At a Glance

Ramkrishna Forgings (RKFL) just slammed Q1 FY26 results on the table like a blacksmith dropping a hot piece of metal – only this time, the sizzle was a bit too real. Net profit collapsed 77.7% YoY to ₹11.8 crore, while revenue trudged along at ₹1,015 crore (up 5.8%). The stock, already beaten down 47% from its 52-week high, dipped 2.9% to ₹566. When you have high debt, low ROCE, and a P/E still at 30x, Mr. Market tends to swipe left. But wait, they’re still the 2nd largest forging player in India, with an order book that could make even Bharat Forge sweat.

Introduction

Picture this: you’re the underdog blacksmith in an RPG game, crafting swords while the big boys like Bharat Forge are building tanks. That’s Ramkrishna Forgings. They’ve doubled profits over the last 5 years (yes, CAGR 102% – insane), but Q1 FY26 decided to pull a plot twist worthy of Game of Thrones. Rising interest costs, low OPM, and a tax rate doing the limbo dance dragged earnings down faster than your gym motivation in August. Still, this company has resilience written in its DNA – forging components for autos, rails, and industrials across the globe.

The market’s mood? Cautiously skeptical. Investors who bought at ₹1,000+ are crying into their beer, while bargain hunters are sniffing around like it’s a Black Friday sale. The big question: Is this a value buy or a value trap? Let’s hammer it out.

Business Model (WTF Do They Even Do?)

RKFL isn’t making swords for medieval knights, but pretty close – they forge critical components (like crankshafts, axle parts, and gear blanks) for automobiles, railway wagons/coaches, and engineering industries. With plants capable of handling up to 200,000 tons annually, they supply to global OEMs (think Tata Motors, Ashok Leyland, etc.) and rail majors. Their business model thrives on volume + precision + global contracts.

But here’s the twist: forging is a capital-heavy, cyclical business. You need expensive equipment, you burn through cash like a tech startup on steroids, and you’re at the mercy of auto cycles. That’s why margins swing harder than a wrecking ball. Still, being India’s #2 player (after Bharat Forge) keeps them in the spotlight. International expansion (Europe/US) adds seasoning, but forex swings can burn the dish.

Financials Overview

Q1 FY26 was basically “The Hangover: Forging Edition”. Here’s the drama:

• Revenue: ₹1,015 crore (up 5.8% YoY)
• EBITDA: ₹142 crore (down 17% YoY)
• EBITDA Margin: 14% (was 22% last year – ouch)
• PAT: ₹11.8 crore (down 78%)
• EPS: ₹0.65 vs ₹3.03 YoY

Annual (FY25): Revenue ₹4,034 crore, PAT ₹415 crore, EPS ₹22.9.

Commentary: Interest cost jumped to ₹49 crore, depreciation ₹80 crore – both eating into profits like termites in a wooden door. ROCE tumbled to 6.9%. The only saving grace? Sales didn’t tank. Yet.

Valuation – Fair or Foolish?

Current Price: ₹566
TTM EPS: ₹23.33 (but Q1’s EPS is only ₹0.65 – annualized at ₹2.6, scary!)
P/E Calculation:

• Using TTM EPS → P/E = 24.3
• Using annualized Q1 EPS → P/E = 218 (aka, not meaningful if weakness continues)

Fair Value Range:

1. P/E Method: Assuming normalized EPS ₹20–22, fair P/E 18–20 → FV = ₹360–₹440
2. EV/EBITDA: FY25 EBITDA ₹558cr, EV/EBITDA ~7x → FV ≈ ₹500
3. DCF: With conservative cash flow projections (growth 8%, WACC 11%) → FV ≈ ₹520

🎯 Fair Value Range: ₹400–₹520. Current price is hovering just above the midpoint. Not cheap-cheap, but not crazy either.

What’s Cooking – News, Triggers, Drama

• Railway contracts keep flowing, adding stability.
• Export markets (Europe, US) offer growth but forex risks loom.
• Capex plans continue, increasing debt load.
• AGM drama: AGM rescheduled to Sept 20 due to “inventory discrepancies” (spicy).
• Debt is a concern: ₹2,126 crore borrowings (FY25).
• Promoter stake has fallen to 43.1% (June 2025) – why so shy?

Balance Sheet (Auditor’s Stand-Up)

Joke Audit: Assets grew, debt grew faster. Net worth solid, but leverage is heavy – like your uncle after Diwali sweets.

Cash Flow – Sab Number Game Hai

Stand-Up Audit: Ops cash almost vanished in FY25 (₹33 crore) – the company is sweating to generate cash while spending like Ambani’s wedding.

Ratios – Sexy or Stressy?

Commentary: ROCE looks like it fell off a cliff. Debt ratios manageable, but with OCF collapsing, stress signals flashing.

P&L Breakdown – Show Me the Money

Remark: Revenue up, EBITDA down, PAT somehow up in FY25 (thanks to other income). Q1 FY26 flips the table.

Peer Comparison

Commentary: RKFL is cheaper than peers (P/E 30 vs 60+), but margins + scale lag. You’re buying a smaller hammer, not a sledgehammer.

Miscellaneous – Shareholding, Promoters

• Promoters: 43.1% (declining)
• FIIs: 24.4% (rising – they love volatility)
• DIIs: 3.6%
• Public: 28.7%

Promoters trimming stake while FIIs add? That’s like parents leaving the party while strangers join in.

EduInvesting Verdict™ (500 Words)

Ramkrishna Forgings is the classic case of a mid-cap hero caught between ambition and execution risk. Historically, it’s been a multi-bagger – profit CAGR over 100% in five years, stock up 80% CAGR in five. But FY25 cracks are visible: debt doubled, operating cash flow evaporated, ROCE halved.

Strengths:

• #2 player in Indian forging industry, strong export ties.
• Robust order book with auto + rail diversification.
• Rising FII interest shows global trust.

Weaknesses:

• Heavy debt (₹2,126 crore).
• Q1 FY26 shows profit erosion, margin compression.
• OCF crisis in FY25 – alarming.

Opportunities:

• Railways + EV supply parts – big potential.
• Global OEM contracts (US, Europe).
• Currency gains if INR stays weak.

Threats:

• Cyclical auto demand.
• Forex swings.
• Rising interest rates + capex burn.

Conclusion:
RKFL isn’t dead – it’s limping. If Q2 FY26 recovers margins, this could be a deep value play. But right now, it’s like buying a sports car with a flat tire – it might zoom again, or leave you stranded. Watch debt, watch cash flows, and for the love of your portfolio, don’t ignore that 77% PAT crash.

Written by EduInvesting Team | 01 August 2025

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