Management Meet Note

September 30, 2016

Rating matrix
Rating
Target
Target Period
Potential Upside

:
:
:
:

MM Forgings (MMFORG)

Unrated
NA
NA
NA

| 413

Forging its way ahead

Nishit Zota
nishit.zota@icicisecurities.com

We recently met the management of MM Forgings (MMF) (earlier Madras

Motors) and visited their plant to understand their business model. The
company started its forging operations in 1974 and largely caters to the
forging requirements of OEMs. MMF has three plants in India with a
current capacity of 53,000 MT, which is expected to touch 65,000 MT in
FY17E. The company is phasing out its Hammers (forging process) &
moving towards more productive & margin accretive press forgings. MMF
has diversified revenue mix geography-wise, with India, Europe & US
accounting for 31%, 29% & 25% of its total revenues, respectively. In
terms of segment wise exposure, CV & PV contribute 65% & 17% of its
revenues while the remaining (~18%) comes from off-highway, valve &
oilfields & other segments. The management remains cautious on the
demand scenario in the near term but expects a recovery, going forward.
It aims to gradually increase its utilisation to >90% in the next three to
four years, which can double its revenues. The management also guided
the margins will remain in the range of 18-21%, going forward.
Diversified forging player = Looking for growth opportunity
MMF manufactures raw, semi-machined & machined forging products like
spindles, knuckles, axle beam, gears, hub, yoke & other transmission
parts with weight ranging from 0.3-60 kg. It has diversified its regional
presence with India, Europe and US accounting for 31%, 29% & 25% of
its overall revenue, respectively. Its current capacity is 53,000 MT with
utilisation level at 66%. Anticipating an improvement in demand, the
management is expanding its capacity to 65,000 MT in FY17E. It expects
the utilisation level to improve >90% in the next three or four years
thereby driving its revenue The management also guided the margins will
remain in the range of 18-21%, going forward.
Focus on increasing product weight + adding new products
MMF is introducing newer and heavyweight products, which have
improved its average weights per product from 2/kg in 2009 to 3.5/kg in
2016. This shift in focus towards critical & heavier parts (especially CV
segment) will improve its realisation. Further, the change in production
approach from hammer forgings to presses forgings will increase its
productivity by 20-25% and improve profitability by 10%.
Decent financial performance!
In FY12-16, revenue, EBITDA, PAT witnessed a CAGR of 9%, 14%, 17%,
respectively. MMF has consistently paid dividend (payout ~16%) & has
decent return ratios RoE & RoCE at 18% & 17%, respectively. At CMP, the
stock is available a 10.5x on TTM P/E with EPS of | 39.5.

Vidrum Mehta
vidrum.mehta@icicisecurities.com

Exhibit 1: Financial Performance

Key Financials
| Crore
Net Sales
EBITDA
Net Profit
EPS (|)

FY13
350.2
57.8
24.4
20.3

FY14
400.7
82.0
29.3
24.3

FY15
489.5
112.8
50.5
42.0

FY16
489.1
112.9
50.1
41.6

FY13
20.3
9.7
2.9
14.2
10.3

FY14
17.0
6.9
2.5
15.0
11.9

FY15
9.8
5.0
2.1
21.2
18.2

FY16
9.9
5.0
1.8
17.9
16.5

Valuation Summary
P/E
EV / EBITDA
P/BV
RoNW
RoCE

Stock Data
Particulars
Market Capitalization
Total Debt (FY16)
Cash (FY16)
EV
52 week H/L
Equity capital
Face value

Amount
| 498 Crore
| 190 Crore
| 120.8 Crore
| 562 Crore
565 / 336
| 12.1 Crore
| 10

Price Chart
10,000

800

8,000

600

6,000

400

4,000

200

2,000

Nifty (L.H.S)

Sep-16

Apr-16

Oct-15

Price (R.H.S)

Apr-15

Oct-14

Apr-14

0
Oct-13

Research Analysts

(Year-end March)
Net Sales (| crore)
EBITDA (| crore)
Net Profit (| crore)
EPS (|)
P/E (x)
Price / Book (x)
EV/EBITDA (x)
RoCE (%)
RoE (%)

FY12
343.8
65.7
26.8
22.2
18.6
3.3
8.6
13.1
17.6

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

FY13
350.2
57.8
24.4
20.3
20.3
2.9
9.7
10.3
14.2

FY14
400.7
82.0
29.3
24.3
17.0
2.5
6.9
11.9
15.0

FY15
489.5
112.8
50.5
42.0
9.8
2.1
5.0
18.2
21.2

FY16
489.1
112.9
50.1
41.6
9.9
1.8
5.0
16.5
17.9

Key financials
Exhibit 3: EBITDA & EBITDA margins trend

140
100

350.2

20

80

16

60
40

100

20

82.0

400.7

FY13

FY14

FY15

0
FY13

FY16

FY14

FY15

Exhibit 4: PAT & PAT margins trend

Exhibit 5: RoE & RoCE trend

10.2

30

12

25

29.3

FY13

FY14

50.1

3
0
FY15

PAT

FY16

21.2

20
%

7.3
50.5

7.0

24.4

| crore

Source: Company, ICICIdirect.com Research

10.3

16.5

15

15.0

14.2

10

17.9

10.3

5
0
FY12

PAT Margins

FY13

FY14
ROCE

Source: Company, ICICIdirect.com Research

Exhibit 6: Revenue mix trend (domestic & export)

Exhibit 7: Forging capacity (MT)

600

70,000

500

60,000

400

FY15

ROE

50,000

300
253.96

291.12

350.59

337.43

(MT)

| crore

18.2

11.9

Source: Company, ICICIdirect.com Research

FY16
EBITDA Margins

Source: Company, ICICIdirect.com Research

100

8
4

EBITDA

200

12

60
55
50
45
40
35
30
25
20
15
10
5
0

24

16.5

57.8

489.1

| crore

| crore

489.5
200

20.5

120
300

28

23.1

23.0

112.9

400

112.8

Exhibit 2: Revenue trend in FY12-16

40,000
30,000

96.27

109.61

138.91

151.62

FY13

FY14

FY15

FY16

45,000

45,000

45,000

FY13

FY14

FY15

53,000

20,000
10,000

Domestic

Exports

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

FY16

Capacity

Source: Company, ICICIdirect.com Research

Page 2

Exhibit 8: Country wise revenue mix (FY16)

Others
15%

Exhibit 9: Segment wise revenue mix (FY16)

Valve & Oil

Field
5%

Europe
29%

Others

Off highway
11%

US
25%
India
31%

PV
17%

Source: Company, ICICIdirect.com Research

CV
65%

Source: Company, ICICIdirect.com Research

Exhibit 10: Product profile of MM Forgings

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 3

RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns

ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;

Pankaj Pandey

Head Research

pankaj.pandey@icicisecurities.com

ICICIdirect.com Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No. 7, MIDC,
Andheri (East)
Mumbai 400 093
research@icicidirect.com

ICICI Securities Ltd | Retail Equity Research

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