MM Forgings - 4QFY2015 Result Update - Angel Broking

MM Forgings' 4QFY2015 results have come in in-line with our estimates. Its topline rose by 17.8% yoy to Rs. 127cr, which is slightly above our expectation of Rs. 125cr. Raw material costs declined by 503bp yoy to 37.4% of sales, but the benefits accruing on this account were largely offset by an increase in employee cost, power costs and other expenses. Employee costs, power costs and other expenses rose by 222bp yoy, 24bp yoy and 214bp yoy to 11.3%, 10.3% and 19.8% of sales, respectively. The EBITDA margin witnessed an increase of 44bp yoy to 21.1%. Further, owing to a decline in the depreciation expense, ie by 14.3% yoy to Rs. 8cr, the net profit increased by 42.2% yoy to Rs. 11cr, against Rs. 8cr in the same quarter of the previous year.

Sufficient capacity to cater to improving demand across the globe: The company is in the process of expanding its capacity from 40,000MT to ~65,000MT by FY2016E. The company mainly caters to the global markets (America and Europe), with a focus on the commercial vehicle (CV) industry. On the back of revival being witnessed in the American economy, the company is seeing healthy demand from the American CV industry. The management foresees this demand to remain intact in FY2016. We expect demand from Europe to be subdued in the near term and recover thereafter. Additionally, appreciation of the USD against the INR will provide a boost to the company's top-line by way of higher realization in INR terms.

Improvement in demand from domestic CV industry: The domestic CV industry's performance over the past three years has been lackluster amidst a pronounced slowdown. However, the company is now receiving inquiries for newer products from both existing and new clients, which gives an indication about the improving demand scenario in the domestic market. The recovery in the domestic CV industry is evident in the medium and heavy commercial vehicle (MHCV) segment where sales have grown by 16% during FY2015. Going ahead, the outlook on the domestic CV industry remains positive owing to pick up in infrastructure activity in the country.

Outlook and valuation: We expect MM Forgings to register a revenue CAGR of 15.6% over FY2015-17E to Rs. 671cr with an EBITDA margin of 22.9% in FY2017E. The profit is expected to improve to Rs. 79cr in FY2017E. At the current market price, the stock is trading at a P/E of 10.3x its FY2017E earnings. We have a Buy rating on the stock with a revised target price of Rs. 783 based on target P/E of 12.0x for FY2017E.

Shares of M.M.FORGINGS LTD. was last trading in BSE at Rs.650.25 as compared to the previous close of Rs. 654. The total number of shares traded during the day was 3089 in over 170 trades.

The stock hit an intraday high of Rs. 665 and intraday low of 635. The net turnover during the day was Rs. 2020182.

Source : Equity Bulls

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