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Systematrix Shares
Ramkrishna Forgings (Buy)
CMP: ₹650.25
Target: ₹850
We spoke with the management of Ramkrishana Forgings to get an update on business. We believe the company’s strong order book position along with the start of commercial production at two large presses (brand new 12,500 tonnes and 6,300 t) in 2HFY16 provide strong financial visibility for the next 2-3 years. The company targets further order book strengthening in coming quarters as discussions with few additional clients are at an advanced stage, and plant audits are conducted by many global CV OEMs. We believe that higher share of exports coupled with richer product mix to boost realisation and margins meaningfully in FY17e. We maintain a positive stance on Ramkrishna as valuations remain reasonable compared to the peer group.
We believe our margin assumptions are conservative given operating leverage, rich product (front axle beam and crankshaft) and geographical mix to play out over the next two years. We believe stabilisation of the brand new 12,500 t press is the key factor as margin expansion is contingent on it.
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