Keeping up their upward trend, shares of Ramkrishna Forgings climbed 6.31% to 283 apiece during Monday's trade. The strong rally came after the company posted a 35% YoY rise in its consolidated net profit of ₹61.04 crore, driven by higher revenues.
The stock has delivered a fabulous 23% return in the last three months, while over the last six months, the stock has rewarded a 73% return to its shareholders.
After hitting its 52-week low of ₹146 apiece in June last year, the stock gained momentum and zoomed 95.20 percent to reach an all-time high of ₹285 on January 19.
At current levels, the stock is just 1.75% away from its all-time high. Further, over the last three years, the stock logged a return of 266%, moving from ₹76.5 apiece to the current market price of ₹280.
At the prevailing price, the stock traded at a price-to-earnings (P/E) multiple of 16.9x, which is much lower than the industry P/E of 49.4x.
RK Forgings is a small-cap stock with a market capitalization of ₹4,456 crore. The company is engaged in the manufacture of screw couplings, draw gear assembly and forgings items for railway coaches and wagons.
It manufactures and supply of open and closed plain carbon and low alloy steel forgings in the as- Forged, Heat Treated and Machined condition for Railways, Automobile and General Engineering Purposes.
Even after a significant increase in the stock price, brokerage firm Sharekhan believes the stock has the potential to rise further, led by strong revenue growth, an improving margin profile, and attractive valuations.
RK Forgings reported 24.1% YoY growth in revenue, led by 13.1% YoY growth in volumes. The company performed better in the export market compared to the domestic market. In Q3 FY23, the export revenue grew by 25.6% YoY, while the domestic revenue grew by 22.3% YoY, according to the brokerage.
The company saw healthy demand across geographies and expects a 15-20% increase in exports in FY24E, driven by new client additions, new product launches, and expansion into new geographies.
RKFL has scheduled a capex of ₹400–450 crore over FY23E–24E. It also announced an additional capacity expansion of 30% (56,000 MT) to take its total installed capacity to 2,43,100 MT by Q2FY2024E to cater to demand from its new clients and business verticals, it added.
The management has guided for a revenue potential of ₹5,000 crore at peak capacity utilization of new capacities as the company is investing in manufacturing new-generation products, the brokerage stated.
Further, the company received new contracts worth ₹366 crore from various geographies and business verticals during the quarter. Out of the three contracts, one contract pertains to the EV project, said the brokerage.
Meanwhile, the company has acquired a 51% stake in TSUYO in order to diversify its EV product portfolio, and its bid to rescue JMT Auto has been accepted.
“We expect RKFL to gain market share internationally, given its ability to provide an attractive value proposition to its customers. On its FY2025E, the stock is trading at attractive valuation multiples of 9.7x P/E and 5.3x EV/EBITDA,” said Sharekhan.
Considering all the growth factors, the brokerage has retained its "buy" call on the stock with a revised target price of ₹329 apiece, signaling an upside potential of 23.68%.
In addition, another brokerage firm, Anand Rathi, has also retained its "buy" rating on the stock with a target price of ₹385 apiece.
The export opportunities for RK Forgings will continue to increase as the company acquires new customers, enters new regions, and further grows its order book, it said.
Historically, exports have grown at a 30% CAGR over FY17–22. For the next two years, the brokerage expects exports for the company to grow at a 25% CAGR on the back of growth in the existing business, new order wins, and revenues from the new 56,000-ton capacity.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.