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MM Forgings 1QFY2015 performance highlights and results update

August 11, 2014, Monday, 05:07 GMT | 00:07 EST | 08:37 IST | 11:07 SGT
Contributed by Angel Broking

For 1QFY2015, MM Forgings (MMFL) reported an impressive set of results. Its top-line grew by 25% yoy to Rs.125cr vis-à-vis our expectation of Rs.115cr. Owing to an efficient operating performance, the total expenditure as a percentage of sales declined by 367bp yoy to 77.83%, resulting in the EBITDA margin improving to 22.2%, while we had built in an EBITDA margin estimate of 18.4%. Consequently, the net profit for the quarter doubled to Rs.13cr from Rs.7cr in the same quarter of the previous year.

Sufficient capacity to cater to improving demand across the globe: The company has a capacity of 40,000MT and is in process of expanding it to ~46,000MT. It is also focusing on optimum capacity utilisation to take advantage of the production capacities that it has created. The company mainly caters to the global market with a focus on the commercial vehicle industry and export focus on America and Europe. After the recession, the American economy is now seeing an upturn, and thus we are witnessing a growth in CV sales as well. We expect this to provide enormous opportunities to the company.

Improvement in demand from domestic CV industry: Exports account for ~71% of the revenues for the company. We expect the demand from the domestic CV industry to pick up which has been an underperformer due to severe slow down in the auto sector. The measures taken by the new government to revive the economy will help the company both directly and indirectly. Additionally, the company is being approached by both existing as well as newer clients for newer products, particularly in the domestic market, which will add to its product portfolio.

Outlook and valuation: We expect MMFL to register revenue CAGR of 18.9% over FY2013-16E to Rs.581cr with an EBITDA margin of 22.9% in FY2016E. The profit is expected to improve to Rs.66cr in FY2016E. At the current market price, the stock is trading at a P/E of 5.9x its FY2016E earnings. We have upgraded our rating on the stock to Buy with a target price of Rs.385 based on target P/E of 7.0x for FY2016E.