Ramkrishna Forgings (RMKF IN) Marginally ahead, story intact

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 FY18 20. 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) : 0.3 52 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 : 44.4 44.4 44.4 FII / NRI : 20.4 20.6 19.2 FI / MF : 14.9 14.3 14.9 NON PRO : 8.0 8.6 9.0 PUBLIC & OTHERS : 12.4 12.1 12.6 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 29.0 49.6 66.1 PER, x 26.6 15.5 11.7 EV/EBIDTA, x 11.4 8.5 7.0 ROE, % 12.5 17.7 19.2 Debt/Equity (%) 96.3 86.4 79.3 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) 49.6 66.1 1% 4% Nitesh Sharma, CFA (+ 9122 6246 4126) nsharma@phillipcapital.in Dhawal Doshi (+ 9122 6246 4128) 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.) 917 564 63% 771 19% 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) 343 141 144% 277 24% 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 1,118 810 38% 1,081 3% Page 1 PHILLIPCAPITAL INDIA RESEARCH

Financials Income Statement Net sales 8,600 14,354 17,885 22,007 Growth, % 2 67 25 23 Other income 155 0 283 311 Total income 8,755 14,354 18,168 22,318 Raw material expenses 3,457 7,138 9,266 11,382 Employee expenses 808 874 908 1,116 Other Operating expenses 2,845 3,501 4,133 5,022 EBITDA (Core) 1,645 2,842 3,861 4,798 Growth, % (6.9) 72.7 35.8 24.3 Margin, % 18.8 19.8 21.3 21.5 Depreciation 690 844 956 1,107 EBIT 955 1,998 2,905 3,691 Growth, % (22.8) 109.2 45.4 27.1 Margin, % 11.1 13.9 16.2 16.8 Interest paid 732 698 740 756 Other Non Operating Income 25 42 49 57 Non recurring Items 0 0 0 0 Pre tax profit 249 1,342 2,214 2,993 Tax provided 58 396 598 838 Profit after tax 190 946 1,616 2,155 Others (Minorities, Associates) 0 0 0 0 Net Profit 190 946 1,616 2,155 Growth, % (65.3) 397.0 70.8 33.3 Net Profit (adjusted) 190 946 1,616 2,155 Unadj. shares (m) 29 33 33 33 Wtd avg shares (m) 29 33 33 33 Balance Sheet Cash & bank 11 4 153 435 Marketable securities at cost 0 0 0 0 Debtors 3,029 4,722 4,508 5,547 Inventory 3,220 2,994 3,528 4,341 Loans & advances 615 131 131 131 Other current assets 119 779 779 779 Total current assets 6,994 8,629 9,099 11,233 Investments 193 193 193 193 Gross fixed assets 12,313 13,927 17,927 20,927 Less: Depreciation 2,839 3,683 4,635 5,742 Add: Capital WIP 351 436 336 236 Net fixed assets 9,824 10,679 13,628 15,420 Non current assets 697 207 207 207 Total assets 17,708 19,708 23,127 27,054 Current liabilities 7,766 7,923 8,767 9,614 Provisions 0 0 0 0 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 287 326 326 326 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 690 844 956 1,107 Chg in working capital 721 743 524 1,005 Total tax paid 0 611 598 838 Other operating activities 0 0 0 0 Cash flow from operating activities 1,660 832 3,096 2,257 Capital expenditure 771 1,699 3,904 2,900 Chg in investments 126 0 0 0 Chg in marketable securities 0 0 0 0 Other investing activities 0 0 0 0 Cash flow from investing activities 897 1,699 3,904 2,900 Free cash flow 763 867 809 643 Equity raised/(repaid) 0 2,683 0 0 Debt raised/(repaid) 770 441 587 1,000 Dividend (incl. tax) 58 60 65 75 Other financing activities 0 0 0 0 Cash flow from financing activities 712 2,302 652 1,075 Net chg in cash 51 1,435 156 432 Valuation Ratios Per Share data EPS (INR) 6.6 29.0 49.6 66.1 Growth, % (65.3) 337.2 70.8 33.3 Book NAV/share (INR) 171.2 232.9 280.5 344.4 FDEPS (INR) 6.6 29.0 49.6 66.1 CEPS (INR) 30.7 54.9 78.9 100.1 CFPS (INR) 41.3 7.6 93.5 67.5 DPS (INR) (2.0) (1.8) (2.0) (2.3) Return ratios Return on assets (%) 5.4 8.8 11.0 11.6 Return on equity (%) 3.9 12.5 17.7 19.2 Return on capital employed (%) 9.0 14.8 17.7 18.3 Turnover ratios Asset turnover (x) 0.7 1.1 1.1 1.2 Sales/Total assets (x) 0.5 0.8 0.8 0.9 Sales/Net FA (x) 0.9 1.4 1.5 1.5 Working capital/sales (x) (0.1) 0.0 0.0 0.1 Fixed capital/sales (x) Receivable days 128.6 120.1 92.0 92.0 Inventory days 136.6 76.1 72.0 72.0 Payable days 138.8 89.8 93.8 94.2 Working capital days (33.2) 17.9 3.6 19.6 Liquidity ratios Current ratio (x) 0.9 1.1 1.0 1.2 Quick ratio (x) 0.5 0.7 0.6 0.7 Interest cover (x) 1.3 2.9 3.9 4.9 Dividend cover (x) Total debt/equity (%) 156.8 96.3 86.4 79.3 Net debt/equity (%) 156.6 96.3 84.7 75.4 Valuation PER (x) 116.1 26.6 15.5 11.7 PEG (x) y o y growth (1.8) 0.1 0.2 0.4 Price/Book (x) 4.5 3.3 2.7 2.2 Yield (%) EV/Net sales (x) 3.5 2.3 1.8 1.5 EV/EBITDA (x) 18.1 11.4 8.5 7.0 EV/EBIT (x) 31.2 16.2 11.3 9.1 Page 2 PHILLIPCAPITAL INDIA RESEARCH

