Rev growth to cross $1 bn ahead of schedule: M&M Forgings

Hemant Luthra

He added that the company will cross USD 1 billion ahead of schedule.

Excerpts from CNBC-TV18's exclusive interview with Hemant Luthra:

Q: How do you see the business, going ahead? In the current year, there is a pressure of raw material. There is probably a slowdown as well, at least as far as the export markets are concerned. How do you think volumes and margins will pan out in the current year?

A: Approximately 75% of our business is Germany. The German GDP has grown surprisingly strongly and they are seeing a lot of orders coming in from Eastern Europe, Russia, Kazakhstan and those places where they are benefiting from the oil boom.

In fact, the higher the oil prices go, the more money these countries have to spend on infrastructure. We are not supplying forgings into the passenger car market. We are in the off-road trucks, highway construction equipment market and that is doing rather well.

Steel prices worldwide are a cause of concern. But for some of our German customers, they recognize the advantage of dealing with a vendor or a supplier who is healthy. They have some pretty sensible agreements about how they reward vendors for steel price increase. We are not worried too much on that. Last year, we have spent a lot of money in India on doubling capacity. We have increased capacity in Germany. In fact, I am rather bullish about the outlook for the current year.

Q: Would some of that bullishness stem from the fact that you could be going the inorganic way? You have already done one in Germany, would there be more such coming your way?

A: We have done two in Germany and one in England. There has been something that has been offered to us in South Africa. We are now number four forging company in the world.

Customers like Daimler and others will say that they have got a problem, and will we take it over and they will reward us. We ask them how they will reward us. They said they will give us orders for forging. Since Systech is also in castings and gears, we may supplement some of those orders.

So, the benefits that we anticipated of creating a large Systech, which has got a couple of verticals where we compete better than China, is beginning to pay-off. There could be acquisitions, but there is no pressure to do acquisitions. We are following the customer and at the customer’s behest, we need to do something and we will.

Q: The buzz is actually about a Belgian gear maker. Are you looking at anything in Belgium at all?

A: Systech has done 7-8 acquisitions all of which have turned out well. In all of these acquisitions, the selling company has sold to us not as part of an auction process. Many of them have not sold 100% but have swapped it with equity and Systech companies. So, we have become a natural ally for people who want to exit or people who do want injection of capital. We see many more deals than we are capable of executing. But it is not fair to comment of any single one.

Q: Not counting the inorganic expansions that you may do, with the current acquisitions in place; give us a number in terms of revenue growth and margins that you are looking at for the current year?

A: We have already reached about USD 920 million with the publicly announced acquisition of Metalcastello in Italy. We will probably cross a billion dollars, which is a couple of years ahead of schedule.

We are running at 11% EBITDA margin and given the fact that we have put in an extra capacity, the synergy is starting to kick in. Margins are expected to improve. Even the US recession may have some impact which is not likely to be accurate.