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Anand Rathi
Ramkrishna Forgings (Buy)
CMP: ₹649.20
Target: ₹904
While Ramkrishna Forgings’ Q1 FY19 export growth was flat due to re-adjustment of inventory, we expect strong export growth for the rest of the year and in FY20, driven by North America and Mexico (growth from DANA). Europe exports are expected to kick in from Q4 FY19. Higher exports would supplement higher machining capacity utilisation, driven by demand from customers in Europe and North America. We expect revenue to register a 14 per cent CAGR over FY18-20, primarily driven by a 32 per cent export CAGR to ₹725 crore in FY20, from ₹412 crore in FY18.
Against this backdrop, we expect EBIDTA growth to be higher, coming at a 17 per cent CAGR over FY18-20. Also, the greater proportion of exports would ensure better working capital (debtor days in Europe are 60-70, against 162 for North America).
Valuation: At a strong, 31 per cent, earnings CAGR over FY18-20, we estimate an EPS of ₹50.2. We upgrade the stock to a ‘Buy’, at a revised target of ₹904.
Risks: Lower-than-estimated export growth and margin expansion.
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