Stock Price, Price Target and Rating History 1000 900 800 700 B (TP 1000) B (TP 1250) 600 500 B (TP 700) 400 300 200 100 0 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

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 www.phillipcapital.in SINGAPORE Phillip Securities Pte Ltd www.phillip.com.sg JAPAN Phillip Securities Japan, Ltd www.phillip.co.jp THAILAND Phillip Securities (Thailand) Public Co. Ltd. www.phillip.co.th UNITED STATES Phillip Futures Inc. MALAYSIA Phillip Capital Management Sdn Bhd www.poems.com.my INDONESIA PT Phillip Securities Indonesia www.phillip.co.id FRANCE King & Shaxson Capital Ltd. www.kingandshaxson.com AUSTRALIA PhillipCapital Australia www.phillipcapital.com.au HONG KONG Phillip Securities (HK) Ltd www.phillip.com.hk CHINA Phillip Financial Advisory (Shanghai) Co. Ltd. www.phillip.com.cn UNITED KINGDOM King & Shaxson Ltd. www.kingandshaxson.com SRI LANKA Asha Phillip Securities Limited www.ashaphillip.net/home.htm Page 4 PHILLIPCAPITAL INDIA RESEARCH

Disclosures and Disclaimers PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives, and Private Client Group. This report has been prepared by Institutional Equities Group. The views and opinions expressed in this document may, may not match, or may be contrary at times with the views, estimates, rating, and target price of the other equity research groups of PhillipCapital (India) Pvt. Ltd. This report is issued by PhillipCapital (India) Pvt. Ltd., which is regulated by the SEBI. PhillipCapital (India) Pvt. Ltd. is a subsidiary of Phillip (Mauritius) Pvt. Ltd. References to "PCIPL" in this report shall mean PhillipCapital (India) Pvt. Ltd unless otherwise stated. This report is prepared and distributed by PCIPL for information purposes only, and neither the information contained herein, nor any opinion expressed should be construed or deemed to be construed as solicitation or as offering advice for the purposes of the purchase or sale of any security, investment, or derivatives. The information and opinions contained in the report were considered by PCIPL to be valid when published. The report also contains information provided to PCIPL by third parties. The source of such information will usually be disclosed in the report. Whilst PCIPL has taken all reasonable steps to ensure that this information is correct, PCIPL does not offer any warranty as to the accuracy or completeness of such information. Any person placing reliance on the report to undertake trading does so entirely at his or her own risk and PCIPL does not accept any liability as a result. Securities and Derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily an indication of future performance. This report does not regard the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors must undertake independent analysis with their own legal, tax, and financial advisors and reach their own conclusions regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realised. Under no circumstances can it be used or considered as an offer to sell or as a solicitation of any offer to buy or sell the securities mentioned within it. The information contained in the research reports may have been taken from trade and statistical services and other sources, which PCIL believe is reliable. PhillipCapital (India) Pvt. Ltd. or any of its group/associate/affiliate companies do not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice. Important: These disclosures and disclaimers must be read in conjunction with the research report of which it forms part. Receipt and use of the research report is subject to all aspects of these disclosures and disclaimers. Additional information about the issuers and securities discussed in this research report is available on request. Certifications: The research analyst(s) who prepared this research report hereby certifies that the views expressed in this research report accurately reflect the research analyst s personal views about all of the subject issuers and/or securities, that the analyst(s) have no known conflict of interest and no part of the research analyst s compensation was, is, or will be, directly or indirectly, related to the specific views or recommendations contained in this research report. Additional Disclosures of Interest: Unless specifically mentioned in Point No. 9 below: 1. The Research Analyst(s), PCIL, or its associates or relatives of the Research Analyst does not have any financial interest in the company(ies) covered in this report. 