Rating Action

Ramkrishna Forgings Credit Rating Downgraded by India Ratings Amid Elevated Debt and Margin Pressure

NSE

rkforge

BSE

532527

Ramkrishna Forgings Limited informed exchanges that India Ratings & Research has downgraded the company’s long-term credit rating to IND AA- from IND AA while maintaining a Stable Outlook. The downgrade reflects weakened credit metrics, elevated leverage due to ongoing capex, margin moderation, and inventory accounting discrepancies identified during FY25 verification.

PRICE-SENSITIVE TRIGGER

Event: Credit Rating Downgrade by India Ratings & Research

Type: Rating Action

Impact: Negative

Immediate Effect: The downgrade indicates increased pressure on the company’s leverage profile and profitability, which may impact future borrowing costs and investor sentiment.

Key Metrics:

Long-Term Rating: Downgraded to IND AA- from IND AA
Short-Term Rating: Affirmed at IND A1+
Rated Bank Facilities: INR 35,172 million
Additional Bank Facilities: INR 7,828 million
FY26 Revenue: INR 42,381 million (+5.1% YoY)
FY26 EBITDA Margin: 15.2%
FY26 Net Adjusted Leverage: 4.6x
FY26 Capex: INR 9,237 million
FY26 Cash Flow from Operations: INR 6,503 million
FY26 Free Cash Flow: Negative INR 2,915 million

Highlight Metric:

Inventory overstatement resulted in an adverse post-tax impact of approximately INR 2,026 million, equivalent to nearly 6.73% of net worth.

What Happened ?

Ramkrishna Forgings Limited disclosed that India Ratings & Research downgraded its long-term bank loan facilities rating to IND AA- with Stable Outlook while affirming the short-term rating at IND A1+.

The rating agency cited weakened credit metrics, elevated leverage levels, ongoing debt-funded capex, and moderation in EBITDA margins as key reasons behind the downgrade. Lower export contribution, especially from high-margin North American business, also impacted profitability.

Additionally, the agency highlighted inventory discrepancies identified during FY25 annual physical verification, which negatively impacted margins and financial metrics.

Key Details

Rating Rationale:

Adjusted consolidated net leverage increased to 4.64x in FY26 due to elevated debt and capex spending.
EBITDA margins moderated because of reduced share of high-margin exports.
Interest coverage ratio declined to 3.1x in FY26 from 5.3x in FY24.
Total debt levels increased to INR 31,438 million in FY26.

Inventory Discrepancies:

RKFL identified discrepancies between physical inventory and book inventory during FY25 verification.
The issue involved work-in-progress, raw materials, and scrap accounting.
Inventory overstatement stood at INR 2,205.2 million as of March 31, 2025.
Management stated that internal controls have now been strengthened.

Operational Positives:

FY26 consolidated revenue grew 5.1% YoY to INR 42,381 million.
The company expects FY27 revenue to rise to INR 48,000–50,000 million.
Diversification into railways, EVs, aluminum forgings, and non-auto sectors continues.
Revenue contribution from non-auto businesses increased to 26% in FY26.
Indian Railways contribution improved to 7.5% of revenue.

Liquidity and Funding:

Consolidated cash balance stood at INR 1,629 million at FY26 end.
Promoters infused INR 2,020 million through warrants.
Additional tax refunds of around INR 2,800 million are expected to support liquidity.

Note:

India Ratings expects leverage to improve gradually in FY27, but remain above preferred threshold levels in the near term.

Risk Analysis

Key Risks:

High debt levels due to aggressive capex and acquisitions.
Dependence on cyclical MHCV industry demand.
Continued weakness in exports may impact margins further.
Working capital cycle remains elevated at 193 days.
Newly acquired businesses currently operate at lower margins.

Worst Case Scenario:

If export demand recovery remains slow and leverage stays elevated above 3x for an extended period, further pressure on ratings and profitability may emerge.

Risk Level: High

Company Commentary

Management expects consolidated revenue to grow further in FY27 driven by domestic CV recovery and railway orders.
RKFL stated that internal controls have been strengthened after inventory discrepancies were identified.
The company continues expanding into EVs, railways, aluminum forgings, and non-auto industrial segments.
Management expects gradual improvement in leverage and profitability over the next two-to-three years.

Official Exchange Filing: Ramkrishna Forgings Limited