Why is Ramkrishna Forgings Ltd falling/rising?

Recent Price Movement and Market Context

The stock has been under pressure over the past year, registering a steep decline of 45.74%, in stark contrast to the Sensex’s gain of 9.56% during the same period. Even in the short term, Ramkrishna Forgings has lagged behind, with a one-week loss of 5.23% compared to the Sensex’s 1.69% drop, and a year-to-date decline of 5.14% against the benchmark’s 1.87% fall. The share price is currently trading just 4.76% above its 52-week low of ₹473.35, signalling sustained weakness.

On the day in question, the stock underperformed its sector by 1.83%, hitting an intraday low of ₹491.60, down 2.72%. It is trading below all key moving averages, including the 5-day, 20-day, 50-day, 100-day, and 200-day averages, indicating a bearish technical trend. Despite this, investor participation has increased, with delivery volumes rising by 21.69% on 12 Jan compared to the five-day average, suggesting heightened trading activity amid the decline.

Fundamental Performance and Profitability Concerns

While Ramkrishna Forgings has demonstrated healthy long-term growth, with net sales expanding at an annual rate of 34.66% and operating profit growing by 57.87%, recent quarterly results have cast a shadow over its near-term prospects. The company reported a net loss after tax (PAT) of ₹-9.50 crores in the latest quarter, representing a dramatic fall of 112.5% compared to the average of the previous four quarters. This sharp deterioration in profitability has raised concerns among investors.

Additionally, interest expenses for the nine months ended have surged by 28.45% to ₹150.57 crores, further pressuring the company’s earnings. The return on capital employed (ROCE) has also plummeted to a low 3.45% in the half-year period, signalling inefficient capital utilisation. Despite these challenges, institutional investors maintain a significant stake of 26.21%, reflecting some confidence in the company’s fundamentals over the longer term.

Valuation and Relative Performance

Ramkrishna Forgings is currently trading at a discount relative to its peers’ historical valuations, with an enterprise value to capital employed ratio of 2. However, this valuation does not appear to be justified by the company’s recent financial performance. The low ROCE combined with rising interest costs and negative quarterly earnings have contributed to the stock’s weak returns. Over the past year, profits have declined by 19%, exacerbating investor concerns.

The stock’s underperformance is further highlighted by its comparison with the broader market. While the BSE500 index has delivered a 10.15% return over the last year, Ramkrishna Forgings has generated a negative return of 45.74%, underscoring its relative weakness and the challenges it faces in regaining investor confidence.

Conclusion: Why the Stock is Falling

In summary, Ramkrishna Forgings Ltd’s share price decline on 13-Jan and over the recent periods is primarily driven by disappointing quarterly results marked by a significant net loss, rising interest expenses, and a very low return on capital employed. These factors have overshadowed the company’s strong long-term sales and operating profit growth. The stock’s persistent underperformance relative to the Sensex and its sector, combined with bearish technical indicators and valuation concerns, have weighed heavily on investor sentiment.

While institutional investors hold a sizeable stake, the negative earnings trend and financial metrics suggest caution. Until the company demonstrates a sustainable turnaround in profitability and capital efficiency, the stock is likely to remain under pressure in the near term.

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