Ramkrishna Forgings, suppliers of rolled, forged and machined products, is looking at de-risking as it diversifies offerings both in India and overseas, across auto and non-auto segments. Inorganic growth is another focus area for the company.
The company, which is eyeing acquisition of a Manesar-based auto-component manufacturing unit, ACIL Ltd, believes that the acquisition will help it gain a foothold in the passenger vehicle segment; bring synergies in categories like crank shaft manufacturing and other engine component making. It will also help the forgings company gain access to the auto-component maker’s client base. Most of the Ramkrishna Forgings’ offerings are now targeted at commercial vehicle segment, with its international clientele including those like CAT, among others.
According to Lalit Kumar Khetan, ED and CFO, Ramkrishna Forgings, as the company diversifies into segments like fabrication and acquires related businesses, there will be cross-selling opportunities too. The ACIL acquisition is likely to boost its topline by ₹ 500 crore over a two-to-three year period.
ICRA in a recent report said, the acquisition will provide an opportunity to further diversify the sectoral and customer base. Debt raised for the acquisition could impact the capital structure of the consolidated entity over the short to medium term.
Khetan adds, the bid for ACIL – done through NCLT – is around ₹130 crore –odd. Debt to the tune of ₹ 60-65 crore would “probably have to be raised”. However, the company continues to be in a “comfortable position” with its repayment schedule and the net addition because of the acquisition will be “minimal”.
“We are repaying nearly ₹300-400 crore of principal in the next two years. So there will be substantial reduction. On the interest payouts we are in a comfortable position,” he told BusinessLine , adding that a 24 per cent EBITDA margins – though on the higher side as per analysts - was “quite maintainable at least in the 23 per cent range”.
Ramkrishna Forgings has a debt of ₹1,200 crore. It reported a revenue of ₹579 crore in the second quarter of FY22 (July – September) with an EBITA of ₹139 crore and a PAT of ₹50 crore. Nearly 85 per cent of its turnover is from catering to the auto-segment.
Container shortages did drag down international turnover (nearly 50 per cent of topline).
Diversification Plans
The company has recently brought on-stream a new fabrication facility, at Jamshedpur, and a warm forging press thereby taking up the total capacity to 187,100 tonnes. The new additions will allow it to tap into the loco and railway coach segments.
Ramkrishna Forgings has also entered into tie-up with an US-based tech company for electric vehicle (EV) component-making in India. It will explore the setting up of a facility - for component manufacturing - in “southern parts of India” as the infrastructure requirement and demand for EVs improve.