CD Equisearch's research report on MM Forgings
India is increasingly addressing opportunities arising out of the growing trend among global automotive OEMs to outsource components from manufacturers in low-cost countries. Indian forging industry has a capability to forge variety of raw materials like carbon steel, steel, titanium, aluminium, etc. and is contributing significantly to country’s growing exports. Further the government’s thrust on increasing infrastructure spending aimed at increasing the contribution of the manufacturing sector to GDP is expected to be the key driver for growth in the heavy-duty truck space in the medium to long term. Currently, the scarce availability of semiconductors is a major concern plaguing the automotive industry, not only in India but globally. The prevalent supply-side headwinds are likely to slow down the PV sales. Fortunately, despite the chip shortage, MMFL continues to see robust order flows given the fact that the company has more than 70% exposure to medium and heavy commercial vehicle segment, where chip usage is presumably low compared to passenger vehicles.
Though a barely subdued debt-equity ratio does not leave a major scope for PE expansion, but impressive earnings growth would push ROCE to 16.9% this fiscal and to 17.9% in FY23. On balance, we recommend ‘hold’ rating on the stock with target price of Rs 936 based on 20x FY23e EPS of Rs 46.78 over a period of 9-12 months.
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