Ramkrishna Forgings Q1 FY27 earnings call

Ramkrishna Forgings Limited reported a strong Q1 FY27 with consolidated revenue growing 19.84% year-on-year to ₹1,217 crores. EBITDA, excluding other income, increased by 47% YoY and 5% QoQ to ₹218.47 crores, leading to an EBITDA margin improvement to 17.96% from 17.11% in the previous quarter. This margin expansion was attributed to better operating leverage and an improved product mix. Profit after tax surged 297% YoY to ₹46.88 crores, reflecting robust operational and financial performance.

The company secured new business worth ₹278 crores from the automobile segment, with a program life of four years, and an additional ₹15 crores from the Metro segment of Indian Railways. Approximately 82% of the automobile orders are in the passenger vehicle segment, and 18% in the two-wheeler segment. Management highlighted a strategic focus on diversification beyond commercial vehicles, with increasing opportunities in passenger vehicles, electric vehicles, energy, mining, off-highway, and railway segments, aiming for a more balanced business portfolio.

International business showed further improvement, driven by stronger demand from North America and Europe. The recently acquired Mexico project has commenced production, contributing approximately ₹6 crores to the top-line in Q1 FY27, with significant revenues anticipated from Q3 FY27 onwards. The company expects over 20% export growth for FY27, targeting exports to constitute almost 35% of the consolidated revenue for the full year.

Ramkrishna Forgings is actively venturing into non-ferrous products, including aluminum, titanium, Inconel, and nimonic grades, targeting aerospace, robotics, and semiconductor sectors. Bulk supplies in aluminum forging have already commenced. Management expects significant revenue contribution from non-ferrous products within 12-18 months, while Inconel and titanium products are projected to contribute materially within 8-10 quarters, leveraging advanced manufacturing capabilities.

The integration of casting operations is substantially complete, with production ramp-up continuing as planned. The company aims for more than 70% capacity utilization in cold forging by Q3 FY27. Overall, Ramkrishna Forgings expects to achieve 75-80% capacity utilization before requiring further major capital expenditure, emphasizing the strategy of sweating existing assets through higher utilization and improved asset turns.

Net debt reduced by ₹100 crores quarter-on-quarter to ₹1,900 crores. The company is committed to reducing leverage by at least ₹500 crores in FY27, targeting a net debt of ₹1,500 crores by the end of the fiscal year, with further reductions planned for FY28. Total capex for FY27 is guided at approximately ₹350 crores, which includes ₹20-30 crores for the Rail JV and ₹10-20 crores for new alloy capabilities like Inconel and titanium.

Management expressed strong optimism for the next two years, targeting a Return on Capital Employed (ROCE) of 12-15% for FY27 and 20% for FY28. The company aims to achieve a turnover of ₹8,000 crores by FY29, implying a compounded annual growth rate (CAGR) of 22-25% for the next three years. Efforts are also focused on improving working capital, with targets to reduce debtor and inventory days and increase creditor days by a combined 15-20 days over the next year.

While gross margins saw a significant increase, the overall EBITDA margin improvement was moderated by higher energy and shipping costs. Management noted that commodity cost increases are passed on with a one-quarter lag, but gas and shipping costs are more challenging to pass on. Key risks identified include geopolitical issues, which can lead to shipping delays and working capital pressure, and the potential for uncontrolled escalation in energy prices, which is a major cost lever for the company.