scorecardresearchRK Forgings delivered over 800% returns in last 3 years, gained 1960% in

RK Forgings delivered over 800% returns in last 3 years, gained 1960% in a decade; is there more steam left?

Updated: 04 May 2023, 03:35 PM IST

Ramkrishna Forgings specializes in producing a wide range of products such as crankshafts, connecting rods, steering knuckles, front axle beams, and suspension components for the automotive, railways, and defence sectors.

ICICI Direct Research kept its positive outlook on the stock following the company's Q4 performance.

ICICI Direct Research kept its positive outlook on the stock following the company's Q4 performance.

Investing in small-cap stocks can be a high-risk, high-reward strategy for investors looking to generate outsized returns. Ramkrishna Forgings, a small-cap company that manufactures a variety of auto and non-auto components, is one such stock that has rewarded investors with fabulous returns.

The company's stock has delivered a remarkable return of 77% over the last year and a whopping 802% over the last three years, leaving many of its larger peers far behind. 

From its 52-week low of 146 apiece, the stock experienced almost a one-way spike and jumped 132.87% in just nine months to reach a lifetime high of 340 in today's trading session.

In the last decade, the stock has yielded significant return, rising from 16.30 apiece to the current market position of 336, which translates to a gain of 1961%.

The domestic brokerage firm Reliance Securities believes the stock has the potential to run further and can even surpass its previous record high. The brokerage maintained its positive stance on the stock following the company's healthy performance in Q4FY23.

Stock Price Chart of Ramkrishna Forgings.

The company on April 29 posted a consolidated net profit of 68 crore in Q4FY23, a drop of 19% YoY on account of higher expenses. However, sequentially, net profit was up by 11.47%.

It reported 24% YoY growth in revenue at 892 crore, led by 20% YoY growth in volumes. The company performed better in the export market compared to the domestic market. In Q4 FY23, the export revenue grew by 29.2% YoY, while the domestic revenue grew by 17.4% YoY.

The company received new contracts worth 775 crore from various geographies and business verticals during the quarter. Apart from this, the company recently won a significant contract from Indian Railways in a JV format (RK to own 51% in JV).

The order is for the supply of 15,40,000 forged wheels to the Indian Railways over a period of 20 years. The order value is worth 12,500 crore.

"We believe the company will continue to win more new orders in the auto and non-auto segments over the coming years on the back of the launch of new products and an expanding overseas reach," said Reliance Securities. The recent new order wins across segments and geographies would drive double-digit revenue growth from FY24 onwards, it added.

According to Reliance Securities, the domestic commercial vehicle (CV) sector is expected to continue its growth trend in FY24, while exports are anticipated to achieve a CAGR of 15% over the next two years.

The brokerage forecasts that company's export revenue will experience a healthy double-digit growth rate of 12% CAGR from FY23 to FY25E, driven by factors such as value addition, client addition, and new orders.

In light of favorable currency rates and higher-than-expected export volumes, Reliance Securities has marginally raised the revenue projections for RK Forgings in FY24E and FY25E by 0.2% and 3%, respectively.

The brokerage firm also pointed out that new products from the new capacity addition of 56,000T coming on stream in the middle of FY24 would have a better margin profile in the coming years. Reliance Securities estimated that the EBITDA margin of the company is expected to improve by 50 basis points from the current level to 23% in FY25E.

In view of a CV upcycle, healthy margin profile, and attractive valuation at 13.4x FY25E, the brokerage reiterated its 'buy' tag on the stock with a target price of 365 apiece, valuing the stock at 15x on FY25E earnings.

Similarly, ICICI Direct Research also kept its positive outlook on the stock following the company's Q4 performance. It retained a 'buy' rating amid strong new order wins, an unchanged vision to grow in high double digit in the coming years, a sustainable margin profile of more than 20%, and RoCE-accretive organic as well as inorganic expansion plans.

The brokerage has a new target price of 400 apiece, which indicates an upside potential of 19% from the stock's current market price (CMP).

05 analysts polled by MintGenie on average have a 'buy' call on the stock.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.

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First Published: 04 May 2023, 03:35 PM IST