Emkay Global Financial has given Buy recommendation for Rmakrishna Forgings with a target price of Rs. 1530 in its research report issued on Oct 10, 2021
Emkay Global Financial’s report on Ramkrishna Forgings
Ramkrishna Forgings is India’s second-largest manufacturer and exporter of CV forgings. The company, founded in 1981, has been a growth leader with revenue/EBITDA CAGRs of 12%/13% in the past 10 years, outpacing the industry and its larger peer Bharat Forge. We believe RMKF is a play on CV upcycle in domestic and overseas markets. Improving macros, pick-up in infra-spending, and the recovery in replacement demand should drive a 30% volume CAGR in the underlying India MHCV industry in FY21-24E, along with a 16% CAGR in North America (NA) Class8 and 13% in Europe HCVs in CY20-23E. Historically, RMKF has outpaced industry growth, driven by customer additions and higher content per vehicle. The company has been able to meet the quality and cost requirements of marquee customers, resulting in market share gains in India, the US and Europe. RMKF is also expanding its presence in the LCV segment, and in the Industrial segments such as Railways, Oil & Gas and Construction Equipment.
Backed by CV upcycle and a robust order book, we expect revenue/EBITDA CAGRs of 33%/43% in FY21-24E. Growing OCFs and moderating capex will drive B/S deleveraging. Net debt/EBITDA should reduce to 1.4x in FY24E from 5x in FY21. We initiate with a Buy rating and a DCF-based Dec’22E TP of Rs1,530, implying a forward EV/EBITDA of 9x.