MM Forgings Q1 FY27 earnings call

MM Forgings Limited reported a robust Q1 FY27, with total net sales reaching INR427 crores, marking a 15.7% year-on-year growth from INR369 crores in the prior year. EBITDA stood at INR82 crores, achieving an 18% margin excluding other income, while Profit Before Tax (PBT) grew significantly by 30%. The company also recorded a one-time^📎 gross profit of INR64 crores from the sale of land in Oragadam, which will be used to reduce working capital, capex, and capital borrowings.

The company's machining mix reached 67% of sales in Q1, driven by significant investments over the past three years, and is expected to stabilize in the 65-68% range for FY27. MM Forgings is actively expanding capabilities, with a 16,500-ton press expected to be operational by Q4 FY27 and a 4,000-ton press recently commissioned. Total capex for FY27 is projected at INR150-170 crores, with INR30-50 crores specifically allocated to automation, up from INR7.5-10 crores invested so far.

MM Forgings is experiencing strong momentum in both domestic and export markets, particularly in the US commercial vehicle sector (Class 8 trucks), which contributed 18% to revenue this quarter, up from 15-16% previously. While Europe's revenue saw some decline, management attributes this to demand fluctuations rather than lost business, noting that the overall trend of European forging shops shutting down presents an opportunity for the company. The company is also serving products to EV customers across several platforms, excluding two-wheelers and four-wheelers.

The company projects an 18% growth for FY27, targeting a turnover of INR1,800-1,900 crores, up from INR1,600 crores last year. Sales volume is expected to cross 90,000 tons this year, with a run rate of 23,000-25,000 tons per quarter from Q2 onwards. For FY28, the target is 100,000-110,000 tons, and a long-term goal of INR3,000 crores in revenue by FY30 is maintained. Management expects to reach a capacity utilization of around 120,000 tons per annum.

Management aims for EBITDA margin expansion, targeting a 20%+ goal with a 2-3% improvement from current levels through operational efficiencies. The company is actively focusing on reducing working capital, which has been around 30% of revenue growth in recent years. AI tools are being deployed to identify and optimize inventory, with a rapid action force established to improve stock management and convert Work-In-Process (WIP) to finished goods more quickly.

Gross and net debt are maintained at approximately INR750 crores, with no plans to increase debt levels beyond this range for the current fiscal year. The company will repay about INR170 crores this year, which will be drawn back for future investments. The company is also mulling a Qualified Institutional Placement (QIP) to capitalize on future growth opportunities, stating it is 'on the cards' and will be considered at an appropriate time^⏳.