The quarter-on-quarter comparison reveals an alarming deterioration, with the company swinging from a profit of ₹11.79 crores in Q1 FY26 to a loss position, representing a decline of 180.58%. Operating margins contracted sharply to 13.50% from 14.64% in the previous quarter, whilst revenue declined 10.61% sequentially to ₹907.53 crores. The combination of rising interest costs, elevated depreciation charges, and shrinking profitability has raised serious questions about the company's near-term financial trajectory.
The financial deterioration stems from multiple pressure points converging simultaneously. Whilst revenue declined both sequentially and year-on-year, the company's fixed cost structure—particularly interest expenses of ₹53.34 crores and depreciation of ₹80.38 crores—remained stubbornly high. This resulted in a negative profit before tax of ₹10.27 crores, even after accounting for other income of ₹5.75 crores. The tax credit of ₹0.77 crores partially offset the loss, but the consolidated bottom line remained deeply in the red.
Financial Performance: A Quarter of Sharp Deterioration
The quarter-on-quarter analysis reveals a troubling pattern of margin compression and revenue decline. Net sales fell 10.61% from ₹1,015.26 crores in Q1 FY26 to ₹907.53 crores in Q2 FY26, marking the second consecutive quarter of sequential revenue decline. Year-on-year performance proved equally challenging, with revenues down 13.87% from ₹1,053.63 crores in Q2 FY25.
| Quarter | Revenue (₹ Cr) | QoQ Change | Operating Margin | Net Profit (₹ Cr) | PAT Margin |
|---|---|---|---|---|---|
| Sep'25 | 907.53 | -10.61% | 13.50% | -9.50 | -1.05% |
| Jun'25 | 1,015.26 | +7.18% | 14.64% | 11.79 | 1.16% |
| Mar'25 | 947.21 | -11.79% | 10.40% | 199.83 | 21.10% |
| Dec'24 | 1,073.78 | +1.91% | 11.76% | 20.90 | 1.95% |
| Sep'24 | 1,053.63 | +9.81% | 15.73% | 139.60 | 5.51% |
| Jun'24 | 959.48 | -1.49% | 17.62% | 54.73 | 5.51% |
| Mar'24 | 973.96 | — | 19.29% | 66.11 | 6.70% |
Operating profit (PBDIT excluding other income) contracted to ₹122.54 crores from ₹148.61 crores in the previous quarter, a decline of 17.55%. More concerning is the year-on-year comparison, where operating profit fell 26.06% from ₹165.70 crores in Q2 FY25. Operating margins compressed 223 basis points year-on-year to 13.50%, down from 15.73% in the same quarter last year, reflecting deteriorating pricing power and cost management challenges.
The gross profit margin tells a similar story of margin erosion. At 8.26% in Q2 FY26, it represents a significant decline from 10.21% in Q1 FY26 and 12.31% in Q2 FY25. This 505 basis point year-on-year compression in gross margins suggests either rising raw material costs, adverse product mix, or increased competitive pricing pressures—possibly all three factors working in tandem.
Interest expenses surged 9.77% quarter-on-quarter to ₹53.34 crores from ₹48.59 crores, reflecting both higher debt levels and potentially rising interest rates. Depreciation charges remained elevated at ₹80.38 crores, up marginally from ₹79.67 crores in Q1 FY26, indicating continued capital-intensive expansion. The combination of declining operating profitability and rising fixed charges resulted in the company slipping into loss-making territory at the PBT level.
Operational Challenges: Debt Burden and Capital Efficiency Concerns
The company's operational metrics reveal deeper structural challenges beyond cyclical headwinds. Return on equity (ROE) has declined significantly to 7.27% in the latest period from an average of 13.71% historically. Whilst the company has historically generated reasonable returns—averaging 13.71% ROE over the past five years—the current trajectory suggests sustained pressure on capital efficiency.
