Part 2: RK Forge Reports Dip in Q4 Net Profit But Rises YoY

Published 05-07-2023, 12:37 pm
BEML
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RKFO
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HMTR
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Ramkrishna Forgings Limited was founded on November 11, 1981. It became a limited company on May 25, 1995, and today it is an organization manned by qualified people, with state-of-the-art manufacturing facilities and international levels of quality control. The company is in the approved panel of the Research Designs and Standards Organisation (RDSO) for the manufacture of Screw Couplings, Draw Gear Assembly, Snubber Assembly, Hanger, Block Hanger Side Frame Key and various other forgings items of Railway Coaches and Wagon (C&W).

It is also in the approved panel of Hindustan Motors (NS:HMTR) Ltd., TELCO Ltd., BEML Ltd (NS:BEML)., and many other engineering units. The company is an ISO 9002 approved unit accredited by BVQI since 15th August 2000 for the manufacture & supply of open & closed plain carbon and low alloy steel forgings in the as- Forged, Heat Treated, and Machined conditions for Railways, Automobile, and General Engineering Purposes.

Apart from standard products, the company undertakes turnkey development of forgings and stampings from raw samples. It also designs and develops special dies for customers. The company also exports its products to Germany, the USA, Mexico, Brazil, Bangladesh, Sri Lanka, and Japan.

The product range of the company includes:

  • AS Forged & Heat Treated Items
  •  Machined Items
  •  Apart from standard products, the company undertakes turnkey development of forgings and stampings from raw samples. 
  • It also designs and develops special dies for customers.

Different divisions of the company are:

  • Raw material & cutting section 
  • Die making 
  • Raw material heating 
  • Open Die/ Close Die 
  • Upset forging 
  • Ring Rolling
  •  Heat treatment 
  • Shot blasting
  •  Machining
  •  Cad Cam Facility 

Achievements/ recognition:

  • ISO 9001 (2000) By BVQI 
  • ISO/TS 16949 (Plant I) 
  • ISO/TS 16949 (Plant III & IV) 

Results (Standalone and Consolidated): Ramkrishna Aeronautics Pvt Ltd is a subsidiary company.

1) Standalone basis
Ramkrishna Forgings has reported a 22.89% fall in its net profit at Rs 66.82 crore for the fourth quarter as compared to Rs 86.65 crore for the same quarter in the previous year. However, the total income of the company increased by 22.52% at Rs 837.10 crore for Q4FY23 as compared to Rs 683.24 crore for the corresponding quarter previous year.

For the year ended March 31, 2023, the company has reported a 14.09% rise in its net profit at Rs 235.59 crore as compared to Rs 206.50 crore for the previous year. The total income of the company increased by 31.39% at Rs 3,004.77 crore for the year under review as compared to Rs 2,286.97 crore for the year ended March 31, 2022.

2) Consolidated basis
The company has reported an 18.44% fall in its net profit at Rs 68.45 crore for the quarter under review as compared to Rs 83.93 crore for the same quarter in the previous year. However, the total income of the company increased by 24.31% at Rs 893.43 crore for Q4FY23 as compared to Rs 718.72 crore for the corresponding quarter previous year.

For the year ended March 31, 2023, on a consolidated basis, the company has reported a 25.29% rise in its net profit at Rs 248.12 crore as compared to Rs 198.03 crore for the previous year. The total income of the company increased by 37.69% at Rs 3,196.85 crore for the year under review as compared to Rs 2,321.71 crore for the year ended March 31, 2022.


Understanding the financial ratios:

PE ratio: - Price to Earnings ratio, which indicates for every rupee of earnings how much an investor is willing to pay for a share. A general rule of thumb is that shares trading at a low P/E are undervalued (it depends on other factors too). Ramkrishna Forgings has a PE ratio of 30.19 which is high and comparatively overvalued.

Return on Assets (ROA): - Return on Assets measures how effectively a company can earn a return on its investment in assets. In other words, ROA shows how efficiently a company can convert the money used to purchase assets into net income or profits. Ramkrishna Forgings has a ROA of 6.70 % which is a bad sign for future performance. (higher values are always desirable).

Current ratio: - The current ratio measures a company's ability to pay its short-term liabilities with its short-term assets. A higher current ratio is desirable so that the company could be stable to unexpected bumps in business and economy. Ramkrishna Forgings has a Current ratio of 1.28.

Return on equity: - ROE measures the ability of a firm to generate profits from its shareholder's investments in the company. In other words, the return on equity ratio shows how much profit each rupee of common stockholders’ equity generates. Ramkrishna Forgings has an ROE of 20.97 % .(higher is better)

Debt to equity ratio: - It is a good metric to check out the capital structure along with its performance. Ramkrishna Forgings has a D/E ratio of 1.45 which means that the company has a low proportion of debt in its capital.

Inventory turnover ratio: - Inventory Turnover ratio is an activity ratio and is a tool to evaluate the liquidity of a company's inventory. It measures how many times a company has sold and replaced its inventory during a certain period of time. Ramkrishna Forgings has an Inventory turnover ratio of 4.11 which shows that the management is inefficient in relation to its Inventory and working capital management.

Sales growth: - Ramkrishna Forgings has reported revenue growth of 77.38 % which is fair in relation to its growth and performance.

Operating Margin: - This will tell you about the operational efficiency of the company. The operating margin of Ramkrishna Forgings for the current financial year is 23.10 %. Dividend Yield: - It tells us how much dividend we will receive in relation to the price of the stock. The current year dividend for Ramkrishna Forgings is Rs 0.50 and the yield is 0.45 %.

Conclusion:

The company has shown a good profit growth of 20.06% for the past 3 years. The Company has been maintaining an effective average operating margin of 20.00% in the last 5 years. The company’s PEG ratio is 0.63. The company has good cash flow management; CFO/PAT stands at 1.78.

The future plans of the company are very evident in their Expansion Programme. For instance installing Ring Rolling Line which is a fully automated robotic line imported from SMS Eumuco, Germany, will not only help the company to increase its production capacity considerably but also will be able to manufacture crown wheels & bearing races through this route economically & with high productivity. therefore helping the company to increase its export market.

Even the Gear Cutting Facilities & Horizontal Machining Centre for Different Types of Gears & machining of assembly for the automobile industry. In the long run, the stock has the potential to cross the 750 mark next year (the possibility of Demerging the Aeronautic subsidiary as well). However in the short run if the company reports a further decline in net profit for the next few quarters of 2023 then the stock could crack down below 300 - 280 levels to test the support zone.

Disclaimer: The above article is for self-educational purposes. The analysis was conducted by the following students: G10, Rakesh, and KJ for learning purposes.

“Investing involves substantial risk. Neither the author nor the publisher, nor any of their respective affiliates make any guarantee or other promise as to any result that may be obtained from using the research/report. While past performance may be analyzed in the research, past performance should not be considered indicative of future performance. No reader should make any investment decision without first consulting his or her own personal financial and/or investment advisor and conducting his or her research and due diligence, including carefully considering whether it is suitable for your particular circumstances, as this research/report does not take into account your particular investment objectives, financial situation or needs and is not intended as recommendation appropriate for you. In the event, that any information, commentary, analysis, opinions, advice, and/or recommendations in the research/report prove to be inaccurate, incomplete, or unreliable or result in any investment or other losses, the author, the publisher, and their respective affiliates disclaim any and all liability to the maximum extent permitted by law.

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