Analysing the institutional sponsorship and future outlook of Ramkrishna Forgings Limited

Recently Ramkrishna Forgings announced a significant milestone as it penetrates further into the North American market by successfully securing a contract worth USD 220 Million (Rs 1,826 crore). This contract spans over a decade and marks the Company’s foray into a new vertical within the forging sector, focusing on supplying Tier 1 customers in the Light Vehicle segment across North America.

As of February 20th, 2024, the market capitalisation of the company stands at Rs 13,359 Crore, with a share price of Rs 739 per share. The trailing-twelve-month price-to-earnings (TTM PE) ratio is reported at 39.9x as of the same date. Additionally, the retail float, as of December 2023, is noted at 10.6%.

About the company

Ramkrishna Forgings is involved in the manufacturing & sale of forged components of automobiles, railway wagons & coaches and engineering parts. It is a supplier to various sectors like Automotive, Railways, Farm Equipment, Bearings, Oil & Gas, Power and Construction, Earth Moving & Mining, both in India & overseas.

Quarterly Performance

All values are in Rs. Crore

Yearly Performance

All values are in Rs. Crore

Futuristic Sector – Railway Modernization

PE 39.9(Auto parts: 30-50) Mid-high end of sector range

Institutional Sponsorship

In February 2024, the promoter of the company purchased 12,000 shares at Rs 700 each, totalling Rs 85 lakhs. This purchase added to their existing holdings in the company. In December 2023, Naresh Jalan, who serves as both a promoter and director, acquired 6,000 shares at Rs 725 per share, amounting to Rs 41 lakhs.

Small-cap World Fund and Nomura India Investment Fund were revealed to have acquired 2.8% and 2.3% of the company’s shares respectively, based on data from December 2023. In September 2023, Vanguard Index Funds made a significant investment, purchasing 20.6 lakh shares at Rs 692 per share, totalling Rs 143 crore.

In October 2022, the promoter also made a smaller investment, purchasing shares worth Rs 11 lakhs at Rs 234 per share. The preceding month, in September 2022, Bofa Securities Europe SA invested Rs 37 crore in the company, acquiring shares at Rs 178 per share.

Special Situation

In September 2023, the Board of Directors (BoD) of the company decided to raise funds up to Rs 1,000 crore through the issuance of equity shares via Qualified Institutional Placement (QIP). This decision was made following careful consideration and approval by the board.

Additionally, in October 2022, the BoD had previously allocated 46 lakh warrants at Rs 205 per unit to both promoters and non-promoters. These warrants were issued after receiving 25% of the issue price, amounting to Rs 23.6 crore. Now, the BoD has further approved the conversion of these warrants into shares upon receipt of Rs 70.7 crore, which represents 75% of the issue price.

Future Visibility

In a series of strategic moves and successful endeavours, the company has been charting a path of expansion, innovation, and transformation. Starting with the latest developments, the company has secured a substantial contract valued at USD 13.16 million (Rs 110 crore) from a prominent North American axle manufacturer. This contract spans over the next four years and focuses on rear axle and off-highway business, reflecting the company’s prowess in this sector.

In January ’24, the company announced a strategic partnership with McKinsey, a renowned consultancy firm, to embark on a comprehensive 15-month transformation program. This initiative aims to revamp various facets of the company’s operations, including manufacturing, logistics, procurement, manpower, inventory, and pricing. The collaboration underscores the company’s commitment to embracing cutting-edge digital systems and enhancing its capabilities for sustained success and margin improvement.

December ’23 marked a significant milestone as the company’s resolution plan for the acquisition of ACIL Ltd. was approved by the Hon’ble National Company Law Tribunal, underlining its strategic growth through acquisitions.

Furthermore, the company made substantial investments, such as an additional Rs 10 crore in RKFL Engineering Industry Private Limited in November ’23, and expanding its footprint into the South American market with a Rs 74 crore contract win in August ’23.

In the same month, the company secured multiple contracts, including a 17.2 million Euros deal from a Eurasian customer and a 16 million Euros contract for differential components, strengthening its global presence and revenue streams. Additionally, a USD 13.65mn annual business deal was sealed for rear axle and transmission components, further solidifying its foothold in North America.

The company’s expansion efforts also include acquisitions, such as Multitech Auto and Mal Metalliks, aimed at enhancing manufacturing capabilities. Moreover, strategic initiatives like setting up a solar power plant and plans to expand its EV portfolio demonstrate a forward-looking approach towards sustainability and future technologies.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.