Return on capital employed (ROCE) paints an even more concerning picture. At just 3.27% in the latest period, ROCE has fallen dramatically from the five-year average of 11.74%. This sharp decline indicates that the company is generating minimal returns on the total capital deployed in the business, raising questions about recent capacity expansion decisions and asset utilisation rates.
⚠️ Critical Concern: Deteriorating Capital Efficiency
ROCE Collapse: From 11.74% (5-year average) to 3.27% (latest) – indicating poor returns on expanded capital base
ROE Decline: From 13.71% (5-year average) to 7.27% (latest) – below cost of equity for most investors
Debt Burden: Long-term debt of ₹1,082.69 crores with Debt-to-EBITDA ratio of 3.12x – elevated for current profitability levels
Interest Coverage Stress: EBIT-to-Interest ratio of just 3.03x (5-year average) – limited cushion for further deterioration
The balance sheet reveals a company that has significantly leveraged itself for growth. Long-term debt stood at ₹1,082.69 crores as of March 2025, up from ₹766.65 crores a year earlier—a 41.23% increase. The debt-to-EBITDA ratio of 3.12x indicates elevated leverage, particularly concerning given the recent margin compression. Net debt-to-equity ratio of 0.87x, whilst moderate, has been rising steadily as debt grows faster than equity.
Fixed assets increased to ₹2,782.29 crores from ₹2,245.07 crores year-on-year, reflecting continued capital expenditure even as profitability weakened. This suggests the company has been betting on future demand recovery to justify current investments. However, with capacity utilisation apparently declining (evidenced by falling revenues despite higher fixed assets), this strategy faces execution risks.
Industry Context: Navigating Auto Component Sector Headwinds
Ramkrishna Forgings operates in the highly competitive Auto Components & Equipments sector, which has faced its own set of challenges. The company's 34.55% stock price decline over the past year significantly underperformed the sector, which delivered a modest 0.03% return during the same period. This 34.58 percentage point underperformance reflects company-specific issues rather than broader sectoral weakness.
The automotive forgings business is inherently cyclical, closely tied to commercial vehicle production, passenger vehicle demand, and railway wagon manufacturing. The company's revenue volatility over recent quarters suggests either demand weakness in key end-markets or market share losses to competitors. With operating margins contracting faster than peers, pricing pressure appears particularly acute.
Market Positioning: Losing Ground to Competition
Ramkrishna Forgings has historically enjoyed strong positioning in the commercial vehicle forgings segment, particularly in crankshafts, front axle beams, and other critical components. However, recent performance suggests either demand weakness in core segments or intensifying competition from both domestic and international players.
The company's inability to maintain pricing power—evidenced by margin compression despite relatively stable raw material costs—points to competitive intensity. Larger peers with better economies of scale may be undercutting on price, forcing Ramkrishna Forgings to choose between volume and margin.
The company's export exposure, whilst providing diversification, also subjects it to global automotive cycles and foreign exchange volatility. Recent quarters have seen pressure on both domestic and export revenues, suggesting broad-based demand weakness rather than geography-specific issues.
Peer Comparison: Valuation Premium Unjustified by Fundamentals
Comparing Ramkrishna Forgings with sector peers reveals a company trading at elevated multiples despite deteriorating fundamentals. The analysis highlights concerning valuation and quality gaps relative to competition.
| Company | P/E (TTM) | P/BV | ROE % | Debt/Equity | Div Yield % |
|---|---|---|---|---|---|
| Ramkrishna Forg. | 41.17 | 2.99 | 13.71 | 0.87 | 0.20 |
| Gabriel India | 50.56 | 10.12 | 19.71 | -0.01 | 0.54 |
| JBM Auto | 60.15 | 8.83 | 14.96 | 2.15 | 0.16 |
| Shriram Pistons | 21.93 | 4.49 | 19.01 | -0.25 | 0.37 |
| Sansera Enginee. | 41.81 | 3.62 | 11.86 | 0.03 | 0.19 |
| Lumax Auto Tech. | 43.69 | 8.75 | 16.34 | 0.75 | 0.41 |
Ramkrishna Forgings trades at a P/E ratio of 41.17x, broadly in line with the peer average of approximately 44x. However, this multiple appears expensive when considering the company's ROE of 13.71%, which lags behind peers like Gabriel India (19.71%) and Shriram Pistons (19.01%). The company generates lower returns on equity whilst trading at similar multiples, suggesting limited valuation support from quality metrics.
