MM Forgings Accumulate

Auto Ancillary | Q1FY24 Result Update

Near term blip, long term positive CMP Rs 954

 MM Forgings (MMF) displayed weak performance in 1Q. Revenue de-grew Target / Upside Rs 1,042 / 9%
by 4.7% QoQ to Rs. 3.70 bn, dragged by weak export. EBITDA Margin NIFTY 19,435
contracted 23 bps QoQ to 17.7 % due to negative operating leverage and
Scrip Details
higher power & fuel expenses. 1Q volume was 19.4k vs 18k tonnes in 4Q.
Equity / FV Rs 241mn / Rs 10
 Management expects domestic CV volume growth to decent while export
to be flattish. The company to outperform industry growth led by new Market Cap Rs 23bn
product addition, strong volume growth in PVs and new customer USD 280.3mn
addition. 52-week High/Low Rs 1,099/ 730
 We like the long-term structural story of MMF given its improving Avg. Volume (no) 49,344
capabilities (with ramp-up in its heavy-tonnage press line along with
Bloom Code MMFG IN
Machining and assembly capacity) and improving margin trajectory).
However muted outlook for domestic CVs and Export, Increasing debt Price Performance 1M 3M 12M
along with high capex are key near term concern. We forecast 11% EPS Absolute (%) 2 7 1
CAGR over FY23-25E. We value the stock at Rs.1042 (16xFY25E EPS). Rel to NIFTY (%) 3 1 (9)
Recommend Accumulate.
Result Update

Shareholding Pattern
Near term demand looks Muted
Dec'22 Mar'23 Jun'23
Despite all challenges like ongoing geopolitical issues, The cCompany targeting
Revenue Rs 18 bn for FY24 (85-90k in tonnes, out of that 60k from domestic Promoters 56.3 56.3 56.3
market) led by market share gain in domestic CV volume and introduction of MF/Banks/FIs 19.6 19.6 19.6
new products. Export volume expected to be flattish. Company has witnessed FIIs 1.5 1.5 1.5
some wallet share increase from European vendors. Domestic market to
outperform Exports as a whole in the next couple of years. Public / Others 22.7 22.7 22.7

Valuation (x)
On a high capex Mode
FY23A FY24E FY25E
Next two years capex to be at Rs.5 bn (out of which Rs. 3 bn to be incurred in
FY24). Company to incur capex for adding capacity in machining and Rs 1 bn for P/E 9.0 16.6 14.7
EV powertrain. Net debt stands at Rs 5.5 bn at the end of FY23. Further, Rs 2 bn EV/EBITDA 7.1 9.8 8.8
of long-term debt would be added by the end of FY24, hence debt would ROE (%) 41.4 18.9 18.3
increase to Rs7.5 bn. We expect a lower proportion of export revenue and fall in
scrap prices are negative for margin perspective, however, increasing Machining RoACE (%) 22.4 12.0 11.7
mix (expect Machining revenue will increase to 65% in the next 2-3 years’ vs 60%
currently) and ramp up in heavy press line production to support margin. Estimates (Rs bn)
Q1FY24 Result (Rs Mn) FY23A FY24E FY25E
Particulars Q1FY24 Q1FY23 YoY (%) Q4FY23 QoQ (%) Revenue 14.5 15.9 18.0
Revenue 3,702 3,440 7.6 3,883 (4.7) EBITDA 3.9 2.9 3.3
Total Expense 3,047 2,808 8.5 3,188 (4.4) PAT 2.6 1.4 1.6
EBITDA 654 632 3.5 695 (5.9) EPS (Rs.) 106.0 57.3 65.1
Depreciation 208 179 16.1 205 1.6
EBIT 446 453 (1.4) 490 (9.0)
Other Income 53 (3) (1643.1) 47 11.6
VP - Research: Abhishek Jain
Tel: +9122 40969739
Interest 96 72 33.7 73 32.6
E-mail: abhishekj@dolatcapital.com
EBT 403 377 6.7 466 (13.7)
Tax 113 94 19.5 159 (29.0)
RPAT 290 283 2.4 308 (5.8) Associate: Shailly Jain
Tel: +9122 40969770
APAT 290 283 2.4 306 (5.3)
E-mail: shaillyj@dolatcapital.com
(bps) (bps)
Gross Margin (%) 44.2 44.7 (48) 43.0 124
EBITDA Margin (%) 17.7 18.4 (70) 17.9 (23)
NPM (%) 7.8 8.2 (40) 7.9 (9)
Tax Rate (%) 27.9 24.9 300 34.0 (604)
EBIT Margin (%) 12.1 13.2 (111) 12.6 (57)

