Interview with Lalit Khetan, ED and CFO of Ramkrishna Forgings Ltd

Can you shed some light on your results?

During the fiscal year 2023, Ramkrishna Forgings Ltd have experienced positive results and significant growth. Firstly, our revenue for Q4 FY2023 reached Rs 835 crore, representing a year-on-year growth of 22%. For the entire fiscal year FY2023, our revenue amounted to Rs 3,001 crore, demonstrating a year-on-year growth of 31%. This growth can be attributed to the increased demand for our products, which is a promising sign for our business.

Our EBITDA margin for Q4 FY2023 stood at 22.52%, expanding by 42 basis points sequentially. We are confident in sustaining these margins and striving to further improve upon them. Regarding our net profit after tax, it was recorded as Rs 67 crore in Q4, compared to Rs 86 crore in the previous year. However, it’s important to note that the decrease is primarily due to a deferred tax reversal in the previous year. If we adjust for this tax impact, the profit after tax has actually increased by 25% in Q4 compared to the previous year.

Furthermore, our long-term rating has been upgraded by ICRA and India Ratings to A plus with a stable outlook. This upgrade reflects the rating agencies’ confidence in our company’s financial strength and growth prospects, which is indeed a positive development. In addition to these achievements, we have secured approximately Rs 775 crore worth of new orders from various geographies during the year (excluding the recent order win from the railways for forged wheels). This indicates the strong demand for our products in the global market, and we anticipate this favourable trend to continue throughout the year.

Ramkrishna Forgings has renewed a long-term contract with an overseas Tier-1 customer based in North America which includes an additional new product range. Could you provide us with some information regarding the same?

This particular contract renewal holds great importance for us as it extends our collaboration with our largest customer in North America for another 3 years. Currently, our annual turnover with this customer stands at 60 to 70 million dollars. However, with the contract renewal and the introduction of new products, we have set ambitious targets to achieve a per annum turnover of 90 to 100 million dollars, showcasing our commitment to growth and expansion. By securing this renewed contract with our overseas Tier-1 customers, we demonstrate their trust and satisfaction in our products and services. We are dedicated to providing high-quality solutions and maintaining a strong, mutually beneficial relationship with our valued partners.

How does the JMT Auto and ACIL acquisition fit into the company’s long-term objectives?

The acquisitions of JMT Auto and ACIL align strategically with Ramkrishna Forging’s long-term objectives. These acquisitions bring several benefits that contribute to our company’s growth and expansion plans.

Firstly, both acquisitions are progressive and value-accretive in terms of product mix, customer expansion, and horizontal and backward integration. By incorporating JMT Auto into our portfolio, we gain access to their significant expertise in the auto sector, including capabilities in heat treatment and gear manufacturing. This allows us to diversify our offerings and expand our market reach. JMT Auto’s presence in the oil and gas industry further opens doors for us to undertake larger projects in this sector.

In the case of ACIL, the acquisition enables us to foray into the tractors and passenger vehicle segments. This forward integration is advantageous as it allows us to supply machined crankshafts and other products, including tractors, passenger vehicles, light commercial vehicles (LCVs), and two-wheelers. Additionally, ACIL’s existing product range complements our capabilities in serving the tractor and passenger vehicle markets, providing opportunities for synergies and growth.

In terms of capital expenditure, once the necessary regulatory approvals are received, there are plans to invest approximately Rs 250 crore in acquiring and modernizing the plants of both JMT Auto and ACIL. This investment is crucial to maximise the potential of these acquisitions and ensure optimal performance from the acquired plants.

Can you share an overview of the company’s overall order book and execution?

We have a strong and healthy order book with acquisitions and long-term contracts in place along with an efficient capital allocation strategy. The aim remains on doubling sales from the railways sector, aiming to increase our market share from 3% to 5%. Similarly, in the oil and gas sector, we are targeting growth from 2% to 3-4%.

Regarding the warm forging facility, which commenced operations two quarters ago, we expect a full ramp-up starting from Q2 FY24 onwards. As of now, we have already initiated the supply of warm forged products to both domestic and export markets in the commercial vehicle segment. With the establishment of our new warm forging facility, we have set our sights on targeting LCV players in North America and are actively looking to expand into the LCV market. We have already won some contracts in this space. The warm forging business is in its nascent stage, and we anticipate strong growth in this segment over the next two years.

At the moment, what are your top 3 strategic priorities?

Our first priority is developing new products and adding value. We are dedicated to staying innovative and responsive to market demands. By focusing on product development, we aim to meet the evolving needs of our customers, strengthen our market position, and drive growth. Our goal is to deliver high-quality, value-added products that exceed customer expectations and create a competitive advantage for our company.

The second priority would be organic and inorganic growth. We are actively pursuing strategic acquisitions to expand our business and put acquired companies, such as JMT Auto, ACIL and TSUYO on a growth trajectory. These acquisitions are aimed at enhancing our product mix, expanding our customer base, and achieving horizontal and backward integration. By integrating these companies into our operations, we seek to leverage their expertise, capabilities, and market presence to strengthen our position in the industry. We are committed to nurturing and developing these acquisitions to maximize their potential and contribute to overall growth and success.

Another key strategic priority is to conceptualize and execute projects effectively and timely. A specific example is our collaboration with Titagarh Wagons, where we are working towards achieving the given timelines. By focusing on project conceptualization, planning, and efficient execution, we aim to ensure timely delivery and successful implementation. Aligning with our values of operational excellence and our determination to meet project milestones, drive growth, and create value for our stakeholders.