Auto ancillary stock hits record high. Anand Rathi says ‘Buy’ post Q3

Shares of Ramkrishna Forgings Ltd rallied over 6% to hit a record high of ₹283 apiece on the BSE in Monday’s trading session after the company’s consolidated net profit rose 35% to ₹61 crore during the December 2022 quarter, meanwhile, its revenue from operations rose 30% to ₹777 crore.

“For Ramkrishna Forgings, export opportunities continue to increase as the company acquires new customers, enters new regions and further grows its order book.

It plans to add 56,000-tons in the near term, which would primarily cater to North American and European markets for EVs.

Domestic demand remains robust and is expected to continue,” said domestic brokerage and research firm Anand Rathi.

On the back of the expected higher proportion of exports and machining content, the brokerage house expects the profitability to inch up. Accordingly, “we expect margins of 23% in FY24 and 23.5% in FY25.

We expect a 21% revenue CAGR over FY22-25, and 40% earnings growth, leading to ₹29.6 EPS,” the note stated.

The brokerage house has retained a Buy rating on the auto ancillary stock with a target price of ₹385 per share.

Historically, exports have grown at a 30% compound annual growth rate (CAGR) over FY17-22.

For the next two years, and Anand Rathi expect exports to grow 25% CAGR on the back of growth in the existing business, new order wins of ₹3.6 bn in Q3 FY23, and revenues from the new 56,000-ton capacity would accrue from FY24.

 Further, the company plans to manufacture components like e-axles, differentials and motor controllers from the new capacity, targeting the electric vehicle (EV) segment.

“For domestic markets, demand remains robust and we expect revenues to grow at a 17% CAGR over FY22-24 backed by continued replacement demand of trucks and expected new demand.

This augurs well for long-term growth and creates opportunities to improve the share of business with customers. Accordingly, we expect revenue to grow by 20% in FY24 and 22% in FY25,” it added.

Bylivemint

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