How MD Naresh Jalan's quick thinking enabled Ramkrishna Forgings to recover from the pandemic

Five years ago Ramkrishna Forgings Limited (RKFL) found itself navigating a challenging business landscape. Things got worse when the pandemic struck, compelling the founders and the leadership team to reassess their strategies. What precisely led to this downturn? The company’s financials paint a vivid picture of the existential crisis. From a robust bottom line of Rs 120.11 crore in FY19, RKFL witnessed a stark decline to Rs 9.70 crore in FY20, followed by a modest recovery to Rs 20.67 crore in FY21.

“The transition of Ramkrishna Forgings started four-five years ago. There are two RKFLs actually—one pre-pandemic and the other one post-pandemic. RKFL had a different kind of working style post the pandemic,” says Naresh Jalan, 47, Managing Director of RKFL, who has emerged as the winner in the Emerging Companies category of the BT-PwC India’s Best CEOs ranking.

“We went through one of the toughest times of our careers. The pandemic brought to light that a company cannot grow with debt and that is one thing we changed in the post-pandemic era. We decided that the firm has to grow but will grow with free cash flow and only through what we earn rather than growing with debt,” he adds.

This assumes significance as the company had historically grown on the basis of debt. But as soon as the company pivoted to a completely new strategy, the financials started to look up. In FY22, the profits jumped to Rs 198.03 crore, with the last fiscal— FY23—registering a net profit of Rs 248.11 crore.

“If you see the history of the company, while it was debt heavy before the pandemic, now, as we speak, we are almost on the verge of being debt free. Our debt to Ebitda is less than 0.5 right now,” says Jalan.

But it was not all about bringing down the debt. The company created an ecosystem where it transitioned from an owner-driven entity to a leadership-driven firm, while putting in place a proper structure of professionals running the company.

“It is not a top-down approach but a bottom-up approach. We have a five-year vision plan which we strictly follow and which is basically the foundation of the company in the post-pandemic era,” says Jalan.

The post-pandemic era also saw the company creating new verticals and expanding its reach to new geographies. “Earlier, we were only prevalent in North America or India. Now we have a presence across the globe, except China. We increased our outreach to the customers in Europe, Southeast Asia, North America, South America and Turkey. Today, 40% of our businesses are exports and we are growing at a rapid pace of almost 20-25% in terms of our export business,” says Jalan.

Furthermore, the company also took a strategic decision of getting into non-auto segments like railways, tractors and oil & gas, among other sectors.

“These are the sectors where we were not prevalent pre-pandemic. Post-pandemic, almost 20% of our business comes from the non-auto sector,” he says.

Interestingly, castings and forgings is not exactly viewed as a new-age sector and is known to rely heavily on old methods and technologies but RKFL boasts of artificial intelligence (AI) adoption in a big way.

The company uses automation and AI in various verticals, including production, quality checks, documentation and even in the overall accounting standards.

“From having fully loaded paperwork in the system, we are trying to get into a system wherein we work on a paperless method and work more towards becoming an automated set-up with 24X7 operating standards,” says Jalan.

Incidentally, the company is also using AI to concentrate heavily on Industry 4.0, which, according to Jalan, is the “future for any engineering company”. Going ahead, he is looking at almost 15-20% volume growth year-on-year.

“That is the vision we are working with. To almost more than double in the next five years’ time,” says Jalan.

Incidentally, the stock market has taken note of the positives and, if the stock price movement is anything to go by, the company is indeed a darling of the investors.

Shares of RKFL have gained around 170% in the last one year, outperforming the benchmark Sensex—which rose about 18%—by a huge margin and analysts are quite bullish.

“Considering RKFL’s robust growth plans via the organic as well as the inorganic route and continuous focus on high margins with an aim to outperform the underlying industry’s growth, we remain positive for the company,” stated a recent report by the brokerage firm Sharekhan by BNP. “The management foresees a huge opportunity to grow in the non-auto segment, including railways,” it added.

“We have been able to get one of the best pedigrees of investors in RKFL and I think that is what puts RKFL in a sweet spot,” says Jalan.

 

@ashishrukhaiyar