STRONG BUY - Ramkrishna Forging Ltd By Microsec

We recommend Ramkrishna Forging Ltd (RKFL) a “STRONG BUY”. RKFL, is a medium sized forgings company, manufactures products for automobile (sales contribution ~75%) followed by railways (sales contribution ~10%), and mining sectors. Over the last 2 two years RKFL’s financial hit by worst-ever demand slumps, lacklustre industrial activity and elevated interest rates caused industry volumes to plummet more than 40% over FY12-FY14.In the midst of downturn, the company heavily invested in their heavy press forging vertical with a capex of INR700 crores which double its total capacity to 150,000 tonnes from 70,000 tonnes currently. The strong export growth, which is likely to be seen in FY15e from its capacity expansion to ~1,50,000 tonnes p.a., increased demand domestic MHCVs segment, higher capacity utilization in FY15e to enhance margins, bodes well for the RKFL’s fortune. Therefore we initiate coverage on RKFL with a “STRONG BUY” recommendation and a target price of INR 616.

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