RamKrishna Forgings Ltd.

Transcription

1 January 3, 2014 RamKrishna Forgings Ltd. Poised for Growth CMP INR 81 Target INR Coverage Follow Up BUY Key Share Data Face Value (INR) 10 Equity Capital (in INR Million) Market Cap (in INR Million) 1, wk High/Low 131/52 One Year Avg. Daily Vol (BSE) 2661 BSE Code 532,527 NSE Code RKFORGE Reuters Code RKFO.NS Bloomberg Code RMKF:IN Shareholding Pattern (as on 30th Sep. 2013) Others, 17.98% FII's, 37.89% Source: Company Key Financials (INR Million) DII's, 1.01% Promoter 43.12% Particulars FY12 FY13 FY14E FY15E Net Sales 5, , , ,118.1 Growth (%) 22.4% -19.4% 11.9% 57.5% EBITDA ,081.2 PAT Growth (%) 9.8% -54.6% -33.9% 273.6% EPS (INR) BVPS (INR) Key Financials Ratios Particulars FY12 FY13 FY14E FY15E P/E (x) P/BVPS (x) Mcap/Sales (x) EV/EBITDA (x) ROCE (%) 15.1% 8.6% 5.3% 8.8% ROE (%) 12.9% 4.3% 2.6% 8.5% EBITDA Mar (%) 16.2% 14.9% 13.6% 15.2% PAT Mar (%) 4.8% 2.7% 1.6% 3.8% Debt - Equity (x) Yr price performance RKFL vis à vis BSE Small Cap 10% 0% -10% -20% -30% -40% -50% -60% Jan-13 Mar-13 May-13 Jul-13 Oct-13 Dec-13 RKFL Analyst: Nikhil Saboo BSE Small Cap Ph: , M: nikhil.saboo@skpmoneywise.com Company Background RamKrishna Forgings Ltd. (RKFL), promoted by Mr. Mahabir Prasad Jalan, is a medium sized forgings company. It manufactures products for automobile (sales contribution ~60-70%) followed by railways (sales contribution ~10%), defence, and mining sectors. RKFL has also forayed into agriculture equipments and power sector. It has 5 plants, out of which 1 is in Liluah, West Bengal and 4 are in Jamshedpur, Jharkhand. Investment Rationale Capacity expansion plan to propel growth RKFL is setting up three press lines of 12,500 tons, 4,500 tons and 3,150 tons at Kolabira - Jamshedpur, Jharkhand at a total cost of USD 100 million. The press of 4,500 tons and 3,150 tons will get commissioned in March 2014 while 12,500 will get commissioned in September 2014 and will manufacture front axle beams, crankshafts, stub axels and connecting rods. Post the commencement of the press, we expect the sales to grow at a CAGR of 32.8 percent over FY13-15E to INR 7,118.1 million while net profit during the same period is expected to grow at a CAGR of 57.1 percent to INR million. Strong Clientele RKFL is preferred supplier for OEM s like Tata Motors Ltd, Ashok Leyland, Eicher etc and is also a global supplier for commercial vehicle majors like Meritor, DANA etc. In earth moving and mining sector, its clients include BEML, Indian Railways, etc, while in the engineering sector RKFL caters to BHEL, Federal Mogul and others. RKFL has tied up with some of the biggest vendors in Latin America and post commencement of new plant it is expected to significantly increase its exports in Latin America and USA. Exports contributed 13.5 percent to the company s topline in FY13. Industry weakness to continue RKFL principally supplies its components to commercial vehicle (CV) segment and more particularly to M&HCV, which has witnessed significant reduction in demand of forgings both domestically and globally. Going forward, we expect the domestic CV segment demand to remain frail, though recovery is expected in FY16 led by improving macroeconomic scenario. Valuation We rate a BUY rating on RKFL with a price target of INR 117.2/share, implying an upside potential of 44.7 percent from current levels. Our target price is based on RKFL s FY15E EV/EBITDA multiple of 8.0x. SKP Securities Ltd Page 1 of 5

2 Exhibit: Q2FY14 Result Review Figs. in INR Million Particulars Q2FY14 Q2FY13 %Change Q1FY14 %Change Net Sales , % % Other Operating Income % % Total Income , % 1, % Expenditure % % Material Consumed % % (as a %age of Total Income) 53.5% 58.4% (489) bps 61.7% (820) bps Power & Fuel Cost % % (as a %age of Total Income) 11.4% 10.2% 118 bps 11.7% (30) bps Employees Cost % % (as a %age of Total Income) 8.3% 5.8% 251 bps 7.1% (120) bps Admin & Other Expenses % % (as a %age of Total Income) 20.2% 14.9% 525 bps 16.2% (390) bps EBITDA % % EBITDA Margin (%) 13.03% 15.95% (291) bps 11.00% (200) bps Depreciation % % EBIT % % Other Income % % Interest Expense % % Profit Before Tax (PBT) % % Income Tax % % Effective Tax Rate (%) 36.2% 31.9% 34.1% Profit After Tax (PAT) % % PAT Margins (%) 1.52% 3.79% (228) bps 1.41% 10 bps Diluted EPS % % Source: Company Data, SKP Research SKP Securities Ltd Page 2 of 5

