CRISIL Ratings has downgraded the long-term credit rating of Ramkrishna Forgings Limited to ‘CRISIL AA-‘ from ‘CRISIL AA’. The ratings continue on ‘Rating Watch with Negative Implications’ due to weaker than expected operating efficiency and capital structure. CRISIL will closely monitor the company’s recovery in operations, profitability, and debt reduction.
Credit Rating Action
CRISIL Ratings downgraded the long-term bank loan facilities of Ramkrishna Forgings Limited (RKFL) to ‘CRISIL AA-‘. The ratings remain on ‘Rating Watch with Negative Implications’. The downgrade reflects concerns about operating efficiency and capital structure.
Reasons for Downgrade
An independent audit revealed an overstatement of inventory, impacting profitability. Restated operating margin for fiscal 2024 was 21.4% and 14.4% for fiscal 2025. The company faces headwinds including a slowdown in the commercial vehicle industry and muted exports. Exports declined to approximately 30% of total revenue in Q1 2026 from 42-43% in the previous two fiscal years. Consolidated external borrowings increased to Rs 2013 crore as of March 31, 2025.
Financial Performance
Operating income for Q1 2026 grew by about 7% year-on-year to Rs 1015 crore, but was constrained by subdued demand and tariffs on exports to the United States effective August 2025. The company is taking steps to minimize manual interventions in inventory reporting.
Key Considerations
CRISIL Ratings will closely monitor the recovery in operations, sustainable profitability, reduction in working capital intensity, and dependency on external debt. RKFL’s strengths include a healthy market position in the auto components industry and established customer relationships. Weaknesses include revenue concentration risks and susceptibility to cyclicality in the automotive industry.
Rating Sensitivity Factors
Factors that could lead to an upgrade include:
- Sustained revenue growth with an operating margin exceeding 16%.
- Prudent working capital management and lower external debt.
Conversely, factors that could lead to a downgrade include:
- Significant decline in revenue or operating margins below 14%.
- Delays in strengthening internal controls.
Source: BSE
