MM Forgings hit a 52-week high of Rs 521 on Tuesday. The stock has gained over 400 percent this year.
The company manufactures steel forgings in raw, semi machined and fully machined stages and caters to forging requirements of almost all industries. It has a big export portfolio, with focus on CV industry in America and Europe. N Srinivasan of India Cements is the Chairman of the company.
MM Forgings has a market cap of Rs 566 crore. Around 30 percent of its revenues come from the domestic market, while the majority 70 percent from exports.
Discussing the company future plans and prospects, MD Vidyashankar Krishnan said the overall business is good, given the fact that exports are strong. He said even the domestic business is showing signs of a pick-up.
The company had posted a strong set of numbers in Q1FY15 with revenues increasing 25 percent at Rs 124.5 crore and EBITDA up 48 percent at Rs 27.5 crore. Operating margin for the quarter was up at 22.1 percent, while profit after tax was up 69 percent at Rs 13.2 crore.
Krishnan expects the growth momentum of Q1 to sustain for the rest of the year. He said the US market, in particular, is showing strong growth. He expects FY15 revenue to be 4 times the Q1 revenue of Rs 125 crore and said that exchange rate has aided margin, performance.
Below is the transcript of Vidyashankar Krishnan’s interview to CNBC-TV18’s Latha Venkatesh and Sonia ShenoyLatha: How is business, are you seeing a sharp uptick in terms of volume pickup in the second quarter. Your first quarter revenues saw a 25 percent uptick. Will the rest of the year be much better considering the kind of improvement or turnaround we are seeing in the automobile sector?A: Overall business is very good given that our exports are very strong. Domestic market has been showing signs of picking up and our sales have gone up in the Indian market largely because of movement of parts that we have developed in the last few months, those have gone into bulk production and that has added to growth in the domestic market for us. Going ahead for this year in Q1 we have done about Rs 126 crore of turnover. We expect that momentum to maintain and also the earnings momentum to maintain. So overall year ahead looks four times the first quarter at least.
Sonia: The export growth you said was very strong. Which are the key markets that you export to where you are seeing a big pickup and where do you think the next trigger of growth will come from?
A: We export to the US, Europe, also to South America and we are seeing overall recovery in all these markets. And the US market particularly is growing very strong because the truck industry there is on a roll. They are at an all time high and they expect this to continue over the next 12 months. Latha: How much is coming from Europe, there the latest data is showing recession?A: Recession in terms of a marginal fall in GDP but overall the brick-and-mortar sector is continuing to chug along with not much growth as far as existing products and customers are concerned. But there is no fall either and generally we see an overall holding up as far as Europe is concerned.
Latha: You told us you did Rs 125 crore in Q1 so should we assume that your total growth will be Rs 500 crore for the full year or will the remaining three quarters be better than the first quarter?A: I would say that there is a little bit of scope for the upside but largely it would be in keeping with the first quarter results. Sonia: You did report a significant growth in your margins as well to about 22 percent versus 18.5 percent same time last year. Where has that growth come in from on the margin front and how much could your margins be by the end of the fiscal?A: The margins have come on two fronts as I have been maintaining. First is the base effect that sales go up so your overheads get distributed over greater sales. The second is on account of exchange rate. The rupee has indeed moved sharply over the last few months and because of that we are seeing the benefits shown in the results. These are the two major reasons why margins have improved. Apart from that there is always the question of cost reduction, cost cutting and maintenance. We have been able to contain our power costs rather reasonably, that has also contributed significantly to the margins. Latha: So what exactly is the number you are looking at? I guess power supply has improved as well with the grid now connecting north and south so do you get to beyond 22 percent, you go towards 25 percent at all for the full year?A: I would say we should be maintaining 22.5 percent plus. Like on the turnover side there is little bit of scope for the upside but I would say that is not too much. 22.5 percent should hold across the year.
Sonia: How much are you expanding your capacity to and when will your fresh capex come on board?A: We are on track to achieve around 38000-40000 mt of sales this year. First quarter we have done 9000 mt. We expect to increase our capacity to about 50000 mt by end of this fiscal. Latha: So FY16-17 as well you will be able to do this 25 percent because your capex comes on stream?A: That will largely depend upon the markets. Capacity wise I don’t see a problem, capacity is there so if demand is there we will do 25 percent. Domestic market should pick up by that time and that may be a huge impact. Not that it is doing bad, auto sector is holding up.Latha: What is the percentage of exports and domestic?A: We export over 75 percent and domestic stands by at about 25 percent.
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