Ramkrishna Forgings Q2FY18: Hold with the target price of Rs… | Financial results | Stock outlook |Encouraging net sales and PAT | Fundamental analysis | Indianotes.com


Ramkrishna Forgings Ltd. (RKFL) reported net sales of INR 3333 mn in 2Q FY18 (114.1% jump over INR 1557 mn YoY) and a PAT of INR 235 mn (loss of INR 50 mn YoY) on the back of pickup in both domestic export volume and improved realizations. EBITDAM has improved by 164.5 bps YoY despite delay in passing of increased RM cost to the clients. RM cost as % of sales increased by 1618 bps. Employee expenses as % of sales declined 564 bps YoY on the back of positive operating leverage. Results are largely in line with our estimates. At CMP of INR 748 the stock is trading at 8.4x its FY19E EBITDA. We recommend HOLD with a TP of INR 827 in 18 months, at an EV/EBIDTA of 9x FY19E.

 
·         Domestic tonnage zoomed 106.3% YoY


·         Export tonnage grew whooping 53.8%


·         EBITDAM expanded 165 bps


 

Outlook & Valuation


RKFL is operating at fixed asset turnover of 0.91x in FY17 compared to ~2x in FY15. With enough capacity in place, RKFL is best positioned to benefit from pickup in M&HCV segment in both domestic and overseas markets. To de-risk business model, RKFL is diversifying its geographical presence (expansion in Europe) and product portfolio (increase in SKUs and focus in PV segment). On the back of new product & customer addition and recovery in both domestic & overseas markets, we expect RKFL to register a Revenue/PAT of 26.1%/82.3% from FY18E to FY19E. At CMP of INR 748 the stock is trading at 8.4x its FY19E EBITDA. We recommend HOLD with a TP of INR 827 in 18 months, at an EV/EBIDTA of 9x FY19E.

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