2. The Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively do not hold more than 1% of the securities of the company (ies)covered in this report as of the end of the month immediately preceding the distribution of the research report. 3. The Research Analyst, his/her associate, his/her relative, and PCIL, do not have any other material conflict of interest at the time of publication of this research report. 4. The Research Analyst, PCIL, and its associates have not received compensation for investment banking or merchant banking or brokerage services or for any other products or services from the company(ies) covered in this report, in the past twelve months. 5. The Research Analyst, PCIL or its associates have not managed or co managed in the previous twelve months, a private or public offering of securities for the company (ies) covered in this report. 6. PCIL or its associates have not received compensation or other benefits from the company(ies) covered in this report or from any third party, in connection with the research report. 7. The Research Analyst has not served as an Officer, Director, or employee of the company (ies) covered in the Research report. 8. The Research Analyst and PCIL has not been engaged in market making activity for the company(ies) covered in the Research report. 9. Details of PCIL, Research Analyst and its associates pertaining to the companies covered in the Research report: Sr. no. Particulars Yes/No 1 Whether compensation has been received from the company(ies) covered in the Research report in the past 12 months for No investment banking transaction by PCIL 2 Whether Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively hold more than 1% of No the company(ies) covered in the Research report 3 Whether compensation has been received by PCIL or its associates from the company(ies) covered in the Research report No 4 PCIL or its affiliates have managed or co managed in the previous twelve months a private or public offering of securities for the No company(ies) covered in the Research report 5 Research Analyst, his associate, PCIL or its associates have received compensation for investment banking or merchant banking or brokerage services or for any other products or services from the company(ies) covered in the Research report, in the last twelve months No Independence: PhillipCapital (India) Pvt. Ltd. has not had an investment banking relationship with, and has not received any compensation for investment banking services from, the subject issuers in the past twelve (12) months, and PhillipCapital (India) Pvt. Ltd does not anticipate receiving or intend to seek compensation for investment banking services from the subject issuers in the next three (3) months. PhillipCapital (India) Pvt. Ltd is not a market maker in the securities mentioned in this research report, although it, or its affiliates/employees, may have positions in, purchase or sell, or be materially interested in any of the securities covered in the report. Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or particular requirements of any individual recipient hereof. Certain securities may give rise to substantial risks and may not be suitable for certain investors. Each investor must make its own determination as to the appropriateness of any securities referred to in this research report based upon the legal, tax and accounting considerations applicable to such investor and its own investment objectives or strategy, its financial situation and its investing experience. The value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by other financial, economic, or political factors. Past performance is not necessarily indicative of future performance or results. Page 5 PHILLIPCAPITAL INDIA RESEARCH

