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Ganga Forging


Ganga Forging is in the business of manufacturing closed die forged products that cater to both automotive and non-automotive segments. Simply put, they produce parts for vehicles and other manufacturing equipment that have moving parts in them i.e. crankshafts, hubs and flanges.

The company has been in operation for over 30 years now and its main customers include the likes of Amul Industries and Nashik Forge. The company tends to both domestic and foreign clients but its export income is largely insignificant. However, they have grand plans to expand into other countries but because of their current financial standing they have had to delay these plans.


The company’s major raw material requirement is steel and as such any significant movement in the price of steel can have a material impact on the company’s financials considering over 80% of their cost is attributed to procuring raw materials.

But beyond the prices of steel, the company’s main challenge is in improving its operational efficiency. Currently, their operations are labor intensive and they largely rely on manually operated machines to get the job done. The company’s plan is to open a new manufacturing facility, with more automation and less manual labor. This, the company believes will improve its efficiency and help it expand both its top and bottom line.
So how much will the new facility cost. The company believes that the new facility and the infrastructure will cost the company a total sum of about 8.7 crores. They plan to raise about 4.6 Crores from issue proceeds and finance the rest through loans. Here is a detailed breakup of the costs and the company’s plans to finance this facility.

Detailed breakdown of estimated costs

Description of Cost Project Cost (in lakhs)
Factory Building75.00
Plant & Machinery683.99
Misc. Fixed Assets41.95
Margin for Working Capital26.82

Means of Finance

Particulars Amount (in lakhs)
Out of Issue Proceeds460.12
Term Loan410.00
Total Means of Finance870.12

So will the new facility help the company to improve its financials. Well, let’s look at the financials first.

The company is not on a growth path. The company posted revenues totaling 18 Crores as of Dec 2018. But that’s hardly an improvement over its revenues the previous year when they posted 17.7 Crores. That’s the case with PAT margins as well. Floating at about 2% for the past 3 years, the company posted profits of about 38 lakhs this year as of Dec 2018.
However, this is an industry wide phenomenon and PAT margins are generally thin across the board. But the companies closest peers have a significant advantage, in that most of them operate at a much larger scale. Here is a detailed breakup of the revenue and their PAT.
So the new facility is much needed. But will the company successfully execute the project and improve its top/bottom line? Well, that’s a largely speculative game. The company’s operating cash flows have been erratic. Their long term and short term borrowings have increased substantially in FY 2017-2018 and their receivables have seen a spike as well. 

So if you were looking for the financial statements to give the company a vote of confidence. We don’t think you’ll find it. Currently, the company is run by Mr. Hiralal Tilva and Mr. Rakesh Chaganlal Patel, both experienced veterans. Maybe that’s comforting? We don’t know. But the company is currently planning to raise about 5 crores mostly to meet its expenses in funding the new manufacturing facility.

The company is listing 23,82,000 equity shares of Rs. 10 each at a fixed price of Rs. 21 per share. If we annualize latest earnings, on a post issue basis the asking price is at a P/E of around 32. 

Now, the industry average is roughly around that number but here’s the thing. The company’s peers look much better on paper with better EPS’s, robust top/bottom line growth and better future prospects. So we think this issue is rather expensive. But who knows? Maybe they will infact turn the company around and put it on a firm growth path. We wish the company all the best in their future endeavours

No content on this blog should be construed to be investment advice. You should consult a qualified financial advisor prior to making any actual investment or trading decisions. All information is a point of view, and is for educational and informational use only. The author accepts no liability for any interpretation of articles or comments on this blog being used for actual investments.



Finception, Ideapad, CIIE
IIM Ahmedabad, Vastrapur Ahmedabad - 380015


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Phone: +91 89805 94439