Small cap dividend paying stock could hit new 52-week-high post Q3. Buy?

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A small-cap company with a market valuation of 4,253.06 Cr, Ramkrishna Forgings Ltd operates in the industrial industry. The company supplies industrial equipment for railway coaches and waggons. In India, it is a trusted brand to OEMs including TATA Motors, Ashok Leyland, VE Commercial, and Daimler. In international markets, it is a leading producer to Volvo, Mack Trucks, Iveco, and Ford. Additionally, it supplies Tier 1 axle producers like Dana, Sisamex, Meritor, and American Axles on a global scale. Additionally, it supplies the automotive, railway, farm equipment, bearings, oil & gas, power, construction, earth moving, and mining industries in India and other countries.

While declaring its Q3FY23 results on Friday, the company informed stock exchanges by saying that “The Board of Directors declared 3rd Interim Dividend of Re. 0.50 per Equity Share of Rs. 2 each for the Financial Year 2022-23. The said dividend will be paid within 30 days from the date of declaration. The same is subject to TDS. The Board of Directors fixed Tuesday, 31 January, 2023 as the Record Date for the purpose of payment of 3rd Interim Dividend for the Financial Year 2022-23 to be paid to the eligible shareholders.”

The firm generated a consolidated net profit of Rs. 61.04 crore in Q3FY23 as opposed to Rs. 45.35 crore in the same period the previous year, which represents a YoY rise of 35%. In comparison to the Q3FY22 quarter’s reported net sales of 601.32 crore, the firm recorded net sales of 777.48 crore for the quarter that ended in December 2022, marking a YoY growth of 29%. In comparison to the 141.18 Cr recorded in the same quarter a year prior, the firm reported an EBITDA of 172.99 crore in Q3FY23, reflecting a YoY growth of 23%.

Ramkrishna Forgings said in its earning report that “During the quarter, we have entered into a share purchase agreement to acquire upto 51% voting rights of TSUYO Manufacturing Private Limited, a start-up company engaged in powertrain solutions for electric vehicles. Resolution plan to acquire JMT Auto, one of the largest Auto component manufacturers in the Eastern region having significant expertise in the auto sector, has been approved by the Committee of Creditors. This acquisition is subject to obtaining necessary approval from the Principal Bench of the National Company Law Tribunal, New Delhi.”

Commenting on the results Mr. Naresh Jalan, Managing Director, Ramkrishna Forgings Limited said: “Our diverse and robust business model has led to a sustained growth momentum, primarily driven by our strategic decision to enhance product offering coupled with high customer demand. These efforts have enabled us to achieve a 24% increase in operating revenues year-over-year. Our global geographical outreach helped us to secure new orders and further strengthen the order book. In the first nine months of FY23, we won contracts worth Rs. 77,470 lakhs from 8 contracts spanning various geographies including North America & Europe. As of December 31, 2022, we have reduced our gross debt by 23% and it currently stands at Rs. 1,28,689 lakhs. We will continue to focus on reducing debt with the goal to become net debt-free by FY25.”

“The commercial vehicle segment has seen steady growth following the festive season, due to high utilization of fleets resulting from increased economic and infrastructure activity. The momentum is expected to continue, and the overall commercial vehicle market is predicted to remain strong. Also, with the acquisition of Tsuyo & JMT Auto, we plan to expand and diversify our Company, resulting in increased scale and market reach. Our efforts are focused on customer-centric approach to offer advanced and value-added products across the globe and maintain our strong market share,” he further added.

Post Q3FY23 earnings, the research analysts of Sharekhan said “RKFL has scheduled a capex of 400-450 cr over FY23E &FY24E and guided for a potential revenue of 5,000 cr on peak capacity utilization and aiming to sustain EBIDTA margin at 22%. Along with RKFL is endeavouring to increase the non-auto revenue mix to 30% (currently 19%) and 3-3.5% (currently 2%) revenue contribution from EV segment. The management is optimistic on its export business and guided for a 15-20% growth in export revenue in FY24. With robust plans for organic growth driven by healthy response from export markets, RKFL has been strategically building up inorganic growth prospects. RKFL has acquired 51% stake in TSUYO to expand its EV product portfolio and its bid has been accepted to turn around JMT Auto. We expect RKFL to gain market share internationally, given its ability to provide an attractive value proposition to its customers. The stock is available at attractive valuation multiples of P/E of 9.7x and EV/EBITDA of 5.3x on its FY2025E. We reiterate our Buy rating on the stock with a revised price target (PT) of Rs. 329.”

The research analysts of Anand Rathi said “Demand for RK Forgings continued to be robust in Q2. Growth was driven by strong volumes. Management continues to expect domestic growth and exports to outperform the industry in the near term despite recessionary fears. The order book is healthy with additions in the quarter. We expect strong growth in commercial vehicles and, hence, retain our Buy at a revised TP of Rs309 (13x FY25e).”

On Friday, the shares of Ramkrishna Forgings Limited closed on the NSE at 266.10 apiece level, down by 4.38% from the previous close of 278.30. The stock recorded a total volume of 1,666,289 shares compared to the 20-Day average volume of 572,510 shares. On 19 January 2023, the stock reached a 52-week high of Rs. 285.00 and a 52-week low of Rs. 146.00. (20-Jun-2022). If the stock reaches the target price specified by the aforementioned brokerage companies, it will record a new 1-year high.

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


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