RKFORGE - ramkrishna forgings Ltd. Share Price

The management of Ramkrishna Forgings provided a cautiously optimistic outlook during the earnings call for Q3 & 9M FY26. They highlighted a consolidated net revenue of Rs. 1,098 crores for Q3, marking a 2% year-on-year increase and a 21% rise compared to Q2 FY26. The EBITDA stood at Rs. 163 crores, up 29% year-on-year, with an EBITDA margin of 14.9%, reflecting a 140 basis point improvement quarter-on-quarter.

Key forward-looking points include:

1. A robust domestic market environment, benefiting from a favorable macroeconomic backdrop, leading to increased demand, particularly post-GST rate rationalization in September.
2. Management expressed a strong focus on growth segments such as Railways, where they anticipate significant revenue potential"”projected at Rs. 2,000 crores for the upcoming year"”stemming from new orders for bogie assemblies.
3. The company secured new orders worth Rs. 680 crores in Q3, with 66% from the automotive sector and 34% from non-automotive sectors, illustrating ongoing diversification efforts.
4. They are targeting a 10% to 15% top-line growth year-on-year for FY27, underpinned by scaling up their aluminum forging and casting capacities, with the latter set to commence commercial production in Q4 FY26.
5. Regarding international markets, the management noted a positive outlook for North America, projecting a recovery from recent declines, fueled by new client additions and improved build rates.

In terms of financial health, Ramkrishna Forgings aims to reduce debt by Rs. 500 to Rs. 600 crores by FY26's end, having already cut Rs. 350 crores this quarter. Overall, the management forecasts continued improvement in capacity utilization, projecting a ramp-up in the coming quarters.

Key Q&A from Ramkrishna Forgings Q3 FY26 Earnings Transcript

Question 1: Balasubramanian from Arihant Capital: "We have received new orders of Rs. 680 crores. What is the mix between domestic and export? How does the order pipeline look for Q4 and beyond?"

Answer: The order is mainly from the domestic market, with around 60% from domestic and 40% from exports. Our order books remain strong, and the added capacity should help us secure more orders and improve capacity utilization moving forward.

Question 2: Balasubramanian: "How do you foresee the domestic and North America export situation over the medium term, especially with the railway business?"

Answer: We're not factoring in wheel production currently as it's part of the joint venture. We expect strong sales from our assembled bogies and project double-digit growth from railways in the next two years, while North America's build rates are also gradually improving.

Question 3: Balasubramanian: "Forging capacity utilization dropped to 66%. Is this due to demand softness or ramp-up in new capacities? How's utilization expected over the next two years?"

Answer: Utilization is at 66% due to new capacities and stabilization time. We anticipate reaching 80-85% utilization next financial year as we ramp up production, with substantial orders supporting this goal.

Question 4: Balasubramanian: "What's the status of the planned Rs. 500-600 crores debt reduction by year-end?"

Answer: As of now, we've achieved a Rs. 350 crores reduction, bringing our debt to approximately Rs. 2,250 crores. We aim to reduce it to below Rs. 2,000 crores by the end of FY26.

Question 5: Tanmoy Roy: "Can domestic sales realization cover up export drops?"

Answer: Domestic sales won't fully compensate for export loss, but overall, we foresee improvements in both domestic and export realizations as we secure more orders.

Question 6: Tanmoy Roy: "When do you anticipate the railway wheel revenue to start impacting?"

Answer: We expect railway wheel revenue to commence from FY27, likely starting from Q2 post-commissioning of production.

Question 7: Sunny Gosar: "Considering the North America downturn, how do you foresee growth in that market?"

Answer: The worst appears to be behind us. We budget a 10% YoY increase in build rates and expect customer additions to bridge losses from this year, aiding growth in FY27.

Question 8: Sunny Gosar: "What's the expected domestic and export revenue mix in FY27?"

Answer: We're estimating domestic revenue at 65% and exports at 35% for FY27, influenced by new capacities.

Question 9: Aditya Kumar: "Are the new orders included in FY25 or FY26 top line projections?"

Answer: The new orders are for future revenue streams and do not overlap with the current figures from FY25 or FY26.

Question 10: Akash: "Should we consider current EBITDA margins as the new normal? What's the timeline for recovery?"

Answer: I don't see this as the new normal. Margins will improve consistently, and while I won't commit to a specific timeline, we anticipate positive movement in upcoming quarters.