The quarter's results expose multiple operational challenges confronting Ramkrishna Forgings. Revenue declined 10.61% sequentially to ₹907.53 crores, marking the lowest quarterly sales figure in recent periods. More alarmingly, the company's operating profit before depreciation, interest, tax, and other income (PBDIT excl OI) contracted to ₹122.54 crores from ₹148.61 crores in Q1 FY26, representing a 17.53% sequential decline. The operating margin compression to 13.50% from 14.64% in the previous quarter and 15.73% in Q2 FY25 signals deteriorating pricing power and cost management challenges.
The path to losses was paved by a toxic combination of revenue pressure and escalating fixed costs. Interest expenses surged 38.39% year-on-year to ₹53.34 crores, whilst depreciation remained elevated at ₹80.38 crores. These fixed cost burdens, coupled with weakening operational performance, pushed the company into a pre-tax loss of ₹10.27 crores in Q2 FY26, compared to a pre-tax profit of ₹17.32 crores in the preceding quarter. The PAT margin collapsed to negative 1.05% from a positive 1.16% sequentially, marking a disturbing trend reversal.
| Metric | Sep'25 | Jun'25 | Mar'25 | Dec'24 | Sep'24 | Jun'24 |
|---|---|---|---|---|---|---|
| Net Sales (₹ Cr) | 907.53 | 1,015.26 | 947.21 | 1,073.78 | 1,053.63 | 959.48 |
| QoQ Growth | -10.61% | +7.18% | -11.79% | +1.91% | +9.81% | -1.49% |
| Operating Profit (₹ Cr) | 122.54 | 148.61 | 98.50 | 126.33 | 165.70 | 169.06 |
| Operating Margin % | 13.50% | 14.64% | 10.40% | 11.76% | 15.73% | 17.62% |
| Net Profit (₹ Cr) | -9.50 | 11.79 | 199.83 | 20.90 | 139.60 | 54.73 |
| PAT Margin % | -1.05% | 1.16% | 21.10% | 1.95% | 5.51% | 5.51% |
Financial Performance: Margin Collapse Exposes Structural Weaknesses
The financial performance in Q2 FY26 reveals a company grappling with fundamental operational challenges. Net sales of ₹907.53 crores declined 13.87% year-on-year, representing the lowest quarterly revenue in the recent trailing twelve quarters. The sequential 10.61% decline from Q1 FY26's ₹1,015.26 crores suggests demand weakness rather than seasonal factors. This revenue contraction is particularly concerning given the company's capital-intensive nature and high fixed cost base.
Margin deterioration has been severe and persistent. The operating margin (excluding other income) compressed to 13.50% in Q2 FY26 from 15.73% in the year-ago quarter, a decline of 223 basis points. More troubling is the sequential erosion of 114 basis points from Q1 FY26's 14.64%. The gross profit margin similarly deteriorated to 8.26% from 12.31% year-on-year, indicating either pricing pressure, unfavourable product mix, or escalating raw material costs. The company's inability to maintain margin stability despite scale suggests weak pricing power in its end markets.
The quality of earnings has deteriorated sharply. Operating profit before interest, tax, and depreciation fell 26.05% year-on-year to ₹122.54 crores. Interest costs surged to ₹53.34 crores, up 38.39% from ₹38.54 crores in Q2 FY25, reflecting both higher debt levels and potentially increased borrowing costs. Depreciation remained elevated at ₹80.38 crores, contributing to the pre-tax loss. The company's EBIT to interest coverage ratio has weakened substantially, with the average standing at just 3.03 times, indicating limited financial flexibility.
Operational Challenges: Rising Leverage and Weakening Returns
Ramkrishna Forgings' operational metrics paint a concerning picture of a business struggling with execution and capital efficiency. The company's return on equity (ROE) stands at 12.47% on an average basis, which is weak compared to industry standards and has shown declining trends. The latest ROE of 11.36% represents a deterioration from historical levels, suggesting the company is generating diminishing returns on shareholder capital despite significant reinvestment.
The return on capital employed (ROCE) presents an even more troubling narrative. The average ROCE of 11.51% is weak, but the latest half-yearly ROCE plummeted to just 3.45%, marking the lowest level in recent periods. This dramatic compression in returns signals that the company's aggressive capital expenditure programme is not translating into proportionate profit generation. With an average sales to capital employed ratio of 0.88 times, the company is generating less than one rupee of revenue for every rupee of capital deployed, indicating suboptimal asset utilisation.
