MMFL - M.M.Forgings Ltd. Share Price

In the Q1 FY '26 earnings call, management provided a cautious outlook concerning MM Forgings. Total income for the quarter was reported at INR 358 crores, down from INR 375 crores in the previous fiscal, marking a 6% decline. EBITDA decreased to INR 72 crores from INR 78 crores year-over-year, with a notable rise in depreciation (INR 22.5 crores vs. INR 19 crores) and finance costs (INR 18.3 crores vs. INR 14.5 crores). Profit after tax fell to INR 22 crores from INR 32 crores.

Management indicated that while their current capex for the year is INR 55 crores, they plan to reduce total capex to a range of INR 150 to 200 crores. They expect to maintain net term loans at around INR 550 crores, showing no significant increase in borrowings from the previous year. The domestic market comprises about 60% of revenues, while exports account for 40%, with a notable 13% from North America.

Management refrained from providing specific sales guidance due to ongoing market volatility, particularly due to U.S. tariff implications, stating that the next two years would see a consolidation phase focused on cost control and sales increase. They emphasized an upward bias in EBITDA margin expectations by approximately 200 basis points for the full year but noted the uncertainties surrounding products and sales volumes.

Key forward-looking points include:

• Anticipation of customer project ramp-ups potentially aiding sales recovery by Q4 FY '26.
• Viewing the next 12-18 months as a critical period for navigating market challenges and enhancing product offerings.
• A focus on mitigating rising costs and refining operational efficiencies while adapting to a volatile macroeconomic landscape.

1. Question: Could you share more points on Q1 production number, sales tons, and machine mix? Did any tariff absorption occur this quarter? Answer: For Q1, we produced 17,250 tons and sold 17,780 tons, down from 20,000 tons in the previous quarter. Sales per ton decreased from INR206,000 to INR192,000, primarily due to a product mix change. We did not bear any direct tariff impact this quarter; customer sentiment remains cautious.

2. Question: How have U.S. duty rates affected our customer relationships, especially if these tariffs remain? Answer: Initially, we may resist changes, but sustained tariffs could hurt us significantly. Customers might explore local sourcing, impacting demand for our exports. While there could be inflationary pressures in the U.S., predicting outcomes is challenging.

3. Question: What is the current order book, and what's the expected execution timeline? Answer: Currently, our order book stands at around INR100-110 crores per month, primarily for the next six months. There's inventory in the heavy truck market, which could affect sales in the near-term exports. However, we anticipate improved sentiment by late Q4.

4. Question: Any updates on margins, which have seen a 200 basis point decline? Answer: Our margin this quarter is 18%, and while it's affected by product mix and volumes, we aim for a 100-200 basis point recovery over the full year. Optimistically, we could maintain a 200 basis point upward bias if sales improve.

5. Question: Can we pass on the entire 25% tariff to customers, or will we absorb some? Answer: Our contracts are CIF to America, meaning customers bear the duties. However, if tariffs persist, we could be pressured to absorb some costs. It's a fluid situation, as local sourcing options may affect customer decisions.

6. Question: What is the total capacity regarding machining and forging? Answer: Our forging capacity is approximately 120,000 tons, with machining capabilities of about 5.5 lakh parts monthly. Currently, we operate at around 60% capacity utilization.

7. Question: How do you view the competitive intensity in the domestic market amidst export challenges? Answer: Yes, we expect increased competition domestically, driven by pressures from the export markets. Agility in operations will be vital as we navigate through these conditions.

8. Question: Regarding the integration of DVS, could there be a tax advantage? Answer: There might be a reduction in tax outflows, attributed to carry-forward losses post-merger. However, we await finalization before revealing specific figures.

9. Question: What is the revenue contribution from crankshafts, especially from the farm equipment sector? Answer: Crankshaft production has grown from 1,500 units for CVs monthly to about 7,000, with potential to reach 10,000. In the agri sector, we currently produce 17,000 out of an estimated market of 80,000 to 100,000 tractors monthly.

10. Question: What's the timeline for commissioning the new 16,000-ton press?

Answer: The new press is expected to be operational by Q4 of this fiscal year. Customer interest has been notably positive, with some parts transitioning to this press to streamline production processes.