Buy MM Forgings; target of Rs 809: Anand Rathi

Anand Rathi's report on MM Forgings

Its foray into front axle beams, front axle arms, camshafts and crankshafts, apart from its present product range would ensure strong growth in the domestic market for the next two years. Against the backdrop of strong growth in Class 8 and Class 5 trucks, we expect exports to rebound after flat growth in the last four years. With the consequent strong revenue growth, we expect profitability to improve. Accordingly, we expect a 20% margin in FY18, and 22.5% by FY20, leading to 40% EBITDA growth to `2.4bn.

Outlook

For the next two years, we expect revenues to clock a 36% CAGR to `11.42 bn, driven by both domestic and export growth. Accordingly, we expect earnings to register a 38% CAGR to `1.30bn leading to an EPS of `54. We initiate coverage of the company with a Buy rating, at a target price of `809 (15x FY20e EPS).