Anik Das (then with Microsec, now with SKP securities) issued an ‘initiating coverage’ report dated 9th April 2015 recommending a “strong buy” of a small-cap stock called Ramkrishna Forgings. Anik Das’ analysis was brilliantly simple: “We believe the stock to outperform the broader market on the back of company’s emergence as a dominant player in the forging industry. RKFL’s revenue is expected to grow at a CAGR of 54% over FY14‐17e, led largely by exports from the new heavy press forging plant. We believe, the market will discount the full earnings potential of the company over the medium term, which is largely absent from RKFL’s current valuation”.
However, Anik Das was conservative in his price target. He promised a target of Rs. 616 which was a “mere” 24% from the then market price of Rs. 496.
A day later, the Ocean Dial Fund, which has done the sensible thing of appointing Sanjoy Bhattacharyya as its “principal adviser”, scooped up a massive chunk of 162,439 shares of Ramkrishna Forgings at Rs. 524 each, laying out an investment of Rs. 8.51 crore.
After that Ramkrishna Forgings reported blockbuster Q4FY15 with an impressive growth in top-line and net profit. While the net sales surged 78% to Rs. 241 crore, the net profit surged 636% to Rs. 34.6 crore.
| Ramkrishna Forgings’ Quarterly Results | |||
| Particulars (Rs cr) | Mar 2015 | Mar 2014 | %Chg |
| Net Sales | 241.57 | 135.32 | 78.52 |
| Other Income | 0.58 | 0.57 | 1.75 |
| Total Income | 242.15 | 135.89 | 78.2 |
| Total Expenses | 197.48 | 114.7 | 72.17 |
| Operating Profit | 44.67 | 21.2 | 110.71 |
| Net Profit | 34.6 | 4.7 | 636.17 |
| Equity Capital | 27.47 | 26.1 | – |
In an interview to moneycontrol.com, Alok Sharda, CFO, Ramkrishna Forgings, explained that the company was reaping the benefits of the huge capex of Rs. 700 crore undertaken three years ago. He pointed out that the capex had led to huge capacity expansion and that this had led to the surge in sales and profits. He also pointed out that the company had its changed product mix and focused more on high margin products for exports.
Alok Sharda also emphasized that there would not be any major capex going forward but that the company will focus on changing its product mix from a lower end of forging business to a higher end of forging business and make products such as front axle beam, crankshaft, stub axles, knuckles etc.
Alok Sharda also stated that Ramkrishna Forgings will be one of the few companies in India which has a 12,500 tonne press line. “This is one of the best facilities in the world and will give us a major development and growth in the business.” he said.
Now, it is no surprise that in the light of these positive developments, investors can’t get enough of Ramkrishna Forgings. They have been aggressively buying the stock and have sent the price soaring to Rs. 742.
This has resulted in mammoth gains of nearly 50% for Anik Das and Sanjoy Bhattacharyya’s Ocean Dial Fund in a period of about three months.
If you are despairing at having lost on the gains that were handed over on a platter, you can cheer up because according to Systematrix Shares, Ramkrishana Forgings is still undervalued and has a lot of upside to it. This is what they say:
“We spoke with the management of Ramkrishana Forgings to get an update on business. We believe the company’s strong order book position along with the start of commercial production at two large presses (brand new 12,500 tonnes and 6,300 t) in 2HFY16 provide strong financial visibility for the next 2-3 years. The company targets further order book strengthening in coming quarters as discussions with few additional clients are at an advanced stage, and plant audits are conducted by many global CV OEMs. We believe that higher share of exports coupled with richer product mix to boost realisation and margins meaningfully in FY17e. We maintain a positive stance on Ramkrishna as valuations remain reasonable compared to the peer group.
We believe our margin assumptions are conservative given operating leverage, rich product (front axle beam and crankshaft) and geographical mix to play out over the next two years. We believe stabilisation of the brand new 12,500 t press is the key factor as margin expansion is contingent on it.”
So, now you need to evaluate all of your options and take a carefully informed decision in the matter.
I see multiple articles where recommendations are made by microsec. When I checked their website, there was very little info.
http://www.microsec.in/
There is a link to 2 other websites. Would like to learn more if anyone can share more info. It is helpful to know who you are working with or taking advice from….
I hope others like my suggestion
1..The company financed Rs 500 crore of its Rs 700-crore project out of debt
2..It raised Rs 150 crore of the 12-year export credit agencies (ECA) debt at 125 basis points above the London inter-bank offered rate (Libor), translating into a yearly interest outflow of Rs 2 crore.
3..RKFL mobilised a Rs 100-crore 12-year Export-Import (EXIM) Bank loan at 12 per cent, with a ballooning repayment arrangement that will make it possible for the company to conserve cash in the early years, strengthen terms of trade, enhance profits and comfortably repay thereafter.
4..RKFL mobilised a $14-million International Finance Corporation (IFC) loan with a 54-month repayment moratorium (in addition to equity from IFC). Besides, the company mobilised a $10-million seven-year DBS Bank loan with a three-year moratorium.
5..The result is RKFL has mobilised Rs 500 crore of debt with an average eight-year tenure and an average 6.5 per cent cost even before its expansion has been fully commissioned.
6..So what would normally have been a Rs 75-crore annual interest outflow coupled with Rs 100 crore annual debt repayment has now been moderated to Rs 50 crore of annual interest outflow and Rs 50 crore of annual debt repayment, creating just enough breathing room for the company to be prepared for any project implementation slippage – without bleeding.