August 15, 2023

 Actual vs DART
Particulars (Rs. Mn) Actual DART Est. Variance (%) Comments
Revenue 3,702 3,642 2
EBIDTA 654 910 (28)
Higher Employee cost.
EBIDTA Margin 17.7 25.0 (732bps)
Due to higher interest cost and
PAT 290 507 (43)
low OPM.
Source: Company, DART

Change in estimates
FY24E FY25E
Particulars (Rs mn)
New Previous Chg.(%) New Previous Chg.(%)
Net sales 15,901 15,811 0.6 18,003 17,895 0.6
EBITDA 2,878 2,862 0.6 3,277 3,257 0.6
EBITDA margin (%) 18.1 18.1 (0 bps) 18.2 18.2 (0 bps)
APAT 1,384 1,382 0.2 1,572 1,586 (0.9)
EPS 57.3 57.2 0.2 65.1 65.7 (0.9)
Source: Company, DART

Summary of quarterly performance

Particulars Q1FY22 Q2FY22 Q3FY22 Q4FY22 Q1FY23 Q2FY23 Q3FY23 Q4FY23 Q1FY24 FY24E
Net sales (Rs mn) 2,471 2,732 2,965 3,237 3,440 3,576 3,720 3,883 3,702 15,901
% QoQ (16) 11 9 9 6 4 4 4 (5)
% yoy 206 70 33 10 39 31 25 20 8 9.8
Materials 1,280 1,490 1,543 1,721 1,902 1,898 2,109 2,215 2,065 8,984
% sales 51.8 54.6 52.0 53.2 55.3 53.1 56.7 57.0 55.8 56.5
Employee cost 293 288 304 353 337 362 336 364 356 1,527
% sales 11.9 10.5 10.3 10.9 9.8 10.1 9.0 9.4 9.6 9.6
Other op cost 439 461 546 606 568 646 544 609 626 2,512
% sales 17.8 16.9 18.4 18.7 16.5 18.1 14.6 15.7 16.9 15.8
EBITDA (Rs mn) 459 493 571 556 632 670 731 695 654 2,878
% yoy 595.8 84.4 63.8 (6.5) 37.8 36.0 28.0 25.1 3.5 11.3
Margin (%) 18.6 18.0 19.3 17.2 18.4 18.7 19.7 17.9 17.7 18.1
Source: Company, DART

Assumption table
Particulars (Rs mn) FY20 FY21 FY22 FY23 FY24E FY25E
Domestic Revenue 3,285 3,566 5,474 9,410 10,539 12,120
% YoY (22.5) 8.5 53.5 71.9 12.0 15.0
Exports Revenue 3,824 3,549 5,405 4,919 5,214 5,735
% YoY (17.5) (7.2) 52.3 (9.0) 6.0 10.0
Others 583 711 350 148 148 148
% YoY 24.6 22.1 (50.8) (57.7) - -
Total 7,692 7,826 11,230 14,477 15,901 18,003
% YoY (17.7) 1.7 43.5 28.9 9.8 13.2
Source: Company, DART

August 15, 2023 2 MM Forgings

 Earnings call KTAs
 Business outlook- 1Q volume was 19.4k vs 18k tonnes in 4Q. The product development
portfolio continues to be strong. The product portfolio will focus on PV side. Company
targeting sales to be Rs 18 for FY24 (85-90k in tonnes, out of that 60k from domestic
market). Although domestic business to be muted in near term, positive for medium to
long term demand. Export volume expected to be flattish. Export market remains sluggish
and company expect to pick up demand from 2Q. US business to be flats and Europe to
be range bound. The company to outperform industry growth led by new product
addition, incremental volume growth in PVs and new customer addition.
 EBITDA margin- Raw material costs were up due to the product mix and focus on the
domestic market. The power cost was high due to the price hike taken by Tamil Nadu
electricity board (Rs1.50/. EBITDA/ton will be flattish over the period would be around
35K/t.
 Machining capacity- Company can make 45k crankshaft per year and utilizing 32k of it
and will be increasing to 50 in few months.
 Revenue Mix - The revenue mix stood at CV-76 %, PV at 12 %, and rest is off highway.
 Geographical Mix- India contributed 65%, Europe 15%, US 15%, 5-6% from South
America.
 EV- In EV space, The OEs need- Controller, motor and gear. Abhinava Rizel is working in
motor space. Company wants to gather up the opportunity in high power controllers (no
Indian manufacturers are available), production is expected to start from 1QFY25. These
capacities will be fungible across segment (2W/4W/OHT segment).
 Capex – Company is planning to spend 3 bn and has already spent 500 mn in Q1.
 Net debt stands at Rs 5.5 bn at the end of FY23. Further, Rs 2 bn of long-term debt would
be added by the end of FY24, hence debt would increase to Rs7.5 bn.