The price-to-book ratio of 2.99x appears reasonable compared to peers like Gabriel India (10.12x) and JBM Auto (8.83x), but this reflects the peer group's premium valuations rather than Ramkrishna Forgings' attractiveness. With ROE declining to 7.27% in the latest period, even a 3x P/BV multiple may prove difficult to sustain.
Debt levels present another concern. Whilst the debt-to-equity ratio of 0.87x sits between Sansera Engineering's minimal leverage (0.03x) and JBM Auto's higher leverage (2.15x), it represents a meaningful burden given current profitability levels. Peers with net cash positions (Gabriel India, Shriram Pistons) enjoy greater financial flexibility to navigate downturns.
Valuation Analysis: Premium Pricing for Below-Average Quality
At the current market price of ₹504.40, Ramkrishna Forgings trades at demanding multiples that appear disconnected from underlying business quality. The company's valuation metrics suggest the market has yet to fully price in the deteriorating fundamentals.
The P/E ratio of 41.17x represents a 21% premium to the industry average of 34x, despite the company's below-average ROE and deteriorating margins. This premium appears unjustified, particularly given the recent loss-making quarter and negative earnings momentum. Historically, the stock has traded between "Expensive" and "Fair" valuations, with the current "Fair" designation appearing optimistic given recent results.
The EV/EBITDA multiple of 23.89x appears elevated, especially considering margin compression trends. With EBITDA margins declining and interest coverage weakening, the company's ability to sustain current EBITDA levels faces significant doubt. A normalised EV/EBITDA multiple for a company with 3.27% ROCE and deteriorating margins would typically sit in the mid-teens range, suggesting 30-40% downside risk to current valuations.
The stock's 52-week range of ₹473.35 to ₹862.05 reflects the market's shifting sentiment. Currently trading 41.49% below the 52-week high and just 6.56% above the 52-week low, the stock sits closer to its floor than ceiling. However, with fundamentals continuing to deteriorate, even current levels may not represent adequate value.
"With ROCE at just 3.27% and operating margins contracting 223 basis points year-on-year, Ramkrishna Forgings trades at a valuation premium its fundamentals cannot justify."
Shareholding Pattern: Institutional Confidence Waning
The shareholding pattern reveals a gradual erosion of institutional confidence, with foreign investors reducing exposure over recent quarters. This trend aligns with deteriorating business fundamentals and suggests informed investors are reassessing their positions.
| Shareholder Category | Dec'25 | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|---|
| Promoter Holding | 43.13% | 43.13% | 43.13% | 43.13% | 0.00% |
| FII Holding | 21.05% | 22.71% | 24.45% | 24.47% | -1.66% |
| Mutual Fund | 0.98% | 1.09% | 1.65% | 2.45% | -0.11% |
| Insurance | 1.39% | 1.64% | 1.53% | 1.48% | -0.25% |
| Other DII | 1.66% | 0.77% | 0.42% | 2.07% | +0.89% |
| Non-Institutional | 31.80% | 30.67% | 28.83% | 26.40% | +1.13% |
Foreign institutional investors (FIIs) have consistently reduced their stake over the past four quarters, declining from 24.47% in March 2025 to 21.05% in December 2025—a reduction of 342 basis points. The most recent quarter saw FII holding decline by 166 basis points, suggesting accelerated selling pressure. With 120 FII holders, the selling appears broad-based rather than concentrated amongst a few large investors.
Mutual fund holdings have collapsed from 2.45% in March 2025 to just 0.98% in December 2025, a decline of 147 basis points over three quarters. This 60% reduction in mutual fund exposure represents a vote of no confidence from domestic institutional investors who typically have better access to management and ground-level information. The presence of only 17 mutual fund holders indicates limited interest from the domestic fund management community.