Critical Leverage Concerns
Debt Burden Intensifying: The company's debt position has deteriorated significantly. Long-term debt stood at ₹1,082.69 crores as of March 2025, up from ₹766.65 crores in the previous year, representing a 41.22% increase. The debt-to-EBITDA ratio of 3.39 times indicates moderate but increasing leverage. More concerning, interest costs have surged 28.45% on a nine-month basis, consuming an increasingly larger portion of operating profits. With EBIT to interest coverage at just 3.03 times on average, the company has limited buffer to absorb further operational deterioration.
The balance sheet reveals a company that has been investing aggressively but struggling to generate commensurate returns. Fixed assets increased to ₹2,782.29 crores in FY25 from ₹2,245.07 crores in FY24, a 23.92% increase reflecting significant capital expenditure. However, this investment has coincided with declining profitability and margins, suggesting either project execution delays, capacity underutilisation, or unfavourable market conditions. Current liabilities surged 46.48% to ₹2,274.98 crores, with trade payables increasing to ₹1,080.22 crores, potentially indicating stretched working capital management.
Margin Dynamics: Structural Pressures Intensifying
The margin trajectory at Ramkrishna Forgings reveals structural challenges that extend beyond cyclical factors. The operating margin (excluding other income) has declined from 19.29% in March 2024 to 13.50% in September 2025, a compression of 579 basis points over eighteen months. This persistent erosion suggests the company faces sustained pressure from either input cost inflation, competitive pricing dynamics, or unfavourable product mix shifts.
Employee costs have escalated significantly, rising to ₹68.59 crores in Q2 FY26 from ₹66.13 crores in the year-ago quarter, despite lower revenue. On an annual basis, employee costs surged 32.45% to ₹249 crores in FY25 from ₹188 crores in FY24, far outpacing revenue growth of 8.90%. This disproportionate increase in personnel expenses suggests either wage inflation, inefficient manpower deployment, or costs associated with new capacity that has yet to generate adequate returns.
The Capacity Utilisation Puzzle
Ramkrishna Forgings has invested heavily in expanding capacity, with fixed assets growing 23.92% in FY25. However, revenue growth has not kept pace, increasing only 8.90% in the same period. The company's sales per unit of fixed asset has declined, suggesting either capacity underutilisation, longer-than-expected ramp-up periods, or demand weakness in key end markets. This mismatch between capacity expansion and revenue generation is a primary driver of margin compression and deteriorating returns on capital.
The gross profit margin decline to 8.26% in Q2 FY26 from 12.31% in Q2 FY25 indicates either raw material cost pressures or pricing challenges. In the auto component industry, such margin compression typically reflects an inability to pass through cost increases to customers or market share losses to competitors. The company's PAT margin volatility—ranging from negative 1.05% to 21.10% across recent quarters—suggests earnings quality concerns and potential one-time items affecting reported profitability.
| Company | P/E Ratio (TTM) | P/BV | ROE % | Debt/Equity | Dividend Yield |
|---|---|---|---|---|---|
| Ramkrishna Forgings | 45.16 | 3.32 | 12.47% | 0.69 | NA |
| Belrise Industries | 41.03 | 2.93 | 13.51% | 0.21 | 0.34% |
| Minda Corp | 54.31 | 5.94 | 12.67% | 0.58 | 0.23% |
| Shriram Pistons | 21.87 | 4.48 | 19.01% | -0.25 | 0.37% |
| Banco Products | 25.94 | 8.61 | 21.73% | 0.32 | 1.40% |
| Varroc Engineering | 47.57 | 6.28 | 9.56% | 0.59 | 0.16% |
Ramkrishna Forgings' peer comparison reveals a company trading at premium valuations despite inferior operational metrics. With a P/E ratio of 45.16 times, the company commands a higher multiple than most peers, despite generating a lower ROE of 12.47% compared to the peer average of approximately 15%. The price-to-book ratio of 3.32 times appears reasonable relative to peers, but this valuation fails to account for deteriorating returns and mounting losses. The company's debt-to-equity ratio of 0.69 is higher than several peers, whilst its inability to pay dividends (unlike most competitors) further questions the valuation premium.
