India Ratings assigns Ramkrishna Forgings' Bank Facilities at 'IND A' / 'IND A1', Outlook Stable

Ramkrishna Forgings Limited has been assigned 'IND A'; Outlook Stable rating by India Ratings & Research for its Bank facilities.

Improving Business Profile: Over FY18-FY21, RKFL has been working on de-risking its business model from domestic commercial vehicle (CV) segment, by diversifying across different segments, customers and geographies. The domestic CV operations contributed about 42% to RKFL's consolidated revenues in FY21 (FY20: 46%) while CV exports accounted for 41% (36%). While RKFL's consolidated revenue from domestic operations was largely flat in FY21, the 6% yoy growth in the overall revenues was mainly led by a 20% yoy increase in exports. Over FY20-FY21, the company has added customers in Europe, started exporting to South America and started supplying to the US for Class 5 trucks as well in addition to its existing supplies of Class 8 trucks. The management has identified Europe and South America as the two focus regions and expects the exports contribution to increase over the medium term.

In the domestic operations, the company is looking at diversifying into light CV segment, which is concentrated towards MHCVs. RKFL is also working on increasing its product offerings in the railways segment, which could support revenue growth FY23 onwards. Also, during FY20-FY21, the company launched products across business segments which has enhanced its product basket with existing clients and will also help add clients in the domestic and export markets.

Further Improvement in EBITDA Margins Expected FY22 Onwards: Ind-Ra expects the consolidated EBITDA margins to improve by 200-250bp yoy in FY22, driven by improving operating leverage, various cost cutting measures adopted by the company, and improving realisations in both domestic and export markets. The agency believes that RKFL could sustain around 20% EBITDA margins over the medium term, given the increasing revenue contribution of the higher margin export business and ramp-up of the margin-accretive press line.

RKFL's consolidated EBITDA margins expanded to 17.3% in FY21 (FY20: 17%), despite recording an EBITDA loss in 1QFY21 (INR48 million). The margin improved as a result of the improved operating efficiencies from 2QFY21, cost reduction measures as well as increasing contribution from exports. The company has also undertaken price hikes over 4QFY21-1QFY22, in both its domestic and export customers to pass on raw material price increases. The EBITDA margins remained strong at 17%-20% over FY17-FY21, mainly attributed to its new product / value additions.

Large Capex to Boost Expansion: During FY20, RKFL announced its capex plan to incur about INR3,600 million over FY20-FY21 towards adding three new press lines to increase its total capacity to about 187,000 tonnes, once fully commissioned (FY20: 150,000 tonnes). Of this, around INR3,000 million was incurred over FY20-FY21 and the remaining would be incurred in FY22, largely debt-funded. While two of these facilities are operational, the third is likely to be operational by August 2021. Ind-Ra does not expect any major incremental debt in FY22, as the size of capex is small. The agency also expects the company to benefit from this increased capacity as the facilities ramp-up with a likely improvement in the CV industry by 2HFY22.

Commenting on the ratings Mr. Lalit Khetan, Executive Director & CFO, Ramkrishna Forgings Limited said: "Assignment of IND A and IND A1 ratings with Stable outlook to our bank facilities by India Ratings is a testimony to our continual multi-pronged improvement in our business operations. The improvement in ratings as compared to our previous ratings will enable us to reduce our rate of interest on our banking facilities leading to lowering of our finance cost going forward."

Shares of RAMKRISHNA FORGINGS LTD. was last trading in BSE at Rs.759.95 as compared to the previous close of Rs. 745.8. The total number of shares traded during the day was 20326 in over 1119 trades.

The stock hit an intraday high of Rs. 786 and intraday low of 745.9. The net turnover during the day was Rs. 15422458.

Source : Equity Bulls

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