Ramkrishna Forgings faces scrutiny after uncovering inventory discrepancies during its annual audit, prompting an external investigation and raising concerns about internal controls, financial oversight, and broader implications for the automotive manufacturing industry.
02 May 2025 | 1877 Views | By Shahkar Abidi
Ramkrishna Forgings Limited , a leading supplier of forged components to the automotive and other industries , recently announced the discovery of discrepancies in its inventory records. This news has raised questions about the company's internal processes and financial oversight. Here’s a breakdown of the situation.
What Happened?
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Ramkrishna Forgings Limited , a leading supplier of forged components to the automotive and other industries , recently announced the discovery of discrepancies in its inventory records. This news has raised questions about the company's internal processes and financial oversight. Here’s a breakdown of the situation.
What Happened?
On April 26, 2025, Ramkrishna Forgings disclosed that during its annual physical inventory count for the financial year ending March 31, 2025, it found significant differences between its recorded inventory and the actual stock on hand. Ramkrishna Forgings has called the issue a “first-ever” incident.
Notably, this physical count – the process of manually checking and counting all inventory items – began on April 6, 2025, after the financial year had officially closed.
While many analysts suspect it to be a case of theft by certain employees, the company later clarified that the discrepancies primarily relate to its discrepancies in reporting, specifically to Work-in-Progress (WIP) inventory records.
In a manufacturing context like automotive components, WIP refers to materials and parts that are currently undergoing production processes on the factory floor but are not yet finished goods. This could include forgings that have been partially machined or components moving between different production stages across the company's multiple facilities. Tracking the exact quantity and value (including materials, labor, and overhead costs added) of WIP accurately can be complex.
How Significant is the Issue?
Ramkrishna Forgings estimated the potential negative impact on its financial health to be between 4% and 5% of its net worth. Net worth is essentially the company's value after subtracting liabilities from assets. This percentage translates to a substantial figure, estimated around Rs 150 crore.
The stock market reacted negatively, with Ramkrishna Forgings' share price falling sharply and hitting a one-year low immediately following the announcement.
What Could Have Possibly Gone Wrong:
Analysts pointed out that at the heart of the controversy is a standard disclaimer that auditors often include in their reports: that physical inventory verifications have been carried out by the management (except for items with third parties), and that discrepancies found are within acceptable limits—commonly set at around 10%.
Nitin Mangal, founder of Trudence Capital and a veteran in accounting forensics, questions the broad reliance on the concept of materiality—a term that allows auditors to disregard smaller discrepancies if they don’t materially affect the financial results. While this may work in general cases, in industries like automotive manufacturing and other sectors where inventories often constitute a significant portion of a company’s net worth, such an approach could obscure deeper issues.
“In companies like Bharat Forge or Tata Motors, inventory can represent 45–50% of total equity. A 10% inventory discrepancy isn’t immaterial—it’s potentially very large,” Mangal warns.
Ramkrishna Forgings has called the issue a “first-ever” incident. Analysts point to a mix of systemic lapses—errors accumulating over time, undetected due to inadequate internal controls and insufficiently rigorous audits. The company’s recent spree of acquisitions may have compounded these risks. Integrating multiple systems, teams, and warehouses without upgrading inventory controls or harmonizing audit procedures across the board is a known risk factor, often underestimated during mergers.
Another possible element, industry observers point out is at Ramkrishna Forgings' significant acquisition activity in recent years may have impacted the internal control environment and the effectiveness of both internal and external audit processes related to inventory management across the newly integrated and existing entities.
Oversight on Multiple Fronts
What amplifies the seriousness of this case is that inventory records are not just a matter of internal accuracy—they’re often shared with banks for securing loans by the companies. “So if errors slipped through both internal checks and third-party verifications by banks, the problem is deeper than one-off negligence. It's about systemic failure,” Mangal noted.
Shriram Subramanian, founder and MD of InGovern Research, echoes this concern. He points to the lack of proper internal controls and inadequate use of technology. “Best practices call for ongoing inventory checks and reconciliations and not just an annual exercise,” he explained. “Also, with today’s tech, companies should be using inventory management software that automates tracking and reduces manual errors.”
Steps taken by Ramkrishna Forgings?
(1) Investigation: The company's Audit Committee – a board-level group responsible for overseeing financial reporting and controls – approved the appointment of independent external agencies. These outside firms will conduct a joint investigation to determine the cause of the discrepancies. The stated goals are transparency, accountability, and preventing future occurrence.
(2) Promoter Assurance: The promoters have assured investors they intend to cover the financial shortfall resulting from the discrepancy using legally permitted methods. This aims to protect the company's financial position and stakeholder interests.
Implications for the Auto Industry
For automotive OEMs and Tier-1 suppliers, where just-in-time inventory models are common, the fallout from such lapses can be severe—leading to disruptions in supply chains, potential legal liabilities, and reputational damage.
More broadly, the case of Ramkrishna Forgings exposes a pressing need in the auto industry to re-examine how inventory audits are treated—not merely as a compliance checkbox, but as a key component of operational and financial integrity.
In Conclusion:
The inventory discrepancy at Ramkrishna Forgings is a significant event highlighting the critical importance of accurate inventory management and robust internal controls in the manufacturing sector. While the company has initiated an investigation and its promoters have pledged financial support, the incident underscores the challenges of tracking complex WIP and the need for effective governance oversight. The findings of the external investigation will be crucial in understanding the root causes and restoring confidence.