Global Infrastructure And EV Shift Will Drive Forging Demand

Key Takeaways

• Rapid normalization of margins and accelerated cost efficiencies due to capacity expansion and automation may lead to significant margin, EBITDA, and earnings upside beyond current consensus.
  
• Strong export growth, new revenue streams, and leadership in advanced lightweight components could deliver reduced cyclicality, market share gains, and structurally higher long-term profitability.
  
• Heavy reliance on struggling vehicle sectors and slow adaptation to industry shifts threaten margins, revenue growth, and client retention amid rising costs and regulatory pressures.

Catalysts

Engages in the manufacture and sale of forged components for automobiles, railway wagons and coaches, and engineering parts in India and internationally.

• Analysts broadly agree that new capacity additions and completion of the major capex cycle will enable higher asset utilization and margin expansion, but this may be understated as management expects rapid normalization back to historical peak margins of 21 to 22 percent by early FY27, with further scope for surpassing prior records as cost efficiencies and automation gains accelerate, providing substantial upside for EBITDA and net earnings.
  
• Analyst consensus recognizes the benefit of diversified orders and new customer additions, but recent disclosures show an even stronger export profile than believed, with the possibility that European market revenues will rival North America by FY27 and casting business revenues expected to double in the coming half, significantly strengthening revenue growth and reducing cyclicality.
  
• The company's aggressive entry into fully assembled railway undercarriage systems-supported by recent capacity build-out, secured approvals, and a confirmed offtake market estimated in the ₹1,000 to 1,500 crore range-creates a major new high-volume, high-mix revenue stream unaccounted for in consensus, promising both top-line and multi-year operating leverage uplift.
  
• Expansion into aluminum and non-ferrous forging for EV and green mobility applications is ramping ahead of schedule, with management signaling readiness to rapidly replicate new capex as utilization approaches, positioning the company to benefit disproportionately from the global shift toward lightweight, high-strength components, materially lifting medium-term export revenues and blended margins as global EV demand scales.
  
• As India's forging and casting industries consolidate and the 'Make in India' and related incentives kick in, Ramkrishna Forgings' scale, sector diversity, and advanced technology adoption could trigger unexpected market share gains and pricing power, enabling structurally higher margins and return on capital over the next cycle.

Ramkrishna Forgings Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Ramkrishna Forgings compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Ramkrishna Forgings's revenue will grow by 12.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 7.1% today to 8.5% in 3 years time.
• The bullish analysts expect earnings to reach ₹4.9 billion (and earnings per share of ₹27.36) by about August 2028, up from ₹2.9 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 61.3x on those 2028 earnings, up from 36.5x today. This future PE is greater than the current PE for the IN Metals and Mining industry at 22.3x.
• Analysts expect the number of shares outstanding to grow by 0.41% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.12%, as per the Simply Wall St company report.

Ramkrishna Forgings Future Earnings Per Share Growth

Risks

• The company's overdependence on the automotive and commercial vehicle sectors, both of which are experiencing macroeconomic sluggishness and declining volumes, exposes it to significant revenue and earnings volatility during industry downturns.
  
• Accelerating global shifts to electric vehicles, which require fewer forged components than traditional internal combustion vehicles, could reduce demand for Ramkrishna Forgings' core products and thus negatively affect long-term revenue growth.
  
• Intense pricing pressures from both falling steel prices and an industry trend toward commoditization, combined with an inability to fully pass on input cost changes or tariffs to customers, have already compressed operating margins and threaten to erode net profit margins further.
  
• The company faces elevated compliance and capital expenditure burdens from new global environmental regulations and the need to digitize and automate, which may pressure both return on capital and free cash flow if not matched by revenue growth.
  
• Delayed adaptation to advanced manufacturing techniques such as additive manufacturing, or to new OEM standards for light-weighting and alternative materials, increases the risk of losing key client contracts, which could directly depress both revenues and earnings.

Valuation

• The assumed bullish price target for Ramkrishna Forgings is ₹1111.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Ramkrishna Forgings's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹1111.0, and the most bearish reporting a price target of just ₹540.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be ₹58.0 billion, earnings will come to ₹4.9 billion, and it would be trading on a PE ratio of 61.3x, assuming you use a discount rate of 14.1%.
  
• Given the current share price of ₹585.0, the bullish analyst price target of ₹1111.0 is 47.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.