Promoter holding remains stable at 43.13%, with no recent changes. However, the presence of pledged shares at 15.76% of total equity raises concerns about promoter financial stress. Whilst not at alarming levels, pledge creation during a period of business deterioration warrants monitoring for potential further increases.
Non-institutional holdings have increased from 26.40% to 31.80% over the past three quarters, rising 113 basis points in the most recent quarter alone. This shift from institutional to retail investors often signals deteriorating quality, as sophisticated investors exit whilst less-informed retail participants accumulate on price weakness.
Stock Performance: Severe Underperformance Across All Timeframes
The stock's price performance tells a story of sustained value destruction, with negative returns across virtually all meaningful timeframes. Ramkrishna Forgings has dramatically underperformed both the broader market and its sector peers.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | +3.79% | -0.39% | +4.18% |
| 1 Month | -1.34% | -3.74% | +2.40% |
| 3 Months | -5.52% | -3.45% | -2.07% |
| 6 Months | -19.38% | +0.48% | -19.86% |
| YTD (FY26) | -3.73% | -3.95% | +0.22% |
| 1 Year | -34.55% | +8.61% | -43.16% |
| 2 Years | -31.47% | +15.78% | -47.25% |
| 3 Years | +92.15% | +37.97% | +54.18% |
| 5 Years | +404.15% | +72.66% | +331.49% |
The one-year return of negative 34.55% represents severe value destruction, with the stock underperforming the Sensex by 43.16 percentage points. This underperformance accelerated over the past six months, with the stock declining 19.38% whilst the Sensex gained 0.48%—a negative alpha of 19.86 percentage points. The deterioration aligns precisely with the timeline of weakening quarterly results.
The two-year return of negative 31.47% indicates sustained underperformance, not merely a recent correction. With the Sensex up 15.78% over the same period, Ramkrishna Forgings has destroyed 47.25 percentage points of relative value. This persistent underperformance suggests structural business challenges rather than temporary cyclical weakness.
Longer-term returns paint a different picture, with the stock delivering 92.15% over three years and 404.15% over five years, significantly outperforming the Sensex. However, these gains accrued primarily during FY21-FY24, when the company benefited from post-pandemic recovery and capacity expansion. The recent reversal suggests those favourable conditions have ended, with the business now facing headwinds that could persist.
From a technical perspective, the stock trades below all key moving averages—5-day, 20-day, 50-day, 100-day, and 200-day—indicating comprehensive bearish momentum. The stock sits just 6.56% above its 52-week low of ₹473.35, suggesting limited downside protection. With the technical trend classified as "Mildly Bearish" and most indicators pointing negative, near-term price action likely remains challenged.
Investment Thesis: Quality Concerns Outweigh Valuation
The investment case for Ramkrishna Forgings has deteriorated significantly, with multiple red flags emerging across quality, financial trend, and valuation parameters. The company's Mojo Score of 37/100 reflects these comprehensive concerns.
The quality grade of "Average" represents a downgrade from "Good" prior to June 2025, reflecting the deterioration in financial metrics. With ROE declining to 7.27% and ROCE collapsing to 3.27%, the company no longer demonstrates the capital efficiency required for a quality rating. The average EBIT-to-interest coverage of just 3.03x provides minimal cushion for further profit deterioration.
The financial trend classification of "Flat" masks underlying weakness. Whilst technically not classified as "Negative," the quarter-on-quarter and year-on-year declines in profitability, combined with margin compression, suggest the trend direction is firmly downward. The company's inability to maintain profitability despite high fixed assets and capacity expansion raises questions about demand visibility and pricing power.
Valuation, whilst graded as "Fair," appears expensive relative to quality. A P/E of 41.17x for a company with 7.27% ROE and negative recent earnings momentum typically warrants a "Expensive" designation. The EV/EBITDA of 23.89x similarly appears elevated for a business facing margin pressure and elevated debt levels.
