Ramkrishna Forgings' Inventory Overhaul Sparks Reforms Amid Investor Concerns

Ramkrishna Forgings Ltd., one of India's key suppliers of forged automotive components, is undertaking a major internal overhaul following the preliminary findings of an independent investigation that uncovered significant inventory discrepancies. As the company admits to lapses stemming from its inability to scale systems in line with aggressive expansion, management is now moving to implement structural reforms to restore financial integrity and investor confidence.

The audit, commissioned after irregularities surfaced during the FY2025 physical inventory count, found that production was overstated and rejections underreported—leading to a material overstatement of inventory balances. According to the preliminary report, discrepancies were valued at Rs 220.52 crore as of March 31, 2025, and  Rs 50.22 crore a year earlier. The net adverse effect on the company’s net worth is expected to be Rs 202.06 crore, representing 6.73% of the FY25 figure—higher than the 4–5% initially anticipated.

While the investigation is still ongoing, Ramkrishna Forgings’ management emphasized during a recent analyst call that no further major financial fallout is expected. A final report from the external agencies is anticipated within the comingweek.

The revelation has shakeninvestor confidence. Shares of Ramkrishna Forgings plunged to a one-year low following the April disclosure, as markets reacted to the unexpected shortfall and the broader implications for governance within the firm.

"We have grown faster than the system," said Naresh Jalan, Managing Director, acknowledging that the company's rapid growth outpaced its internal controls. For the sake of context, the company witnessed a 15.5% CAGR over the past five years and an even steeper 45.5% CAGR in the last three.  "We have spent sleepless nights over two months," Jalan added. "For the first time, we had a complete closure of a few days to account for every piece of inventory."

With revenues having soared from Rs 1,223 crore in FY2020 to Rs 3,984 crore in FY2024, Ramkrishna Forgings aggressively expanded capacity across its 18 domestic manufacturing units, servicing sectors from commercial vehicles to defence and railways. But that growth also exposed systemic weaknesses in operational monitoring and accounting protocols.

Corrective steps now underway include automating real-time inventory recording, replacing the manual entries that previously contributed to the discrepancies. The company is also reforming its revenue recognition policies: exports will only be accounted for once customs duties are cleared, and domestic sales only after goods are received by customers. As a result, revenue of around Rs 173 crore that would have been recognized in Q4FY25 has been deferred to the following quarter.

Jalan stressed that there were no financial leakages and that internal audits and SOPs existed, but were insufficient. In a move seen as a gesture of accountability, the promoter group has proposed issuing up to 975,000 warrants worth Rs 204.75 crore on a preferential basis—funds that could reinforce the company’s financial posture as it rebuilds trust.

Way forward 

Ramkrishna Forgings’ experience serves as a cautionary tale for automotive suppliers navigating high-growth trajectories. As the industry evolves with increasing demand across vehicle categories and geographies, operational scalability must go hand-in-hand with robust financial oversight. The coming weeks—and the final audit report—will be crucial in determining how successfully Ramkrishna Forgings can reset its systems and reclaim its standing in a closely watched sector.