August 15, 2023 3 MM Forgings

 Revenue de-grew QoQ EBITDA Margin contracted QoQ/ YoY
4,300 250 750 20.0
3,800 200 700 19.5
650 19.0
3,300 150 600
18.5
2,800 100 550
500 18.0
2,300 50
450 17.5
1,800 0
400 17.0
Q4FY22

Q1FY24
Q1FY22

Q2FY22

Q3FY22

Q1FY23

Q2FY23

Q3FY23

Q4FY23

Q2FY22

Q3FY22

Q4FY22

Q1FY23

Q2FY23

Q3FY23

Q4FY23

Q1FY24
Q1FY22
Reveue (Rs mn) YoY (%) - RHS EBIDTA (Rs Mn) EBIDTA Margin % - RHS
Source: Company, DART Source: Company, DART

APAT & APAT Margin Net Debt trend

750 20.0 6,500 1.4
700 19.5 5,500 1.2
650 19.0 4,500 1.0
600
18.5 3,500 0.8
550
500 18.0 2,500 0.6
450 17.5 1,500 0.4
400 17.0 500 0.2
Q2FY22

Q3FY22

Q4FY22

Q1FY23

Q2FY23

Q3FY23

Q4FY23

Q1FY24
Q1FY22

FY17

FY18

FY19

FY20

FY21

FY22

FY23

FY24E

FY25E
EBIDTA (Rs Mn) EBIDTA Margin % - RHS Net debt (Rs mn) Net debt/equity (x) - RHS
Source: Company, DART Source: Company, DART

Domestic vs Export Market trend Capacity Utilisation levels increasing

100% 100,000 80
34 33 32 90,000 75
80% 50 50 80,000 70
64 59 52 54
60% 70,000 65
60,000 60
40% 50,000 55
66 67 68
20% 41 48 46 50 50 40,000 50
36
30,000 45
0% 20,000 40
FY17

FY18

FY19

FY20

FY21

FY22

FY23

FY24E

FY25E

FY17

FY18

FY19

FY20

FY21

FY22

FY23

FY24E

FY25E

Domestic Export Tonnage Capacity utilisation (RHS)

Source: Company, DART Source: Company, DART

August 15, 2023 4 MM Forgings

 Geography wise performance Q1FY24 Segment wise performance- Q1FY24
South Others
America 9%
5%
US
15% PV
11%

India
65%
Europe
15%
CV
80%
Source: Company, DART Source: Company, DART

1 yr fw/PE band ROE &ROCE Trend

40 45 16.0
35
30 11.8 11.9 11.7
35 11.6 11.3 11.1
25 9.9 9.5
9.7
20 25
15 26.2 6.6 7.0
10
5 15 19.4 19.8 18.1 20.8 18.9
18.3 17.4 18.3
0 14.6
5
Mar-19
Jul-19

Mar-20

Nov-20
Mar-21

Mar-22

Mar-23
Nov-19

Jul-20

Jul-21
Nov-21

Jul-22
Nov-22

Jul-23

9.5 9.6
FY17

FY21

FY24E

FY25E
FY14

FY15

FY16

FY18

FY19

FY20

FY22

FY23
PE std1 Average std-1 ROE (%) ROCE (%)
Source: Company, DART Source: Company, DART

Revenue to grow 11.5% CAGR over FY23-25E EBITDA to inch up

20,000 60 3,500 19
17,500 40 3,000
18
15,000 2,500
20
12,500 2,000 17
0
10,000 1,500
16
7,500 (20) 1,000
5,000 (40) 500 15
FY19

