In conversation with Lalit Khetan, ED and CFO of Ramkrishna Forgings Ltd

Our foray into the EV industry reflects our commitment to diversification and our vision to become a prominent player in the rapidly evolving electric vehicle market, says Lalit Khetan, ED and CFO of Ramkrishna Forgings Ltd

Can you shed some light on your results? 

Our results for the FY 2022-23 have been tremendous. We have experienced healthy growth in exports and domestic volumes, leading to a revenue increase of over 30 per cent YoY with about a 10 per cent increase in realization per ton. This growth in sales has contributed significantly to our overall performance. In terms of profitability, we have successfully maintained our margins at around the 22 per cent mark and have strategically diversified into the non-auto sector to mitigate cyclical risks. Our efforts to enter the engineering and oil & gas spaces have shown promising results. 

During this year we have secured significant order wins in the export market, focused on value-added products and developed internal efficiency to optimize costs and improve profitability. Another key focus area for us has been deleveraging our balance sheet. By reducing our debt burden, we have improved our financial position and increased our flexibility for future investments. We remain committed to driving further growth, exploring new opportunities, and optimizing our operations to deliver value to our stakeholders.

How is the company focusing on diversification with a foray into the EV industry?

Ramkrishna Forgings has EV programs running globally. As of March 2023, the contribution of the EV sector stood at Rs 12 crore, compared to revenue of Rs 3.6 crore in FY22. We have a target of achieving a 3.0X revenue growth in FY24.

We have approved an investment to acquire up to 51 per cent voting rights of TSUYO Manufacturing Private Limited ("TSUYO"), a leading Make-In-India start-up company specializing in powertrain solutions for electric vehicles, with expertise in mid-drive BLDC, IPM, and AC Induction-based motor topologies. This strategic investment will allow us to expand our facilities for the manufacture of motors, controllers, E-axles, and differentials. Over the next five years, we plan to invest approximately Rs 100 crore, to generate a turnover of around Rs 500 crore by FY28. We expect a significant jump in the top line from TSUYO this year and are gradually increasing our investments in TSUYO. Our Rs. 100 Crores investment is based on assumptions and capex plans to support TSUYO's transition from being solely a motor supplier to providing a complete solution for e-axles and transmissions within the next five years. 

Overall, our foray into the EV industry reflects our commitment to diversification and our vision to become a prominent player in the rapidly evolving electric vehicle market.

Ramkrishna Forgings and Titagarh Wagons Consortium received LOA of Rs 12,226 crore for Manufacturing and Supplying Forged Wheels for the Indian Railways. Can you shed some light on this project?

We are pleased to announce that Ramkrishna Forgings, in consortium with Titagarh Wagons, has been awarded a Letter of Acceptance (LOA) from the Indian Railways for the manufacturing and supply of forged wheels. The total order size for this project amounts to approximately Rs 12,226 crore and will span over 20 years beginning from FY27. To meet the requirements, we are setting up a dedicated plant with a capacity to manufacture close to 2 lakh wheels per year. Out of this, 80,000 wheels will be supplied to the Indian Railways, and the remaining will be sold in the domestic and export markets. 

The production for this project is scheduled to commence in Q4FY26, with the railway order accounting for 40 per cent of our installed capacity. The total project cost for this endeavour is estimated to be around Rs 1,200 crore. We foresee a business potential of around Rs 28,000 crore over the next 20 years from this project. In terms of ownership, Ramkrishna Forgings will hold a 51 per cent stake in the joint venture and will invest Rs 180 crore as equity participation over the next three years. Regarding profitability, we are currently working out the specifics. However, we aim to achieve similar margins in the joint venture as we currently maintain in our standalone operations at RKFL.

We are optimistic about the railway sector and its potential contribution to our revenue. Currently, the railway sector constitutes 3 per cent of our standalone revenue, but we expect it to increase to 10-12 per cent within the next two years.

What is your earnings outlook for the upcoming quarters?

 Looking ahead to the upcoming quarters, we have a positive earnings outlook for FY24. We anticipate a strong market and expect to achieve volume growth of at least 10 per cent to 15 per cent, reaching a minimum of 150 thousand tons. To support this growth, we have plans for capacity expansion, aiming to increase our installed capacity from the current 1.9 lakh tons to 2.4 lakh tons by September. With the addition of new capacity, we anticipate further ramping up our volume in the second half of this financial year. We are committed to reducing debt and expect a further reduction of approximately 100-150 crores. With economies of scale and value-addition, we anticipate margins to improve by at least 200 basis points over the next two years. 

In exports, we foresee a 10 per cent volume growth in Q1FY24. We aim to have the auto and non-auto segments contribute 70 per cent and 30 per cent respectively to our business, as opposed to the current 78 per cent and 22 per cent. Overall, we are confident to achieve 15-20 per cent growth p.a and remain focused on expanding our volumes, improving margins, reducing debt, and diversifying our product portfolio. With these strategic initiatives in place, we are well-positioned to navigate the evolving market dynamics and achieve sustainable earnings growth in the upcoming quarters.

What is your outlook on the Indian Automotive sector for the coming quarters?

We see strong underlying demand for CVs domestically. We expect strong improvement in M&HCV sales to continue, driven by the rise in e-commerce, agriculture, infrastructure, and mining activities. Global demand for trucks is buoyant, though the order book in the few months was impacted, led by the chips shortage issue. While demand remains stronger for both medium-duty and heavy-duty vehicles, the industry’s ability to tackle that backlog has been affected by a series of issues such as chip shortage, steel output, and plastic resin availability. Most of the global OEMs and auto component suppliers maintain a positive outlook for the CV industry.

In FY23-24, we maintain a highly positive outlook for the Indian automotive sector, specifically in the commercial vehicle (CV) segment. Recent times have witnessed remarkable growth in this sector, driven by increased economic activity and extensive infrastructure development across the country. The government's initiatives, such as Make in India and Atmanirbhar Bharat, have further provided a significant boost to the sector's growth trajectory. This growth will be fueled by multiple factors, including ongoing economic expansion, sustained infrastructure development, and the increasing adoption of greener technology in the automotive industry.

We anticipate strong and consistent underlying demand for CVs within the domestic market. Notably, we expect significant improvement in sales of medium and heavy commercial vehicles (M&HCVs) to continue, driven by the rising demands of e-commerce, agriculture, infrastructure, and mining activities. These sectors are poised to create robust demand for commercial vehicles in the foreseeable future.