Kartik¹⁴ 🧉

Ramkrishna Forgings Ltd. (RKFL): 7 growth triggers I’m tracking over the next 2–3 years When I look at a company, I don’t just look at how much it is earning today. I also try to understand what could drive its earnings higher over the next few years. RKFL manufactures forged components used in automobiles, commercial vehicles, railways and various engineering applications. It is one of India’s leading forging companies. What makes the story interesting to me is that its potential growth doesn’t depend on just one big bet. There are multiple triggers that could work together over the next 2–3 years. Let me break down the 7 things I’m watching. 1. Higher capacity utilisation: Sometimes, growth is already sitting inside the business. This is probably the most important near-term trigger for RKFL. The company’s capacity utilisation is currently around 68%. If it can move towards 80–85%, earnings could grow meaningfully without requiring a similar increase in investment. Why? Because factories have fixed costs. When production increases, those costs get spread across more units, which can improve operating margins. Think of it this way: the factory is already built, the machinery is already installed, and a large part of the investment has already been made. The key question is how much more the company can produce from the assets it already owns. Of course, higher utilisation will depend on demand, customer orders and execution. But if these fall into place, this could become a powerful earnings driver. I’ll be watching capacity utilisation closely because it could drive both EBITDA growth and better cash generation. 2. Cold forging: An existing asset that could start contributing much more. This is one of the more interesting parts of the RKFL story. The company has around 25,000 MT of installed cold-forging capacity, but current utilisation is only around 40%. In other words, a significant part of the capacity is still waiting to be fully utilised. RKFL has reportedly secured orders from two large domestic passenger vehicle manufacturers and three international customers. If these orders translate into regular production, utilisation could move towards 70–75%. Management’s indicated opportunity is roughly ₹200–250 crore in additional annual revenue. The encouraging part is that the capacity is already in place. The company doesn't need to make the entire investment all over again to pursue this growth. However, customer approvals, production ramp-up and actual order execution will determine how quickly the opportunity translates into revenue. 3. Casting: A business that could become much bigger. RKFL is not just a forging story anymore. Casting is another segment worth tracking. The company’s total casting capacity is now around 62,400 MT, while FY26 production was approximately 26,000 MT. That leaves considerable room for growth if demand improves and the newer facility ramps up successfully. The business has the potential to increase casting revenue towards ₹800–900 crore over time, compared with approximately ₹380 crore from the existing business in FY26, based on the opportunity outlined. But there is another angle I find interesting: cross-selling. Many customers who already purchase forgings from RKFL also have requirements for cast components. That gives RKFL an opportunity to sell more products to customers with whom it already has relationships. Acquiring a completely new customer can take time. Expanding business with an existing customer can sometimes be a more efficient route to growth. 4. Export recovery: Two markets that could make a difference. Exports are another important piece of the puzzle. North America was a drag on the business in FY26, largely because of the destocking cycle in Class 8 trucks. If demand in the commercial vehicle market recovers, RKFL could benefit from higher orders and better utilisation of its export-oriented capacity. There is also the European opportunity. If the India–EU Free Trade Agreement eventually reduces or removes applicable duties on Indian forgings, RKFL could become more competitive against suppliers from Turkey and Eastern Europe. The important point is that the company already has relationships with major European commercial vehicle manufacturers. Any improvement in trade competitiveness could potentially strengthen an existing business rather than require it to build one from scratch. The Mexico plant is another piece to watch, particularly for its potential to serve North American customers closer to their manufacturing operations. Of course, export recovery is not guaranteed. End-market demand, trade policy and the pace of customer orders will all matter. A recovery in North America, combined with improved competitiveness in Europe, could provide another leg of growth. 5. Rail wheels JV: A potentially significant earnings contributor. This is one of the longer-term opportunities I find worth tracking. RKFL has a joint venture with Titagarh Rail Systems through Ramkrishna Titagarh Rail Wheels (RKTR). The JV’s plant has an annual capacity of around 2.3 lakh wheels, with an initial contracted opportunity of approximately 40,000 wheels annually. Production is expected to scale from FY27, and management has indicated potential first-year revenue of around ₹400–450 crore. Beyond the initial domestic requirement, there could also be an opportunity to utilise the remaining capacity for exports, subject to orders and customer approvals. But there is an important accounting distinction here. The JV's entire revenue should not be treated as RKFL's consolidated revenue. The financial benefit to RKFL will largely depend on its share of the JV's profits and the applicable accounting treatment. That means this opportunity could become an earnings contributor over time, even if its impact on reported consolidated revenue looks very different. My view is Rail wheels could become an additional source of earnings, but the real numbers to track will be production ramp-up, profitability and RKFL's share of the JV's earnings. 6. Debt reduction: Not exciting, but potentially very valuable. Debt reduction is an important part of the thesis because operating growth creates greater shareholder value when the company can retain more of the resulting profit. RKFL's FY26 operating cash flow was approximately ₹840 crore, while net debt stood at around ₹1,900 crore in Q1 FY27. Management indicated that it was targeting a reduction of at least ₹500 crore in leverage during FY27, with net debt moving towards ₹1,500 crore by year-end. Management also indicated FY27 capital expenditure of approximately ₹350 crore, excluding a further ₹20–30 crore associated with the first phase of the rail-wheel JV. This is significantly below the roughly ₹929 crore of capital expenditure cited for FY26, although actual expenditure and funding requirements will determine how much debt can ultimately be repaid. The interest benefit is worth understanding. At an illustrative borrowing cost of 8.5%, reducing average debt by ₹500 crore for a full year would save approximately ₹42.5 crore in annual interest before considering taxes, fees or other changes. The actual benefit in FY27 may be smaller because the debt reduction occurs progressively during the year. Lower debt can improve net profit, interest coverage and financial flexibility. It can also allow RKFL to fund maintenance and selective growth investments without repeatedly relying on additional borrowing. But operating cash flow must be assessed alongside working capital and capex. A company can report strong EBITDA while still requiring substantial cash for receivables, inventory and expansion. My view is that deleveraging is one of the most valuable supporting triggers. If RKFL increases utilization, generates cash and reduces debt simultaneously, the quality of earnings should improve- not just the headline growth rate. 7. Aluminium and aerospace: The optionality beyond the immediate growth story. This is where I start thinking beyond the next two or three years. RKFL has started bulk production of aluminium forgings for global EV customers. Aluminium forgings can command much higher realisations per kilogram than conventional steel forgings. The opportunity is interesting because even relatively modest volumes could contribute meaningfully if pricing, margins and customer demand are favourable. Then there is aerospace. The company has installed forging capabilities for materials such as titanium and Inconel and is pursuing aerospace opportunities through RFQs. However, I would be careful here. Quoting for an order is not the same as winning it, and winning a programme does not immediately translate into substantial revenue. Until meaningful orders materialise, I would treat aerospace as a potential future opportunity rather than a core part of the current investment case. Aluminium could contribute to the growth story sooner, while aerospace remains a longer-term opportunity that needs to be demonstrated through actual orders and execution. ________________________________________ A growth opportunity is not the same as growth that has already been delivered. Some of these triggers are relatively near-term, while others depend on customer approvals, market recovery, order wins and execution over several years. For me, the real test will be whether these opportunities translate into higher utilisation, sustainable margins, stronger cash flows and a healthier balance sheet. And, ultimately, whether the current valuation adequately compensates investors for the risks involved.