MMFL - M.M.Forgings Ltd. Share Price

Management has provided an optimistic outlook for the upcoming fiscal year. Chairman and Managing Director, Mr. Vidyashankar Krishnan, indicated that the company is expecting a growth of approximately 20% in revenue for FY27, driven by a strong recovery in both the Indian and US markets. He noted that the US truck market is beginning to rebound, which is critical as it previously accounted for about 9% of sales but had fallen to approximately 16-17%. Despite challenges such as cost increases"”particularly in manpower and fuel"”the company is implementing measures to improve productivity.

Key forward-looking points include:

1. Capacity Expansion: The company is commissioning a 16,500-ton press and a 4,000-ton press, aimed at increasing overall capacity from 70,000-75,000 tons this fiscal year to potentially 90,000 to 110,000 tons in FY27.

2. Capital Expenditure: Management anticipates a capital expenditure of about Rs.160 crores in FY27, with the possibility of it increasing to Rs.200 crores based on customer demand.

3. Cost Reductions: There is an expectation to save around Rs.45-50 crores annually through reduced interest and power costs, as the company has transitioned to purchasing green power.

4. Export Recovery: The company is seeing strong recovery signs in Class 8 truck orders in the US, which suggests that exports will significantly contribute to turnover moving forward. The management stated that the export market is back to previous levels for quantity, although overall market growth will affect percentages.

5. Focus on Quality and Execution: To tackle past underperformance, management will emphasize improving delivery times and product quality to meet customer expectations and regain market share.

6. Debt Management: Management plans to maintain static debt levels over the next two years while enhancing operational efficiency and profitability.

With these strategies in place, management is confident in achieving significantly improved performance in FY27 compared to the previous year.

Q&A from Earnings Transcript

Question from Kush Gosrani: "Now that we have spent almost Rs.1,000 crores, what are our Capex plans for the next two years?"

Answer: For FY27, we anticipate a Capex of about Rs.160 crores, primarily to complete the 16,500-ton press and the remaining work on the 4,000-ton press, as well as some investments in machining. If new customer interests arise, we could increase this to Rs.200 crores, contingent on both cash availability and customer demand.

Question from Kush Gosrani: "With debt reaching Rs.1,200 crores as of September, how should we view repayment over the next two years?"

Answer: Over the next two years, our debt levels will remain static. That's our internal plan, and we don't expect them to rise.

Question from Kush Gosrani: "How much of the anticipated 90,000 tons in FY27 will come from machining, and can we expect improvement in the machining mix?"

Answer: Yes, we do expect the machining mix to improve going forward, which should help in stabilizing or even improving our margins.

Question from Abhishek: "What is the status of our exports and the recovery in the US and European markets, especially regarding tariff changes?"

Answer: We are observing a strong recovery in the US market; Class 8 truck orders surged in February. Tariffs remain at 25% plus customs duties, but there is hope they might reduce to about 18% as negotiations progress.

Question from Abhishek: "Why is our guidance for Q4 revenue growth only around 1% to 2% despite strong commercial vehicle sales?"

Answer: The US market's decline of nearly 10% revenue has impacted our overall growth. While we have done well in India, the US downturn has diminished our capacity to project more optimistic growth.

Question from Abhishek: "What measures are in place for margin recovery considering rising power costs and a declining machining mix?"

Answer: The new jobs we are adding are largely machined products, which will increase our machining mix. Additionally, we have shifted to green power, expecting savings of around Rs.15 crores annually, with overall savings on interest of about Rs.30 to Rs.35 crores, aiding profitability.

Question from Jamin Shah: "Why have we been trailing the broader CV industry growth over the past 12 to 15 months?"

Answer: The growth lag is primarily due to customer-side delays in launches and internal execution issues. However, these delays are now resolved, and we see positive developments in execution.

Question from Jamin Shah: "What percentage of the previous capex has started generating revenue?"

Answer: Approximately 50-55% of the investments made over the last 5-6 years have begun generating revenue.

Question from Saket Kapoor: "What are the top products in our portfolio by volume?"

Answer: The top products by volume include axle arms, front axle beams, crankshafts, and connecting rods. Con rods, in particular, constitute a significant part of our monthly sales.

Question from Abhishek: "What is the status of our investment in Abhinava Rize, and what is our burn rate there?"

Answer: We have invested around Rs.70 crores in Abhinava Rize, with a monthly burn rate of about Rs.1 crore.

Question from Pritesh: "What is the reason for the unused capacity despite prior investments?"

Answer: Capacity creation is always based on anticipated demand. Delays in customer projects and a significant decline in the US market have led to underutilization. We're actively addressing staffing issues to improve capacity utilization.

Question from Akash Vora: "What is the plan for the 16,500-ton press, and what products will it produce?"

Answer: We plan to focus on crankshafts and higher weight front axle beams primarily for the export market, with projected turnover from this line estimated at Rs.300 crores.