Valuation Analysis: Premium Unjustified by Fundamentals
At the current market price of ₹546.25, Ramkrishna Forgings trades at a P/E ratio of 45.16 times trailing twelve-month earnings, representing a 29% premium to the industry average P/E of 35 times. This valuation multiple appears disconnected from the company's operational reality. The company has slipped into losses in the most recent quarter, with deteriorating margins and declining returns on capital. Historical context reveals the stock has corrected 46.44% from its 52-week high of ₹1,019.90, yet the valuation remains elevated given current fundamentals.
The price-to-book ratio of 3.32 times might appear reasonable compared to the peer average of approximately 5.6 times, but this metric masks underlying concerns. The book value per share of ₹167.78 includes significant fixed assets that are generating suboptimal returns. With the latest ROCE at just 3.45%, the company is destroying value rather than creating it. The EV-to-EBITDA multiple of 24.54 times and EV-to-sales of 3.09 times both suggest the market is pricing in a recovery that current trends do not support.
The company's valuation grade has fluctuated between "Expensive" and "Fair" over recent months, currently standing at "Fair" as of September 2025. However, this assessment appears generous given the recent quarterly loss and deteriorating financial trends. The stock's 41.28% decline over the past year reflects growing investor concerns about the business trajectory. With the stock trading at ₹546.25, down from ₹556.00 the previous day, market participants are repricing the equity downwards as the reality of operational challenges becomes apparent.
The absence of dividend yield further diminishes the investment case. Unlike peers such as Banco Products (1.40% yield) or Shriram Pistons (0.37% yield), Ramkrishna Forgings offers no income component to offset capital depreciation risk. The latest dividend of ₹1 per share represents a payout ratio of just 10.59%, suggesting either capital constraints or management's lack of confidence in sustainable cash generation. For a company with elevated leverage and declining profitability, the inability to reward shareholders through dividends raises questions about free cash flow generation.
Shareholding Pattern: Institutional Exodus Signals Concern
| Category | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|
| Promoter Holding | 15.76% | 5.76% | 5.76% | +10.00% |
| FII Holding | 22.71% | 24.45% | 24.47% | -1.74% |
| Mutual Fund | 1.09% | 1.65% | 2.45% | -0.56% |
| Insurance | 1.64% | 1.53% | 1.48% | +0.11% |
| Other DII | 0.77% | 0.42% | 2.07% | +0.35% |
| Non-Institutional | 30.67% | 28.83% | 26.40% | +1.84% |
The shareholding pattern reveals a dramatic shift in ownership structure that warrants careful attention. Promoter holding surged to 15.76% in September 2025 from just 5.76% in the previous two quarters, representing a 10 percentage point increase. This substantial jump suggests promoters have acquired additional shares, potentially through open market purchases or preferential allotment. Whilst increased promoter stake typically signals confidence, the timing—coinciding with deteriorating operational performance—raises questions about the motivation and whether it represents genuine conviction or an attempt to support the stock price.
More concerning is the steady exodus of institutional investors. Foreign institutional investors (FIIs) reduced their stake to 22.71% in September 2025 from 24.45% in June 2025 and 24.47% in March 2025, representing a cumulative decline of 1.76 percentage points over two quarters. Mutual fund holdings have contracted even more sharply, falling to just 1.09% from 2.45% in March 2025, a 1.36 percentage point decline. This institutional selling suggests professional investors are losing confidence in the company's near-term prospects, likely responding to deteriorating financial metrics and uncertain recovery timelines.
The shift in ownership composition towards non-institutional investors—increasing to 30.67% from 26.40%—typically indicates retail participation rising as institutional money exits. This pattern often precedes further price weakness as retail investors tend to be less sophisticated and slower to react to fundamental deterioration. With 125 FIIs and 18 mutual funds holding positions, the breadth of institutional ownership remains reasonable, but the directional trend of reducing exposure is unmistakable. The modest increase in insurance company holdings to 1.64% provides limited comfort given the scale of FII and mutual fund redemptions.
