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M M Forgings Ltd

| Q3FY'26 Post Results Conference Call

BULLISH SENTIMENT

Report Source

⬤9th Mar 26

Summary : MM Forgings anticipates strong FY27 growth driven by US market recovery, new capacity, and cost efficiencies, despite ongoing manpower and fuel cost challenges.

Management Perspective positive : We see strong growth ahead. We should be able to easily do 20% growth in the next coming year. We have the parts and the orders for that. We have also consistently invested up to 1,000 crores in the last 5 years, so that was also a good, providing a good tailwind. We see strong recovery. Class 8 truck orders have shot through the roof in February. So, that is, auguring really good for M M Forgings. The track market that was absent for us last year is now coming back. We see US exports back to previous levels, at least in terms of quantum. Percentages, I can't say, because overall market for us is also growing. So, I would say that the US looks very positive and should add considerably to turnover. First of all, the new jobs that we're adding are all largely, machined, so machining mix will go up, Abhishek. Second question is power costs, we have, I can, happily say that M M Forgings has gone totally green with effect from, 18th of January, from Sankranthi onwards, effectively. So, we have contracted to buy green power. And in the process, we have saved something, so that should result about 15 crores of savings per annum. Almost at current levels, that's 100 basis points on EBITDA. Plus, we're also saving considerably on interest by, of course, this doesn't affect EBITDA, but it affects PAT which is also a significant number, and more importantly, it affects cash outflow. So, we expect to save at least about 30 to 35 crores on the interest side, relative to the previous year. That, both together, we would save around 45 to 50 crores. And this would mean cash coming into the company.

Concall Report Analysis & Insights

Business Overview

  1. The company saw good recovery in Q3 FY26 and expects a strong Q4, aiming for similar turnover to the previous year with slight growth.
  2. US truck market is strong and recovering, while the Indian truck market is also performing well.
  3. US sales, which were 16-17% of total, slid to 9% in FY26, impacting overall growth.
  4. New capacity additions include a 16,500-ton press and a 4,000-ton press, increasing total capacity to 150,000 tons.
  5. Current utilization is 70,000-75,000 tons, with a goal to cross 90,000-110,000 tons next year.

Future Growth Prospects

  1. Management expects 20% growth in the next fiscal year, driven by past investments and new orders.
  2. New EPA norms in the US are anticipated to drive strong demand from late 2026 through mid-2027.
  3. The company plans to increase machining mix, which should lead to stable or improving margins.
  4. New jobs are largely machined, contributing to higher machining mix and improved margins.
  5. Targeting 6-digit tonnage by FY28, supported by new business wins and stable macroeconomic conditions.

Management Insights

  1. Management has invested 1,000 crores in the last 5 years, providing a tailwind for growth.
  2. Customer project delays and internal execution delays impacted growth in the current year.
  3. Significant cost savings are expected from reduced interest costs (30-35 crores) and green power adoption (15 crores annually).
  4. The company has gone entirely green with power sourcing since January 18th, saving 100 basis points on EBITDA.
  5. Management is focused on improving customer delivery, execution, and addressing internal process gaps to enhance productivity.

Signs of Skepticism

  1. Only 50-55% of the 1,000-1,200 crores capex from the last 5-6 years is currently generating revenue.
  2. Capacity created in tandem with customer requirements did not materialize due to project delays and US market slump.
  3. The Abhinava Rize investment of 70 crores has a burn rate of 1 crore per month, with profitability still uncertain.
  4. Conservative Q4 revenue growth guidance (1-2%) despite strong Indian CV sales and export recovery.
  5. Management acknowledges past underperformance relative to broader CV industry growth due to internal and customer delays.

Risk Factors

  1. Manpower availability and productivity remain significant challenges.
  2. Availability of fuels and fossil fuels, particularly due to the Hormuz Strait blockade, poses a potential challenge.
  3. Macroeconomic conditions and geopolitical tensions could negatively impact growth targets.
  4. Increased manpower costs, power, and fuel costs are expected to rise.
  5. Logistic costs to the US and Europe are expected to increase due to freight issues.

Good To Know

  1. The company's top products are axle arm/knuckle, front axle beam, crankshafts, and conrods, primarily for the CV industry.
  2. Competition includes Bharat, Ram Krishna, and Happy Forge, not Nelcast (a casting company).
  3. Abhinava Rize, a subsidiary, focuses on electric motors (3kW-300kW) for three-wheelers, with plans for four-wheelers.
  4. The company is exploring partnerships with Chinese companies to expand its product portfolio for four-wheeler customers.
  5. Management believes the company is operating at 50-60% of its potential, with capability to double output.

Key Drivers

  1. US truck market recovery drives demand.
  2. New capacity additions boost production.
  3. Green power adoption reduces operating costs.
  4. Improved machining mix enhances margins.

Key Analyst Discussions

Competitive Environment

  1. The company has clawed back market share in the domestic CV segment since Q2.
  2. Competition varies by product and customer, with different competitors for each segment.
  3. Kalyani Forge is primarily in smaller conrods and faces its own issues.
  4. The company aims to leverage its competencies to serve more customers and regain lost market share.

Market Trends & Consumer Behavior

  1. US truck market is strong, with Class 8 truck orders shooting through the roof in February.
  2. New EPA norms in the US are expected to drive strong demand and pre-buying from late 2026 to mid-2027.
  3. US exports are returning to previous levels in terms of quantum, contributing significantly to turnover.
  4. Tariffs under Section 232 are expected to decrease from 27.2% to around 18% for the company.
  5. Domestic and export growth are expected to be at similar levels for FY27.

Financial Highlights

  1. Capex plans for FY27 are around 160 crores, potentially increasing to 200 crores with new customer interests.
  2. Debt levels are expected to remain static for the next two years.
  3. Green power adoption is projected to save 15 crores annually, improving EBITDA by 100 basis points.
  4. Interest cost savings of 30-35 crores are expected, positively impacting PAT and cash outflow.
  5. Gross margins are expected to improve with increased export volumes and regular CV customer orders.

Product Composition

  1. Machining mix is expected to improve, driven by new, largely machined jobs.
  2. Future product mix is projected to be 15% non-automotive, 15% PV, and 70% CV.
  3. The 16,500-ton press will primarily produce crankshafts and higher-weight front axle beams for the export market.
  4. These new export products are expected to yield 7-8% better margins than current consolidated levels.
  5. Connecting rods constitute the largest volume of sales, though not by weight.

Strategic Considerations

  1. Management is considering equity infusion based on business requirements, not share price.
  2. The company is addressing past underperformance in the CV segment by improving manufacturing and delivery.
  3. Focus is on execution and excellence, identifying and closing gaps in processes and customer satisfaction.
  4. Plans include installing 100-150 robots to improve productivity and mitigate rising manpower costs.
  5. The company aims to leverage its developed competencies in product handling and large-scale project execution for future growth.
M M Forgings Ltd (MMFL) Concall Report Analysis & Insights | Dhanarthi