cash & Equivalents
Total Current Assets
Creditors
Other Current Liabilities &
Provns
Total Current Liabilities
Net Current Assets
TOTAL APPLICATION OF FUNDS

FY14

FY15

FY16P

FY17E

FY18E

261
2,971
3,232
3,893
1,148
5,041
309
37
8,619

275
3,836
4,111
4,743
2,460
7,203
344
84
11,742

287
4,426
4,713
5,584
3,016
8,600
543
90
13,945

287
5,235
5,522
5,168
3,016
8,184
813
95
14,613

287
6,304
6,591
4,731
3,016
7,748
1,175
168
15,681

2,337
4,249
67
166
6,819
1,571
1,150
442
143
3,306
1,022

5,239
3,380
67
184
8,869
1,756
2,619
811
5
5,191
1,334

8,363
1,380
67
765
10,576
2,201
2,854
697
12
5,763
1,448

8,695
880
67
217
9,859
2,970
3,960
1,187
34
8,151
1,980

8,486
880
67
244
9,678
3,457
4,994
1,364
192
10,008
2,305

484

984

946

1,417

1,700

1,506
1,800
8,619

2,318
2,873
11,742

2,393
3,369
13,945

3,397
4,754
14,613

4,005
6,003
15,681

Source: Company, HDFC sec Inst Research

Page | 6

RAMKRISHNA FORGINGS : RESULT REVIEW 4QFY16

Cash Flow Standalone

(Rs mn)
Reported PBT
Non-operating & EO items
Interest expenses
Depreciation
Working Capital Change
Tax Paid
OPERATING CASH FLOW ( a )
Capex
Free cash flow (FCF)
Investments
Non-operating Income
INVESTING CASH FLOW ( b )
Debt Issuance/(Repaid)
Interest Expenses
FCFE
Share Capital Issuance
Dividend
FINANCING CASH FLOW ( c )
NET CASH FLOW (a+b+c)
EO Items, Others
Closing Cash & Equivalents

Key Ratios Standalone

FY14
128
223
249
163
(43)
720
(3,416)
(2,696)
(8)
(33)
(3,457)
2,443
(223)
(476)
661
(31)
2,850
113
143

Source: Company, HDFC sec Inst Research

FY15
710
303
312
(1,182)
(37)
106
(2,345)
(2,238)
55
(2,289)
2,161
(303)
(380)
178
(66)
1,971
(213)
75
5

FY16P
747
483
530
(1,066)
(198)
495
(1,655)
(1,160)
140
(1,515)
1,397
(483)
(245)
180
(69)
1,026
7
12

FY17E
1,350
524
668
(809)
(405)
1,328
(500)
828
270
(230)
(416)
(524)
(112)
(136)
(1,076)
22
34

FY18E
1,810
503
709
(1,046)
(543)
1,433
(500)
933
362
(138)
(436)
(503)
(6)
(198)
(1,137)
158
192

PROFITABILITY (%)
GPM
EBITDA Margin
APAT Margin
RoE
RoIC (or Core RoCE)
RoCE
EFFICIENCY
Tax Rate (%)
Fixed Asset Turnover (x)
Inventory (days)
Debtors (days)
Other Current Assets (days)
Payables (days)
Other Current Liab & Provns
(days)
Cash Conversion Cycle (days)
Debt/EBITDA (x)
Net D/E (x)
Interest Coverage (x)
PER SHARE DATA (Rs)
EPS
CEPS
Dividend
Book Value
VALUATION
P/E (x)
P/BV (x)
EV/EBITDA (x)
EV/Revenues (x)
OCF/EV (%)
FCF/EV (%)
FCFE/Mkt Cap (%)
Dividend Yield (%)

FY14

FY15

FY16P

FY17E

FY18E

47.0
13.4
2.0
2.9
2.9
3.3

50.1
17.1
9.1
18.3
8.5
9.5

58.0
19.2
6.1
12.4
6.7
7.1

57.0
20.8
7.8
18.5
8.9
9.2

56.5
21.2
9.0
20.9
10.5
10.8

33.9
1.2
133.5
97.7
37.6
86.9

5.2
1.1
86.5
129.0
40.0
65.7

26.6
0.9
89.5
116.1
28.3
58.9

30.0
1.0
90.0
120.0
36.0
60.0

30.0
1.2
90.0
130.0
35.5
60.0

41.1

48.5

38.5

42.9

44.3

140.8
8.8
1.5
1.5

141.3
5.7
1.8
3.2

136.6
5.0
1.8
2.5

143.0
3.3
1.5
3.5

151.3
2.6
1.1
4.5

3.2
12.8
1.0
123.8

24.5
35.9
2.0
149.7

19.1
37.6
2.0
164.4

33.0
56.3
4.0
192.6

44.2
68.9
5.7
229.9

116.1
3.0
25.6
3.4
4.9
(18.3)
(4.8)
0.3

15.4
2.5
13.8
2.4
0.6
(12.8)
(3.7)
0.5

19.7
2.3
11.2
2.2
2.6
(6.0)
(2.3)
0.5

11.4
2.0
7.6
1.6
7.0
4.4
(1.0)
1.1

8.5
1.6
6.2
1.3
7.8
5.1
(0.1)
1.5

Source: Company, HDFC sec Inst Research

Page | 7

RAMKRISHNA FORGINGS : RESULT REVIEW 4QFY16

RECOMMENDATION HISTORY
Ramkrishna Forgings

Date
9-Oct-15
9-Nov-15
16-Feb-16
24-May-16

TP

900
800
700
600

CMP
644
539
347
376

Reco
BUY
BUY
BUY
BUY

Target
714
684
582
619

500
400
300

May-16

Apr-16

Mar-16

Feb-16

Jan-16

Dec-15

Nov-15

Oct-15

Sep-15

Aug-15

Jul-15

Jun-15

May-15

200

Rating Definitions
BUY
: Where the stock is expected to deliver more than 10% returns over the next 12 month period
NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL
: Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Page | 8

RAMKRISHNA FORGINGS : RESULT REVIEW 4QFY16

Disclosure:
We, Navin Matta, MBA, & Sneha Prashant, MBA, authors and the namessubscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our
views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in
this report.
Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its
Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further
Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest.
Any holding in stock No
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Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or price, or the income derived
from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk.
It should not be considered to be taken as an offer to sell or a solicitation to buy any security. HDFC Securities Ltd may from time to time solicit from, or perform broking, or other services
for, any company mentioned in this mail and/or its attachments.
HDFC Securities and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies)
mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the
company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and
other related information and opinions.
HDFC Securities Ltd, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any
action taken on basis of this report, including but not restricted to, fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the
dividend or income, etc.
HDFC Securities Ltd and other group companies, its directors, associates, employees may have various positions in any of the stocks, securities and financial instruments dealt in the report,
or may make sell or purchase or other deals in these securities from time to time or may deal in other securities of the companies / organizations described in this report.
HDFC Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any
other assignment in the past twelve months.
HDFC Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report
for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or
specific transaction in the normal course of business.
HDFC Securities or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research
report. Accordingly, neither HDFC Securities nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is
not based on any specific merchant banking, investment banking or brokerage service transactions. HDFC Securities may have issued other reports that are inconsistent with and reach
different conclusion from the information presented in this report. Research entity has not been engaged in market making activity for the subject company. Research analyst has not served
as an officer, director or employee of the subject company. We have not received any compensation/benefits from the subject company or third party in connection with the Research
Report.HDFC Securities Ltd. is a SEBI Registered Research Analyst having registration no. INH000002475

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