Key Strengths & Risk Factors
✅ Key Strengths
Long-Term Growth Track Record: 34.66% sales CAGR over five years demonstrates historical execution capability during favourable periods.
Established Market Position: Leading player in automotive forgings with established relationships with major OEMs.
Capacity Expansion Completed: Recent capex of ₹537 crores (FY25) positions company for future volume growth when demand recovers.
Diversified Product Portfolio: Presence across commercial vehicles, passenger vehicles, and railway segments provides some demand diversification.
Institutional Presence: 25.07% institutional holdings indicates some level of sophisticated investor interest despite recent selling.
⚠️ Key Concerns
Collapsing Profitability: Swing to loss position in Q2 FY26 with negative ₹9.50 crores consolidated net profit represents severe deterioration.
Margin Compression: Operating margins declined 223 bps YoY to 13.50%, indicating pricing power erosion and cost management challenges.
Capital Efficiency Collapse: ROCE at 3.27% (from 11.74% average) and ROE at 7.27% (from 13.71% average) signal poor returns on expanded capital.
Elevated Debt Burden: Long-term debt of ₹1,082.69 crores with Debt/EBITDA of 3.12x creates financial stress during downturn.
Institutional Exodus: FII holdings down 342 bps over four quarters and MF holdings down 147 bps signals loss of confidence.
Severe Stock Underperformance: Down 34.55% over one year, underperforming Sensex by 43.16 percentage points and sector by 34.58 percentage points.
Promoter Pledging: 15.76% pledged shares raises concerns about promoter financial stress during business downturn.
Outlook: What to Watch
Positive Catalysts
Demand Recovery: Revival in commercial vehicle and railway wagon production could improve capacity utilisation.
Margin Stabilisation: Any quarter showing sequential margin improvement would signal bottoming out.
Debt Reduction: Meaningful deleveraging through cash generation or asset sales would reduce financial stress.
Export Growth: New customer wins or market share gains in international markets could offset domestic weakness.
Cost Optimisation: Successful cost reduction initiatives improving EBITDA margins back towards 15-16% levels.
Red Flags to Monitor
Continued Losses: Another quarter of negative PAT would confirm structural profitability challenges rather than temporary issues.
Further Margin Compression: Operating margins falling below 13% would indicate intensifying competitive or cost pressures.
Rising Interest Burden: Interest costs exceeding ₹55 crores quarterly would further squeeze profitability.
Increased Promoter Pledging: Any rise above current 15.76% level would signal escalating financial stress.
Accelerated Institutional Selling: Further FII or MF stake reductions would confirm loss of investor confidence.
Working Capital Deterioration: Rising debtor days or inventory levels indicating demand weakness or collection issues.
The Verdict: Structural Challenges Warrant Exit
Score: 37/100
For Fresh Investors: Avoid initiating positions. The combination of deteriorating profitability, collapsing capital efficiency (ROCE at 3.27%), elevated debt burden, and negative earnings momentum creates an unfavourable risk-reward profile. Whilst the stock has corrected 34.55% over the past year, fundamentals continue deteriorating, suggesting further downside remains likely. Wait for clear evidence of margin stabilisation and return to profitability before considering entry.
For Existing Holders: Consider reducing exposure or exiting positions. The swing to loss-making in Q2 FY26, combined with 223 basis points of year-on-year margin compression, indicates structural challenges rather than temporary cyclical weakness. With ROE declining to 7.27% and institutional investors reducing stakes, the investment case has materially weakened. Use any relief rallies to exit rather than averaging down into deteriorating fundamentals.
Fair Value Estimate: ₹420-450 (17-20% downside from current levels) – Based on normalised earnings of ₹15-18 per share and a 25-28x P/E multiple appropriate for a company with sub-10% ROE and elevated leverage. Current price of ₹504.40 does not adequately reflect profit deterioration and margin compression risks.
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 does not guarantee future results. Stock investments carry risk of capital loss.