Sources, Completeness and Accuracy: The material herein is based upon information obtained from sources that PCIPL and the research analyst believe to be reliable, but neither PCIPL nor the research analyst represents or guarantees that the information contained herein is accurate or complete and it should not be relied upon as such. Opinions expressed herein are current opinions as of the date appearing on this material, and are subject to change without notice. Furthermore, PCIPL is under no obligation to update or keep the information current. Without limiting any of the foregoing, in no event shall PCIL, any of its affiliates/employees or any third party involved in, or related to computing or compiling the information have any liability for any damages of any kind including but not limited to any direct or consequential loss or damage, however arising, from the use of this document. Copyright: The copyright in this research report belongs exclusively to PCIPL. All rights are reserved. Any unauthorised use or disclosure is prohibited. No reprinting or reproduction, in whole or in part, is permitted without the PCIPL s prior consent, except that a recipient may reprint it for internal circulation only and only if it is reprinted in its entirety. Caution: Risk of loss in trading/investment can be substantial and even more than the amount / margin given by you. Investment in securities market are subject to market risks, you are requested to read all the related documents carefully before investing. You should carefully consider whether trading/investment is appropriate for you in light of your experience, objectives, financial resources and other relevant circumstances. PhillipCapital and any of its employees, directors, associates, group entities, or affiliates shall not be liable for losses, if any, incurred by you. You are further cautioned that trading/investments in financial markets are subject to market risks and are advised to seek independent third party trading/investment advice outside PhillipCapital/group/associates/affiliates/directors/employees before and during your trading/investment. There is no guarantee/assurance as to returns or profits or capital protection or appreciation. PhillipCapital and any of its employees, directors, associates, and/or employees, directors, associates of PhillipCapital s group entities or affiliates is not inducing you for trading/investing in the financial market(s). Trading/Investment decision is your sole responsibility. You must also read the Risk Disclosure Document and Do s and Don ts before investing. Kindly note that past performance is not necessarily a guide to future performance. For Detailed Disclaimer: Please visit our website www.phillipcapital.in For U.S. persons only: This research report is a product of PhillipCapital (India) Pvt Ltd., which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances, and trading securities held by a research analyst account. This report is intended for distribution by PhillipCapital (India) Pvt Ltd. only to "Major Institutional Investors" as defined by Rule 15a 6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by the U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated, and/or transmitted onward to any U.S. person, which is not a Major Institutional Investor. In reliance on the exemption from registration provided by Rule 15a 6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, PhillipCapital (India) Pvt Ltd. has entered into an agreement with a U.S. registered broker dealer, Decker & Co, LLC. Transactions in securities discussed in this research report should be effected through Decker & Co, LLC or another U.S. registered broker dealer. If Distribution is to Australian Investors This report is produced by PhillipCapital (India) Pvt Ltd and is being distributed in Australia by Phillip Capital Limited (Australian Financial Services Licence No. 246827). This report contains general securities advice and does not take into account your personal objectives, situation and needs. Please read the Disclosures and Disclaimers set out above. By receiving or reading this report, you agree to be bound by the terms and limitations set out above. Any failure to comply with these terms and limitations may constitute a violation of law. This report has been provided to you for personal use only and shall not be reproduced, distributed or published by you in whole or in part, for any purpose. If you have received this report by mistake, please delete or destroy it, and notify the sender immediately. PhillipCapital (India) Pvt. Ltd. Registered office: No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013 Page 6 PHILLIPCAPITAL INDIA RESEARCH