FY20

FY21

FY22

FY23

FY24E

FY25E
FY19

FY20

FY21

FY22

FY23

FY24E

FY25E

Revenue (Rs mn) YoY (%) - RHS EBIDTA (Rs mn) EBIDTA Margin (%) - RHS
Source: Company, DART Source: Company, DART

August 15, 2023 5 MM Forgings

 Financial Performance
Profit and Loss Account
(Rs Mn) FY22A FY23A FY24E FY25E
Revenue 11,230 14,477 15,901 18,003
Total Expense 9,310 10,607 13,023 14,727
COGS 5,999 6,841 8,984 10,172
Employees Cost 1,244 1,399 1,527 1,710
Other expenses 2,067 2,368 2,512 2,845
EBIDTA 1,920 3,870 2,878 3,277
Depreciation 678 788 888 1,018
EBIT 1,242 3,082 1,991 2,259
Interest 277 296 387 407
Other Income 309 262 267 273
Exc. / E.O. items (15) (5) 0 0
EBT 1,259 3,044 1,871 2,125
Tax 379 490 486 552
RPAT 881 2,554 1,384 1,572
Minority Interest 0 0 0 0
Profit/Loss share of associates 0 0 0 0
APAT 895 2,558 1,384 1,572

Balance Sheet
(Rs Mn) FY22A FY23A FY24E FY25E
Sources of Funds
Equity Capital 241 241 241 241
Minority Interest 1 1 1 2
Reserves & Surplus 5,354 6,492 7,677 9,023
Net Worth 5,596 6,734 7,919 9,265
Total Debt 5,958 6,545 7,745 8,145
Net Deferred Tax Liability 284 311 311 311
Total Capital Employed 11,838 13,591 15,976 17,723

Applications of Funds
Net Block 7,082 8,040 9,652 11,135
CWIP 364 628 800 800
Investments 223 223 223 223
Current Assets, Loans & Advances 6,628 7,745 6,940 7,432
Inventories 2,038 3,157 2,657 3,058
Receivables 1,722 2,021 1,307 1,480
Cash and Bank Balances 2,266 2,187 2,563 2,447
Loans and Advances 449 242 266 292
Other Current Assets 153 139 145 153

Less: Current Liabilities & Provisions 2,458 3,045 1,639 1,867

Payables 1,280 1,707 1,351 1,578
Other Current Liabilities 1,178 1,338 289 289
sub total
Net Current Assets 4,170 4,700 5,301 5,565
Total Assets 11,838 13,591 15,976 17,723
E – Estimates

August 15, 2023 6 MM Forgings

 Important Ratios
Particulars FY22A FY23A FY24E FY25E
(A) Margins (%)
Gross Profit Margin 46.6 52.7 43.5 43.5
EBIDTA Margin 17.1 26.7 18.1 18.2
EBIT Margin 11.1 21.3 12.5 12.5
Tax rate 30.1 16.1 26.0 26.0
Net Profit Margin 7.8 17.6 8.7 8.7
(B) As Percentage of Net Sales (%)
COGS 53.4 47.3 56.5 56.5
Employee 11.1 9.7 9.6 9.5
Other 18.4 16.4 15.8 15.8
(C) Measure of Financial Status
Gross Debt / Equity 1.1 1.0 1.0 0.9
Interest Coverage 4.5 10.4 5.1 5.5
Inventory days 66 80 61 62
Debtors days 56 51 30 30
Average Cost of Debt 4.6 4.7 5.4 5.1
Payable days 42 43 31 32
Working Capital days 136 119 122 113
FA T/O 1.6 1.8 1.6 1.6
(D) Measures of Investment
AEPS (Rs) 37.1 106.0 57.3 65.1
CEPS (Rs) 65.2 138.6 94.1 107.3
DPS (Rs) 6.0 6.4 6.9 7.8
Dividend Payout (%) 16.2 6.0 12.0 12.0
BVPS (Rs) 231.8 278.9 328.0 383.8
RoANW (%) 16.8 41.4 18.9 18.3
RoACE (%) 10.1 22.4 12.0 11.7
RoAIC (%) 13.1 29.4 16.0 15.7
(E) Valuation Ratios
CMP (Rs) 954 954 954 954
P/E 25.7 9.0 16.6 14.7
Mcap (Rs Mn) 23,035 23,035 23,035 23,035
MCap/ Sales 2.1 1.6 1.4 1.3
EV 26,728 27,393 28,216 28,731
EV/Sales 2.4 1.9 1.8 1.6
EV/EBITDA 13.9 7.1 9.8 8.8
P/BV 4.1 3.4 2.9 2.5
Dividend Yield (%) 0.6 0.7 0.7 0.8
(F) Growth Rate (%)
Revenue 43.5 28.9 9.8 13.2
EBITDA 50.8 101.6 (25.6) 13.8
EBIT 94.1 148.1 (35.4) 13.5
PBT 134.6 141.8 (38.5) 13.6
APAT 91.7 185.8 (45.9) 13.6
EPS 91.7 185.8 (45.9) 13.6
E – Estimates

