RKFORGE - ramkrishna forgings Ltd. Share Price

Ramkrishna Forgings Limited, in its Q1 FY 2025-26 earnings call, outlined a cautious outlook due to ongoing challenges, particularly from geopolitical factors such as U.S. tariffs. The management reported consolidated revenues of Rs.1,015 Crores, a 6% year-on-year increase. However, EBITDA stood at Rs.149 Crores, a drop of Rs.20 Crores from the previous fiscal year, resulting in an EBITDA margin of 14.6%, down 300 basis points. Profit After Tax (PAT) decreased sharply to Rs.12 Crores from Rs.55 Crores in Q1 FY 2025, affected primarily by changes in export/domestic revenue mix and realization losses amounting to approximately Rs.40 Crores.

Management highlighted a proactive response to the evolving global landscape, noting that the U.S. auto tariffs of 25% would adversely influence demand in the short term, with estimations of resulting cash outflows around Rs.6 Crores. They expressed optimism about potential recovery in the commercial vehicle sector, despite a noted market downturn.

Forward-looking indicators include the addition of approximately 40,000 tonnes of press line capacity and a 3,000-tonne aluminum forging facility. In Q1, the company secured new orders totaling Rs.660 Crores, with export orders making up Rs.502 Crores. The mix of domestic orders was dominated by the off-highway segment (Rs.99 Crores) and commercial vehicles (Rs.59 Crores).

Management reaffirmed their commitment to improving margins, targeting a return to approximately 20-22% in EBITDA margins over the next few quarters, contingent upon stabilizing steel prices and improved operational efficiencies. The integration of new capabilities in aluminum forging is anticipated to support future growth, reflecting management's strategies to navigate market challenges while aiming for long-term profitability.

Q&A Summary from Ramkrishna Forgings Limited Earnings Transcript (Q1 FY '26)

1. Mitul Shah (DAM Capital): "In this quarter, how much impact, if someone has to gauge about that, we have to absorb the tariff before it gets negotiated or settled between us and OEM customer? What was the effective tariff rate we applied during the quarter on exports to North America?"

Naresh Jalan: For Quarter 1, the tariff for Light Vehicles and Passenger Vehicles was 25%, and for Commercial Vehicles, it was 10%. Our U.S. shipments faced a total impact of about Rs. 6 Crores, of which we've received confirmation for a 50% pass-on from customers. We're negotiating on the remaining Rs. 3 Crores.

2. Mitul Shah: "Is the Rs. 6 Crores impact captured in our P&L or only Rs. 3 Crores?"

Naresh Jalan: We haven't captured the impact in our P&L yet; we only recorded what customer confirmations we received, which means Rs. 0 currently reflects in our P&L.

3. Balasubramanian (Arihant Capital Markets): "What kind of contributions can we expect from the Mexico facility?"

Naresh Jalan: The Mexico operations are focusing on machining, with no immediate plans for forging. We started operations recently and expect significant revenue from FY '27 as capacity ramps up.

4. Dhaval Shah (Girik Capital): "What will be the impact of inventory correction on EBITDA margin?"

Lalit Khetan: There are no adjustments on account of inventory this quarter; all accounted for by March 2025. The decline in EBITDA margins to 14.6% was largely due to decreased realizations and overall market conditions.

5. Siddharth Bassi (Sass & B): "Will we stabilize at 21% to 22% margins in the next financial year?"

Naresh Jalan: Yes, we're aiming for a 22% EBITDA margin by Q4 FY '26 or Q1 FY '27. This assumes stabilization in our operations and back to our historical margins.

6. Viral Shah (Enam Holdings): "What are your expectations for net debt now and in the future?"

Naresh Jalan: Currently, our net debt stands at Rs. 1,800 Crores. We're targeting a reduction of Rs. 300 to Rs. 400 Crores by the end of FY '26, bringing it down to around Rs. 1,400 to Rs. 1,500 Crores.

7. Mitul Shah: "For the railway joint venture, what's the debt existing now?"

Lalit Khetan: The total investment in the JV, including debt, is about Rs. 1,270 Crores. The project financial structure is 70% debt and 30% equity, which means we expect to carry about Rs. 900 Crores in debt.

These represent the major questions and their detailed responses from the earnings call.