Ramkrishna Forgings (RMKF IN) Marginally ahead, story intact

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1 INSTITUTIONAL EQUITY RESEARCH Ramkrishna Forgings (RMKF IN) Marginally ahead, story intact INDIA AUTOMOBILES Quarterly Update Top takeaways from Q4FY18 Revenue at Rs 4.4bn up 10% qoq (+52% yoy) was 1% ahead of our estimates EBITDA at Rs 917mn was up 19% qoq and 6% ahead of our estimates EBITDA margin stood at 20.8% (+150bps qoq) due to operating leverage (PCe 20%) PAT, at Rs 343mn, was in line due to higher depreciation Key highlights: Robust performance with strong 10% qoq improvement in revenue. We see the company as a big beneficiary of an improvement in domestic MHCV sales and the Class 8 truck cycle in the US. Order wins from four new European OEMs, share gains in the domestic market, and expectation of double digit industry growth (both domestic MHCV and US Class 8) augurs well for RMKF. We see marked improvement in its financials and expect 24% revenue CAGR for FY With its capex cycle over, FCF should improve substantially and ROE should rise to 20%. Conference call takeaways RMKF sees very strong momentum in both domestic sales and exports. It expects to gain market share by offering new components. Expects 20%+ volume growth and 25% revenue growth in FY19 Operating at 72% utilisation; heavy press utilisation at 60%. Expects to achieve full capacity by the end of FY20. Looking at adding plant 6, which is in planning stage New orders from EU stood at 8mn, the execution of which will begin in Q2FY19; sees 2mn executable in FY19 Interest cost to increase in FY19 due to discontinuation of LOUs 18% of sales non automotive; sees oil and gas doing well in FY19 Margins to expand further led by operating leverage and price hikes; should negate RM cost pressures Capex for FY19 will be c.rs 800mn mainly spent on increasing machining and towards maintenance Sees 10 15% increase in machined components in FY19 Outlook and valuation: Trading at 11x FY20 earnings, we see immense value in the company due to its strong potential. We tweak our estimates by increasing FY19/20 margins based on operating leverage and price hikes, however higher depreciation and interest cost means that our FY20 EPS decreases by 4%. Maintain BUY with a revised target of Rs 1,200 (Rs 1,250 earlier), valuing the company at 18x FY20 earnings still a hefty 30%+ discount to Bharat Forge. 28 May 2018 BUY (Maintain) CMP RS 771 / TARGET RS 1200 (+56%) COMPANY DATA O/S SHARES (MN) : 33 MARKET CAP (RSBN) : 24 MARKET CAP (USDBN) : WK HI/LO (RS) : 891 / 428 LIQUIDITY 3M (USDMN) : 0.5 PAR VALUE (RS) : 10 SHARE HOLDING PATTERN, % Mar 18 Dec 17 Sep 17 PROMOTERS : FII / NRI : FI / MF : NON PRO : PUBLIC & OTHERS : Key Financials Rs mn FY18 FY19E FY20E Net Sales 14,354 17,885 22,007 EBIDTA 2,842 3,861 4,798 Net Profit 946 1,616 2,155 EPS, Rs PER, x EV/EBIDTA, x ROE, % Debt/Equity (%) CHANGE IN ESTIMATES Revised Est. % Revision Rs mn FY19E FY20E FY19E FY20E Revenue 17,885 22,007 2% 2% EBITDA 3,861 4,798 8% 6% Core PAT 1,616 2,155 1% 4% EPS (Rs) % 4% Nitesh Sharma, CFA ( ) nsharma@phillipcapital.in Dhawal Doshi ( ) ddoshi@phillipcapital.in (Rs mn) Q4FY18 Q4FY17 yoy Q3FY18 qoq vs. expectations % Comments Net sales 4,401 2,887 52% 4,001 10% 1% Marginally ahead of estimate EBITDA (Adj.) % % 6% EBITDA 6% ahead led by operating leverage EBITDA Margin 20.8% 19.5% 130 bps 19.3% 155 bps 86 bps Net Profit (Adj) % % 0% PAT in line due to higher depreciation Tonnage details Total Tonnage 35,812 25,359 41% 33,107 8% Domestic Tonnage 28,297 19,359 46% 25,749 10% Export Tonnage 7,515 6,000 25% 7,358 2% Revenue breakup Total revenue 4,401 2,887 52% 4,001 10% Domestic revenue 3,184 2,000 59% 2,866 11% Export revenue 1, % 1,081 3% Page 1 PHILLIPCAPITAL INDIA RESEARCH

