RKFORGE - ramkrishna forgings Ltd. Share Price

Ramkrishna Forgings Limited provided a mixed outlook for the upcoming periods during its Q4 & FY 2024-25 earnings call. Despite facing challenges due to a macroeconomic environment, the management highlighted significant order wins amounting to approximately Rs. 4,600 crores, showcasing a diversified portfolio across automotive, non-automotive, and railway segments.

The company reported a consolidated revenue of Rs. 947 crores for Q4 FY '25, down 3% year-on-year, while the annual revenue increased by 9% to Rs. 4,034 crores. There was a notable profit after tax of Rs. 200 crores in Q4, bolstered by a deferred tax credit of Rs. 223 crores related to the ACIL merger.

Capacity expansion also featured prominently in management's outlook, with new cold and hot forging capacities totaling 39,250 metric tonnes commissioned recently. As of March 2025, the total standalone capacity stood at 268,400 metric tonnes.

Forward-looking statements included maintaining a revenue growth guidance of 15% to 20% for FY '26, supported by upcoming projects in both automotive and railway sectors. The management expects substantial debt reduction by FY '26 due to improvements in cash flow and the end of their capex cycle.

The management indicated that the recent issues with inventory discrepancies, amounting to Rs. 220 crores for FY '24-25, would not lead to future financial impacts. They reaffirmed that all necessary measures and corrective actions would be taken to prevent such occurrences. The issuance of Rs. 204.75 crores in warrants to promoters was also approved to bridge any shortfall related to these discrepancies, reinforcing their commitment to stakeholders.

Question 1: "On what basis are you saying there is no significant financial impact from the inventory discrepancy, especially since the report isn't finalized?"

Answer: We believe there will be no significant financial impact based on the interim report from the independent committee. We've assessed the current findings and are confident that the necessary provisions have been made. The exact reasons are still being analyzed, but we foresee no adverse impact on our balance sheet moving forward.

Question 2: "Why did we see an increase in working capital and what are the expectations for working capital days in FY '26?"

Answer: The increase in working capital, around Rs. 400 Crores, is due to increased transit times and new customer wins this year. We expect improvement in working capital days as future turnover increases will help normalize inventory levels.

Question 3: "Will you still maintain the guidance of 15% to 20% revenue growth for FY '26?"

Answer: Yes, we remain confident in maintaining our guidance of a 15% to 20% revenue growth for FY '26, despite the changes in our revenue recognition policy. The backlog from the last quarter will further contribute positively.

Question 4: "Could you clarify the situation regarding the discrepancy in revenue recognition this quarter?"

Answer: In Q4, approximately Rs. 170 Crores of revenue was not recognized due to our revised policy on goods not yet delivered to customers. We believe going forward, these will be recognized timely and will not affect our future practices.

Question 5: "What steps are being taken to ensure the accounting errors do not happen again?"

Answer: We've implemented enhanced controls and processes, including auto-recording systems. The errors were not intentional; they were due to the rapid growth of the company outpacing our accounting systems. We're committed to ensuring this will not recur.

Question 6: "What is the outlook for margins and our target for FY '28?"

Answer: We aim for EBITDA margins of 24% to 25% by FY '28. Despite recent challenges, we believe in our capacity to improve margins through operational strategies and new capacities, which will be firmly pursued moving forward.

Question 7: "Can you explain the rationale behind the Rs. 2,100 pricing of the warrants issued to promoters?"

Answer: The Rs. 2,100 pricing was set to limit overall equity dilution to just 0.5%. This approach protects minority shareholders while ensuring that our commitments are met following the inventory discrepancies.

Question 8: "What is the current status of your debt, and what measures are in place for reduction?"

Answer: By FY '26, we expect substantial debt reduction due to incoming funds from warrant issuance, tax refunds, and strong cash flow from operational improvements. Our aim is a meaningful decrease in total debt levels.

Question 9: "How has the recent tariff situation in the U.S. market affected your business?"

Answer: We've not seen any major demand resets from customers post-tariff. There are expectations of a rapid recovery in demand soon. Our new Mexican entity provides strategic benefits, allowing us to reduce costs and absorb tariffs effectively.

Question 10: "What are the projections for your capex in FY '26?"

Answer: The total capex for FY '26 is projected at Rs. 100 to Rs. 150 Crores, primarily for maintenance. We've completed most major growth-related capex and will focus on optimizing existing capabilities without incurring significant new investments.