Stock Performance: Severe Underperformance Reflects Fundamental Weakness
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | +2.73% | +1.14% | +1.59% |
| 1 Month | -2.14% | +2.60% | -4.74% |
| 3 Months | -3.40% | +4.42% | -7.82% |
| 6 Months | -6.77% | +3.48% | -10.25% |
| Year to Date | -39.50% | +7.71% | -47.21% |
| 1 Year | -41.28% | +8.48% | -49.76% |
| 2 Years | -21.67% | +29.61% | -51.28% |
| 3 Years | +129.57% | +36.57% | +93.00% |
Ramkrishna Forgings' stock performance reflects the market's growing disillusionment with the company's operational trajectory. Over the past year, the stock has plummeted 41.28% whilst the Sensex gained 8.48%, resulting in a negative alpha of 49.76 percentage points. This severe underperformance extends across multiple timeframes: the stock has declined 39.50% year-to-date versus the Sensex's 7.71% gain, and fallen 6.77% over six months against the market's 3.48% rise. The persistent negative alpha across one-month, three-month, six-month, and one-year periods indicates fundamental rather than technical weakness.
The stock's technical position has deteriorated significantly. Trading at ₹546.25, it sits 46.44% below its 52-week high of ₹1,019.90 but only 6.39% above its 52-week low of ₹513.45, suggesting limited downside cushion. The stock trades below all key moving averages—5-day (₹541.85), 20-day (₹542.51), 50-day (₹554.05), 100-day (₹585.68), and 200-day (₹635.08)—indicating a sustained downtrend with no signs of stabilisation. The technical trend classification of "Mildly Bearish" understates the severity of the price decline, which has been relentless since September 2024.
The stock's beta of 1.35 indicates it is 35% more volatile than the broader market, amplifying both gains and losses. However, with negative returns over the past year, this high beta has worked against investors. The risk-adjusted return of negative 1.14 over one year, combined with volatility of 36.28%, places the stock in the "High Risk Low Return" category. The stock has underperformed its sector by 34.20 percentage points over the past year, with the Auto Components & Equipments sector declining 7.08% compared to Ramkrishna Forgings' 41.28% fall. This dramatic underperformance versus both the market and sector peers highlights company-specific challenges rather than industry-wide headwinds.
"With losses mounting, margins collapsing, and institutional investors exiting, Ramkrishna Forgings faces a credibility crisis that extends beyond cyclical challenges to fundamental questions about capital allocation and operational efficiency."
Investment Thesis: Multiple Red Flags Overwhelm Limited Positives
The investment thesis for Ramkrishna Forgings has deteriorated substantially, with the company's proprietary Mojo score of 31 out of 100 reflecting a "SELL" rating. This assessment is supported by concerning trends across all four key evaluation parameters. The near-term drivers are negative, with the quarterly financial trend classified as "Negative" and technical indicators showing a "Mildly Bearish" pattern. The quality grade has been downgraded to "Average" from "Good" in recent months, reflecting deteriorating financial performance. Whilst valuation is assessed as "Fair," this provides little comfort given the fundamental challenges.
The company's quality metrics reveal a business struggling with capital efficiency. The average ROCE of 11.51% is weak and has plummeted to just 3.45% in the latest half-year period, indicating the company is barely generating returns above its cost of capital. The average ROE of 12.47% similarly reflects suboptimal returns on shareholder equity, with the latest ROE of 11.36% showing further deterioration. The EBIT-to-interest coverage ratio of 3.03 times provides limited buffer, particularly concerning given rising interest costs. The debt-to-EBITDA ratio of 3.39 times indicates elevated leverage that constrains financial flexibility.
The financial trend analysis highlights multiple concerning factors. The consolidated PAT of negative ₹9.50 crores in Q2 FY26 represents a 112.5% decline versus the previous four-quarter average. Interest expenses on a nine-month basis have surged 28.45%, reflecting both higher debt levels and potentially increased borrowing costs. The half-yearly ROCE is at its lowest level, whilst net sales in Q2 FY26 were the lowest in recent quarters. These factors collectively point to a business facing structural rather than cyclical challenges, with no clear catalysts for near-term improvement.