August 15, 2023 7 MM Forgings

 Cash Flow
Particulars FY22A FY23A FY24E FY25E
Profit before tax 1,274 1,765 1,871 2,125
Depreciation & w.o. 678 788 888 1,018
Net Interest Exp 277 296 387 407
Direct taxes paid (379) (490) (486) (552)
Change in Working Capital (360) (609) (224) (379)
Non Cash (192) 165 166 167
(A) CF from Operating Activities 1,298 1,915 2,601 2,785
Capex {(Inc.)/ Dec. in Fixed Assets n WIP} (1,194) (2,010) (2,672) (2,500)
Free Cash Flow 89 (100) (71) 285
(Inc)./ Dec. in Investments 0 0 0 0
Other (61) 0 1 2
(B) CF from Investing Activities (1,255) (2,010) (2,671) (2,498)
Issue of Equity/ Preference 0 0 0 0
Inc./(Dec.) in Debt (193) 587 1,200 400
Interest exp net (277) (296) (387) (407)
Dividend Paid (Incl. Tax) (174) (184) (199) (226)
Other 2,243 1,921 2,504 2,329
(C) CF from Financing 344 17 446 (403)
Net Change in Cash 387 (78) 376 (116)
Opening Cash balances 1,878 2,265 2,187 2,563
Closing Cash balances 2,265 2,187 2,563 2,447
E – Estimates

Notes

August 15, 2023 8 MM Forgings

 DART RATING MATRIX
Total Return Expectation (12 Months)
Buy > 20%
Accumulate 10 to 20%
Reduce 0 to 10%
Sell < 0%

Rating and Target Price History

(Rs)
Month Rating TP (Rs.) Price (Rs.)
MMFG Target Price Nov-22 BUY 957 824
1,110
May-23 Accumulate 986 883
*Price
1,030 as on recommendation date

950

870

790

710
Jan-23
Oct-22

Nov-22

Dec-22

Apr-23

May-23

Jun-23
Aug-22

Sep-22

Feb-23

Mar-23

Jul-23

Aug-23

DART Team
Purvag Shah Managing Director purvag@dolatcapital.com +9122 4096 9747

Amit Khurana, CFA Head of Equities amit@dolatcapital.com +9122 4096 9745

CONTACT DETAILS
Equity Sales Designation E-mail Direct Lines
Dinesh Bajaj VP - Equity Sales dineshb@dolatcapital.com +9122 4096 9709
Kapil Yadav VP - Equity Sales kapil@dolatcapital.com +9122 4096 9735
Jubbin Shah VP - Equity Sales jubbins@dolatcapital.com +9122 4096 9779
Girish Raj Sankunny VP - Equity Sales girishr@dolatcapital.com +9122 4096 9625
Pratik Shroff AVP - Equity Sales pratiks@dolatcapital.com +9122 4096 9621
Equity Trading Designation E-mail
P. Sridhar SVP and Head of Sales Trading sridhar@dolatcapital.com +9122 4096 9728
Chandrakant Ware VP - Sales Trading chandrakant@dolatcapital.com +9122 4096 9707
Shirish Thakkar VP - Head Domestic Derivatives Sales Trading shirisht@dolatcapital.com +9122 4096 9702
Kartik Mehta Asia Head Derivatives kartikm@dolatcapital.com +9122 4096 9715
Bhavin Mehta VP - Derivatives Strategist bhavinm@dolatcapital.com +9122 4096 9705

Dolat Capital Market Private Limited.

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