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CD Equisearch
MM Forgings (Accumulate)
CMP: ₹401
Target: ₹436
The prevailing automobile stress barely escaped casting its shadow on the Indian forging industry as it prompted MM Forgings to defer its capex plan by almost a year To maintain its competitive advantage in domestic markets as well as overseas, the company plans to incur a capex of some ₹140 crore this fiscal at existing facilities for both forging and machining.
Since the automotive industry accounts for 60-70 per cent of the total forging production and is subject to cyclical variations in performance and policy changes, high reliance on the same might be a bane thereby causing margins to be a victim of fluctuating automobile demand. Yet exports, which accounts for 52 per cent of the overall sales, has helped lessen its business risk with expansion of customer base globally
In the light of the current crisis, we expect sales to slide by some 16 per cent this fiscal before recovering 12 per cent and bottomline to witness a de growth of 36.7 per cent and growth of 20.3 per cent in FY 20& FY21 respectively. The stock MM Forgings currently trades at 18.4x FY20e EPS of ₹21.34 and 15.3x FY21e EPS of ₹25.67. Galvanised by not so modest recovery in the auto sector, we have slashed this fiscal’s earnings by some 40 per cent( EPS of ₹21.34 versus ₹36.01).
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