Key Strengths & Risk Factors
KEY STRENGTHS ✓
- Long-term Growth Track Record: Five-year sales CAGR of 34.66% demonstrates historical growth capability, though recent quarters show reversal
- Institutional Presence: Total institutional holdings of 26.21% provide some liquidity and research coverage, despite recent selling
- Increased Promoter Commitment: Promoter stake increased to 15.76% from 5.76%, potentially signalling confidence in long-term recovery
- Capacity Expansion Completed: Significant capex in FY25 has created capacity for future growth once demand recovers and utilisation improves
- Established Market Position: Presence in auto components and railway forgings provides diversification across end markets
KEY CONCERNS ⚠
- Quarterly Losses: Consolidated net loss of ₹9.50 crores in Q2 FY26 represents a dramatic reversal from profitability
- Severe Margin Compression: Operating margin collapsed to 13.50% from 15.73% year-on-year, with persistent erosion across quarters
- Deteriorating Returns: ROCE plummeted to 3.45% in H1 FY26, indicating capital is generating minimal returns
- Rising Leverage: Debt increased 41.22% with interest costs surging 38.39% year-on-year, constraining financial flexibility
- Revenue Decline: Net sales fell 13.87% year-on-year to ₹907.53 crores, the lowest quarterly figure in recent periods
- Institutional Exodus: FII and mutual fund holdings declined steadily, with MF stake falling from 2.45% to 1.09%
- Capacity Underutilisation: Fixed assets grew 23.92% but revenue only 8.90%, suggesting poor asset productivity
- Weak Coverage Ratios: EBIT-to-interest at 3.03 times provides limited buffer for further operational deterioration
- No Dividend Income: Absence of dividend yield eliminates income component for investors during price decline
- Technical Breakdown: Stock below all moving averages with negative alpha across all timeframes
Outlook: What to Watch for Recovery Signals
POSITIVE CATALYSTS 📈
- Margin Stabilisation: Operating margins returning to 15%+ levels would signal pricing power recovery and cost control
- Revenue Momentum: Quarterly sales exceeding ₹1,000 crores consistently would indicate demand recovery
- Return to Profitability: Positive PAT with margins above 3% would restore earnings credibility
- Improved Asset Utilisation: ROCE rising above 10% would suggest capacity investments generating returns
- Debt Reduction: Declining debt-to-EBITDA ratio below 2.5 times would ease financial pressure
RED FLAGS 🚩
- Continued Losses: Further quarterly losses would indicate structural rather than cyclical challenges
- Additional Margin Erosion: Operating margins falling below 12% would signal severe competitive or cost pressures
- Rising Interest Burden: Interest costs exceeding ₹55 crores quarterly would further pressure profitability
- Accelerated Institutional Selling: FII holdings dropping below 20% would signal loss of institutional confidence
- Working Capital Stress: Further increase in trade payables or current liabilities would indicate cash flow pressure
- Covenant Breach Risk: Debt-to-EBITDA exceeding 4 times could trigger lender concerns
The path forward for Ramkrishna Forgings requires significant operational improvement and margin recovery. Management must demonstrate the ability to improve capacity utilisation, control costs, and restore pricing power. The company's elevated debt levels and rising interest burden leave little room for further operational missteps. Investors should monitor quarterly results closely for signs of margin stabilisation and return to profitability. Until these fundamental improvements materialise, the stock faces continued pressure from both operational challenges and valuation compression.
The Verdict: Structural Challenges Warrant Exit
Score: 31/100
For Fresh Investors: Avoid initiating positions. The company faces multiple structural challenges including quarterly losses, collapsing margins, deteriorating returns on capital, and rising leverage. The 41.28% stock price decline over the past year reflects fundamental weakness rather than temporary setbacks. With no clear catalysts for near-term recovery and continued institutional selling, the risk-reward profile remains unfavourable. Wait for sustained evidence of margin recovery, return to profitability, and stabilisation in returns metrics before considering entry.
For Existing Holders: Consider reducing exposure or exiting positions. The deterioration in operational metrics—quarterly losses, operating margins falling to 13.50%, ROCE collapsing to 3.45%, and mounting debt burden—suggests the company's challenges extend beyond cyclical factors. The stock trades below all key moving averages with negative technical momentum. Whilst the 10 percentage point increase in promoter holding might signal confidence, it coincides with institutional exodus (FII and MF stake declining). The elevated P/E of 45.16 times appears unjustified given current fundamentals. Use any technical rebounds to reduce positions.
Fair Value Estimate: ₹420-450 (23-28% downside from current levels), based on normalised earnings of ₹200-220 crores (FY26 estimate) and a target P/E of 35-38 times, reflecting sector average multiple with discount for execution risks and leverage concerns.
Note— ROCE = (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions. Past performance is not indicative of future results. The views expressed are based on data available as of November 18, 2025, and are subject to change.
