ICICI Direct is bullish on MM Forgings has recommended buy rating on the stock with a target price of Rs 1650 in its research report dated June 13, 2018.
ICICI Direct's research report on MM Forgings
MM Forgings’ (MMF) Q4FY18 revenue grew 65.6% YoY to Rs 199.5 crore, driven by both domestic (strong growth from CV segment) and export market (robust US Class 8 truck volumes) EBITDA margins declined 26 bps YoY, 140 bps QoQ to 19.4%, impacted by higher input cost (gross margin contracted 451 bps YoY, 756 bps QoQ). However, it was partly offset by lower other operational expenditure. Reported PAT grew 114.9% YoY to Rs 27.4 crore MMF had acquired DVS Industries (manufacturer of crankshaft for CV, agriculture & off highway vehicle) on February 5, 2018 for Rs 4.5 crore. DVS’ paid up capital was at Rs 1.59 crore with revenue of Rs 13.2 crore in FY17. MMF will enhance synergies between its wide ranging capabilities in forging & machining and DVS Industries long standing expertise in machining of crankshafts. Thus, MMF’s consolidated financials were reported with revenue, EBITDA and PAT at Rs 639 crore, Rs 130 crore and Rs 68.8 crore, respectively, for FY18 MMF has decided to increase the authorised share capital from Rs 15 crore to Rs 30 crore. It will issue bonus shares in the ratio of 1:1 and one equity share for every equity share held by the shareholder.
OutlookWe believe MMF is well placed to cater to the rising demand opportunity from the domestic, export markets. Its strategic focus towards advanced/critical products will further be margin accretive, going forward. On the valuation front, MMF is trading at >25% discount to the market leader. Thus, we value MMF at 20x PE of its FY20E EPS of Rs 82.7, to arrive at a target of Rs 1650/share, with BUY rating on the stock. Any slowdown or lower-than-expected demand in the wake of strong capacity expansion may impact its financial performance and remains a key risk for the company.
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