INSUBCONTINENT EXCLUSIVE:
Anand Rathi has a buy call on Ramkrishna Forgings with a target price of Rs 904.
The current market price of Ramkrishna Forgings is Rs
663.80.
Time period given by the brokerage is one year when Ramkrishna Forgings price can reach the defined target
Investment rationale by Anand Rathi:Strong exports to enhance profitability, working capital: While Q1 FY19 export growth was flat due to
re-adjustment of inventory, we expect strong export growth for the rest of the year and in FY20, driven by North America and Mexico (growth
Europe exports are expected to kick in from Q4 FY19
Higher exports would supplement higher machining capacity utilisation, driven by demand from customers in Europe and North America
We expect revenue to register a 14 per cent CAGR over FY18-20, primarily driven by a 32 per cent export CAGR to Rs 7.25bn in FY20, from Rs
Against this backdrop, we expect EBIDTA growth to be higher, coming at a 17 per cent CAGR over FY18-20
Also, the greater proportion of exports would ensure better working capital (debtor days in Europe are 60-70, against 162 for North
America).
Domestic business to grow strong with more business, new customers: We believe that the continuing domestic growth would be driven
by both market-share gains and customers addition and thus expect the company to outrun the underlying domestic CV growth.
Valuation: At a
strong, 31 per cent, earnings CAGR over FY18-20, we estimate an EPS of Rs 50.2
We upgrade the stock to a Buy, at a revised target of Rs 904
Risks: Lower-than-estimated export growth and margin expansion.