2 Financials Income Statement Net sales 8,600 14,354 17,885 22,007 Growth, % Other income Total income 8,755 14,354 18,168 22,318 Raw material expenses 3,457 7,138 9,266 11,382 Employee expenses ,116 Other Operating expenses 2,845 3,501 4,133 5,022 EBITDA (Core) 1,645 2,842 3,861 4,798 Growth, % (6.9) Margin, % Depreciation ,107 EBIT 955 1,998 2,905 3,691 Growth, % (22.8) Margin, % Interest paid Other Non Operating Income Non recurring Items Pre tax profit 249 1,342 2,214 2,993 Tax provided Profit after tax ,616 2,155 Others (Minorities, Associates) Net Profit ,616 2,155 Growth, % (65.3) Net Profit (adjusted) ,616 2,155 Unadj. shares (m) Wtd avg shares (m) Balance Sheet Cash & bank Marketable securities at cost Debtors 3,029 4,722 4,508 5,547 Inventory 3,220 2,994 3,528 4,341 Loans & advances Other current assets Total current assets 6,994 8,629 9,099 11,233 Investments Gross fixed assets 12,313 13,927 17,927 20,927 Less: Depreciation 2,839 3,683 4,635 5,742 Add: Capital WIP Net fixed assets 9,824 10,679 13,628 15,420 Non current assets Total assets 17,708 19,708 23,127 27,054 Current liabilities 7,766 7,923 8,767 9,614 Provisions Total current liabilities 7,766 7,923 8,767 9,614 Non current liabilities 5,033 4,629 5,216 6,216 Total liabilities 12,799 12,552 13,984 15,831 Paid up capital Reserves & surplus 4,622 7,266 8,817 10,897 Shareholders equity 4,909 7,592 9,143 11,223 Total equity & liabilities 17,708 20,144 23,127 27,054 Source: Company, PhillipCapital India Research Estimates Cash Flow Pre tax profit 249 1,342 2,214 2,993 Depreciation ,107 Chg in working capital ,005 Total tax paid Other operating activities Cash flow from operating activities 1, ,096 2,257 Capital expenditure 771 1,699 3,904 2,900 Chg in investments Chg in marketable securities Other investing activities Cash flow from investing activities 897 1,699 3,904 2,900 Free cash flow Equity raised/(repaid) 0 2, Debt raised/(repaid) ,000 Dividend (incl. tax) Other financing activities Cash flow from financing activities 712 2, ,075 Net chg in cash 51 1, Valuation Ratios Per Share data EPS (INR) Growth, % (65.3) Book NAV/share (INR) FDEPS (INR) CEPS (INR) CFPS (INR) DPS (INR) (2.0) (1.8) (2.0) (2.3) Return ratios Return on assets (%) Return on equity (%) Return on capital employed (%) Turnover ratios Asset turnover (x) Sales/Total assets (x) Sales/Net FA (x) Working capital/sales (x) (0.1) Fixed capital/sales (x) Receivable days Inventory days Payable days Working capital days (33.2) Liquidity ratios Current ratio (x) Quick ratio (x) Interest cover (x) Dividend cover (x) Total debt/equity (%) Net debt/equity (%) Valuation PER (x) PEG (x) y o y growth (1.8) Price/Book (x) Yield (%) EV/Net sales (x) EV/EBITDA (x) EV/EBIT (x) Page 2 PHILLIPCAPITAL INDIA RESEARCH

3 Stock Price, Price Target and Rating History B (TP 1000) B (TP 1250) B (TP 700) J 17 F 17 M 17 M 17 J 17 A 17 S 17 N 17 D 17 F 18 M 18 M 18 Rating Methodology We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one year. Rating Criteria Definition BUY >= +15% Target price is equal to or more than 15% of current market price NEUTRAL 15% > to < +15% Target price is less than +15% but more than 15% SELL <= 15% Target price is less than or equal to 15%. Page 3 PHILLIPCAPITAL INDIA RESEARCH

4 RESEARCH Automobiles Dhawal Doshi Nitesh Sharma, CFA Agro Chemicals Varun Vijayan Banking, NBFCs Manish Agarwalla Pradeep Agrawal, Sujal Kumar Consumer Preeyam Tolia, Vishal Gutka Cement Vaibhav Agarwal Engineering, Capital Goods Jonas Bhutta Vikram Rawat Economics Anjali Verma Raag Haria IT Services Vibhor Singhal Shyamal Dhruve Infrastructure Vibhor Singhal Logistics, Transportation & Midcap Vikram Suryavanshi Media Vishal Gutka Metals Dhawal Doshi Vipul Agrawal Midcaps Deepak Agarwal Akshay Mokashe MANAGEMENT Vineet Bhatnagar (Managing Director) Kinshuk Bharti Tiwari (Head Institutional Equity) Jignesh Shah (Head Equity Derivatives) Pharma & Specialty Chem Surya Patra Mehul Sheth, Rishita Raja Retail & Real Estate Vishal Gutka Dhaval Somaiya Strategy Neeraj Chadawar Telecom Technicals Subodh Gupta, CMT Production Manager Ganesh Deorukhkar Editor Roshan Sony Sr. Manager Equities Support Rosie Ferns SALES & DISTRIBUTION Kishor Binwal Ashvin Patil Bhavin Shah Ashka Gulati Archan Vyas Asia Sales Dhawal Shah Sales Trader Dilesh Doshi Suniil Pandit Execution Mayur Shah CORPORATE COMMUNICATIONS Zarine Damania REGIONAL MEMBER COMPANIES INDIA PhillipCapital (India) Private Limited SINGAPORE Phillip Securities Pte Ltd JAPAN Phillip Securities Japan, Ltd THAILAND Phillip Securities (Thailand) Public Co. Ltd. UNITED STATES Phillip Futures Inc. MALAYSIA Phillip Capital Management Sdn Bhd INDONESIA PT Phillip Securities Indonesia FRANCE King & Shaxson Capital Ltd. AUSTRALIA PhillipCapital Australia HONG KONG Phillip Securities (HK) Ltd CHINA Phillip Financial Advisory (Shanghai) Co. Ltd. UNITED KINGDOM King & Shaxson Ltd. SRI LANKA Asha Phillip Securities Limited Page 4 PHILLIPCAPITAL INDIA RESEARCH

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