3 Net Profit to grow at a CAGR of 57.1 percent over FY13-15E Net profit is expected to grow at a CAGR 57.1 percent to INR billion over FY13-15E Exhibit: Net Sales & PAT Figs. in INR Billion FY11 FY12 FY13E FY14E Net Sales Adjusted PAT PAT margins to remain flat over FY13-15E Exhibit: EBITDA & PAT Margins 20.0% 17.0% EBITDA margins to improve marginally 26 bps while PAT margins to improve by 109 bps over FY13-FY15E 14.0% 11.0% 8.0% 5.0% 2.0% -1.0% FY12 FY13 FY14E FY15E EBITDA Margins PAT Margins Overleveraged Balance Sheet on account of expansion Exhibit: CFO & D/E Ratio Debt/Equity ratio to remain at elevated levels on back of expansion plan Figs. in INR Billion FY12 FY13 FY14E FY15E Cash Flow from Operations (CFO) D/E (x) SKP Securities Ltd Page 3 of 5

4 Exhibit: Income Statement Figures in INR Million Exhibit: Balance Sheet Figures in INR Million Particulars FY12 FY13 FY14E FY15E Particulars FY12 FY13 FY14E FY15E Net Sales 5, , , ,118.1 Share Capital Growth (%) 22.4% 19.4% 11.9% 57.5% Share Warrants Expenditure 4, , , ,036.8 Reserve & Surplus 1, , , ,910.4 Material Consumed 2, , , ,683.6 Shareholders Funds 1, , , ,192.3 Power & Fuel Cost Total Debt 1, , , ,489.2 Employee Cost Deferred Tax (Net) Admin & Other Exp ,121.1 Total Liabilities 3, , , ,999.8 EBITDA ,081.2 EBITDA Margin (%) 16.2% 14.9% 13.6% 15.2% Net Block inc. Capital WIP Depreciation Investments EBIT Non Current Asset Other Income Current Assets 2, , , ,047.1 Interest Expense Inventories 1, , , ,935.5 Profit Before Tax (PBT) Sundry Debtors , ,691.2 Income Tax Cash & Bank Balance Profit After Tax (PAT) Other Non Current Assets Growth (%) 9.8% 54.6% 33.9% 273.6% Loans & Advances , ,993.1 PAT Margins (%) 4.8% 2.7% 1.6% 3.8% Current Liabilities & Prov 1, , , ,029.2 Diluted EPS Total Assets 3, , , ,999.8 Exhibit: Cash Flow Statement Figures in INR Million Exhibit: Ratio Analysis Particulars FY12 FY13 FY14E FY15E Particulars FY12 FY13 FY14E FY15E Profit Before Tax (PBT) Earning Ratios (%) Depreciation EBITDA Margin (%) 16.2% 14.9% 13.6% 15.2% Interest Provided PAT Margins (%) 4.8% 2.7% 1.6% 3.8% Chg. in Working Capital (1,143.5) (1,447.7) (1,191.9) ROCE (%) 15.1% 8.6% 5.3% 8.8% Direct Taxes Paid (79.9) (45.1) (36.4) (136.1) ROE (%) 12.9% 4.3% 2.6% 8.5% Other Charges 17.7 (12.8) Per Share Data (INR) Operating Cash Flows (584.9) (851.6) (226.4) Diluted EPS Capital Expenditure (505.0) (487.2) (1,546.0) (150.0) Cash EPS (CEPS) Investments 11.2 (58.6) (8.4) 0.0 BVPS Others (13.9) (11.1) Valuation Ratios (x) Investing Cash Flows (507.7) (556.9) (1,554.4) (150.0) P/E Changes in Equity Price/BVPS Inc / (Dec) in Debt (208.0) , EV/Sales Dividend Paid (inc tax) (40.4) (42.2) (23.4) (41.2) EV/EBITDA Interest Paid (198.5) (241.9) (256.6) (353.3) Dividend Yield (%) 1.5% 1.3% 0.9% 1.5% Others Balance Sheet Ratios Financing Cash Flows (367.4) 1, , Debt Equity Chg. in Cash & Cash Eqv (19.6) Net Debt Equity Opening Cash Balance Current Ratio Closing Cash Balance Fixed Asset Turn. Ratios Source: Company Data, SKP Research SKP Securities Ltd Page 4 of 5

5 Notes: In this connection please refer our SKP initiating coverage on RKFL dated on 4 th October 2010 and Management Meet note dated on 5 th December The above analysis and data are based on last available prices and not official closing rates. SKP Research is also available on Bloomberg, Thomson First Call & Investext Myiris, Moneycontrol, Ticker plant and ISI Securities. DISCLAIMER: This document has been issued by SKP Securities Ltd (SKP), a stock broker registered with and regulated by Securities & Exchange Board of India, for the information of its clients/potential clients and business associates/affiliates only and is for private circulation only, disseminated and available electronically and in printed form. Additional information on recommended securities may be made available on request. 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SKP Securities Ltd Contacts Research Sales Mumbai Kolkata Mumbai Kolkata Phone Fax researchmum@skpmoneywise.com research@skpmoneywise.com Skp.sec@bloomberg.net Member: NSE BSE NSDL CDSL NCDEX* MCX* MCX-SX FPSB *Group Entities INB/INF: , BSE INB: , CDSL IN-DP-CDSL , DPID: , NSDL IN-DP-NSDL: , DP ID: IN302646, ARN: 0006, NCDEX: 00715, MCX: 31705, MCX-SX: INE SKP Securities Ltd Page 5 of 5