Multibagger Midcap Stock Secures Big Contract to Supply Critical Components to Tesla

Dalal Street is shifting gears, and the reason is electrifying. Tesla, the electric vehicle (EV) giant, is inching closer to an Indian debut, and investors are hitting the gas pedal on auto stocks, especially auto ancillary companies.

The excitement isn't unfounded. Tesla initially expressed interest in sourcing a whopping $1.7-1.9 billion worth of auto parts from India this year. Now, the buzz is even louder - Tesla might be bringing its entire auto parts and electronics supply chain to India. This could be a major shot in the arm for the domestic auto ancillary sector.

Here's why: Tesla doesn't travel light. Wherever it sets up shop, its entire supplier base follows. If they establish a manufacturing plant in India, a vast network of ancillary companies will be needed to churn out the components that power Tesla's EVs.

This translates to a potential gold rush for these companies, with demand for their products and services skyrocketing.

Aligned with Tesla's strategy, the company has initiated its endeavour to establish an electronics supply chain in India through strategic partnerships.

Recently, Tesla has been speculated to have entered into a collaboration with an auto ancillary stock.

The stock is none other than Ramkrishna Forgings.

# Powertrain Component Deal

Kolkata-based Ramkrishna Forgings Limited has secured approval to supply powertrain components to the USA's largest electric passenger vehicle producer.

The company has not disclosed the name of the vehicle manufacturer in its announcement, but sources indicated that it could be Tesla. The announcement however comes ahead of tech billionaire Elon Musk's visit to India.

This development is hailed as a significant milestone in Ramkrishna Forgings' journey toward pioneering electric mobility solutions. The approval signifies their foray into the electric passenger vehicle segment, with a notable emphasis on powertrain components.

It follows the company's presentation of a comprehensive portfolio of innovative solutions, showcasing their expertise and commitment to delivering top-quality products.

Ramkrishna Forgings views this approval not only as its debut in the US EV market but also as a gateway to numerous exciting opportunities.

According to a media report published today, the company's approval to supply power train components to the USA's largest Electric Passenger Vehicle Producer was put on hold.

Following the news, the shares of the company fell up to 7%.

Why is this important?

The collaboration underscores Ramkrishna Forgings' ongoing commitment to innovation and its ability to meet the demands of the EV industry.

Leveraging its four-decade-long expertise in developing and producing forged components, the company takes pride in offering products that enable customers to streamline development processes and expedite market entry.

Their continuous innovation reflects a dedication to creating value for customers and contributing to the global advancement of sustainable mobility. This approval presents a unique opportunity for international expansion for Ramkrishna Forgings.

Additionally, it holds potential benefits for Tesla, given the company's established track record of successful project completions.

Why did Tesla Choose India?

In FY24, India overtook Japan to become the third-largest car market globally, with the wholesales increasing 8.7% YoY at 4,229,566 units.

The EV market in India is still at a nascent stage with electric models making up just over 2% of the total cars sold. While the government has set an ambitious target of 30% of new car sales to come from EVs by 2030, sector analysts estimate this figure to be anywhere from 15% to 20%.

Tesla's sales took a hit in the March 2024 quarter, with car deliveries declining 8.5% YoY at 386,810 units. One of the reasons for this is the rising threat from the Chinese auto major BYD, which posted a 13% YoY growth in EV sales at 300,114 units during the same three-month period.

BYD is already in India and selling three electric models -- Atto 3, Seal and e6. Another Tesla rival, Vietnam's VinFast has also entered India and is setting up an integrated EV facility in Tamil Nadu as part of a US$ 2 billion (bn) investment in the state.

In such a scenario, with all the leading original equipment manufacturers (OEMs) entering India and a substantial electric car market expected here in future, the country has naturally become the next destination for Tesla.

To further smoothen the entry of global OEMs, including Tesla, into India, the government announced the new EV policy in March 2024.

What Next?

Moving forward, the company anticipates a robust 15% to 20% volume growth in the fiscal year 2025, primarily fuelled by the non-auto segment and exports.

Moreover, they project a significant uptick in revenue from the Electric Vehicles sector, aiming for double-digit growth from the current 4%. With ambitious targets in mind, they aspire to double their revenue to a staggering Rs 60 bn by the fiscal year 2026, driven by strategic acquisitions and partnerships.

To support this growth trajectory, the company is actively expanding its forging capacity to 243,000 tonnes and is set to inaugurate a new 25,000-tonne cold forging unit in the first quarter of 2024-25.

Additionally, they plan to invest between Rs 3-3.5 bn over the next two to three years to further enhance their machined casting capacity.

How Shares of Ramkrishna Forgings have Performed Recently

The share price of Ramkrishna Forgings has climbed by 10% in the past one month. In past five days the stock has lost 11%.

So far in 2024 the stocks is up 6%. Over the past one year, shares of the company have rallied 134%.

The company touched its 52-week high of Rs 814 on 1 December 2023 and its 52-week low of Rs 292 on 18 April 2023.

About Ramkrishna Forgings

Ramkrishna Forgings is a leading Indian forging company founded in 1981.

They are the second biggest integrated forging facility in India with over 6,000 employees. They are a global force in the metal forming industry, supplying world-class forged, machined, and fabricated products to a diverse set of sectors, including railways, automotive, power and more.

It is a critical safety item supplier for undercarriage, bogie and shell parts for railway passenger coaches and locomotives. They supply to major original equipment manufacturers (OEMs) like TATA Motors, Ashok Leyland, Volvo, Iveco, Scania, MAN, and UD Trucks.

For more details, see the Ramkrishna Forgings company fact sheet and quarterly results. For a sector overview, read our auto ancillaries sector report.

You can also compare the company with its peers on our website.

Ramkrishna Forgings vs Bharat Forge

Ramkrishna Forgings vs CIE Automotive India

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...