MMFLNSEQ4 FY2022May 27, 2022 MM Forgings Limited
6,302words
139turns
12analyst exchanges
3executives
Management on call
Abhishek Jain
DOLAT CAPITAL
Vidyashankar Krishnan
VICE CHAIRMAN
Venkat Krishnan
CHIEF FINANCIAL OFFICER - MM FORGINGS LIMITED
Key numbers — 40 extracted
1123 Crore
ishek. Great morning investors for joining us on this call. We have achieved a record turnover of 1123 Crores in FY2022 and our EBITDA margin stands at 19.6% with net profit at 9.95% and amount of 111.77 Cr
19.6%
call. We have achieved a record turnover of 1123 Crores in FY2022 and our EBITDA margin stands at 19.6% with net profit at 9.95% and amount of 111.77 Crores. Our interest costs have come down margina
9.95%
record turnover of 1123 Crores in FY2022 and our EBITDA margin stands at 19.6% with net profit at 9.95% and amount of 111.77 Crores. Our interest costs have come down marginally last year from 31 Crore
111.77 Crore
123 Crores in FY2022 and our EBITDA margin stands at 19.6% with net profit at 9.95% and amount of 111.77 Crores. Our interest costs have come down marginally last year from 31 Crores to 27 Crores largely on b
31 Crore
at 9.95% and amount of 111.77 Crores. Our interest costs have come down marginally last year from 31 Crores to 27 Crores largely on back of swapping some debt into foreign currency. Most of our debt is la
27 Crore
amount of 111.77 Crores. Our interest costs have come down marginally last year from 31 Crores to 27 Crores largely on back of swapping some debt into foreign currency. Most of our debt is largely in fore
2.5 Crore
ncy. Most of our debt is largely in foreign currency only. We have depreciation provided at about 2.5 Crores higher than the previous year and provision for taxation has considerably gone up from 8 Crores
8 Crore
2.5 Crores higher than the previous year and provision for taxation has considerably gone up from 8 Crores to 21 Crores. So company as a whole we have achieved 1155 Crores of turnover and EBITDA levels o
21 Crore
igher than the previous year and provision for taxation has considerably gone up from 8 Crores to 21 Crores. So company as a whole we have achieved 1155 Crores of turnover and EBITDA levels of 20.36 which
1155 Crore
ation has considerably gone up from 8 Crores to 21 Crores. So company as a whole we have achieved 1155 Crores of turnover and EBITDA levels of 20.36 which stands close to 229 Crores of operating profit with
229 Crore
whole we have achieved 1155 Crores of turnover and EBITDA levels of 20.36 which stands close to 229 Crores of operating profit with interest going to 32 Crores and provision for taxation at 24 and overal
32 Crore
BITDA levels of 20.36 which stands close to 229 Crores of operating profit with interest going to 32 Crores and provision for taxation at 24 and overall profit at 111 Crores. Basically this is the summary
Guidance — 20 items
“For FY2023 we expect to produce and sell close to 80 to 90,000 tons which would mean that we register an increase of anywhere around 30% to 50% so we would expect to end this year at about 1400 Crores of turnover and suitable EBITDA levels.”
“India market we expect the Indian GDP to grow well despite the war and we could say that worse case we would lose 2% points on our growth if there is a global slowdown, but otherwise India story strong.”
“On the capex side we plan to invest upward of 300 Crores this year and good amount of that will come from internal accruals plus some additional borrowing.”
“Press is now ready as its associated equipment, we are waiting for some tooling and the press will be commissioned in the month of June so it is anytime due.”
“Next year continuing on same type could be picked up for others as well.”
“Next year we expect to end up or this year we will reach 120000 tons and we expect a utilization of 80 to 90,000 tons on 120000 so if it is 80,000 tons capacity utilization goes up to 66%.”
“When you talk about volumes of about 89,000 to 90,000 tons next year would you be able to highlight what are the new OEMs to that we have added this year, that is the first question.”
“So when you say 90,000 tons volume next year verus 62 to 63,000 what are the new OEMs or orders that we have got in the last let us say 12 months basis which us giving us the confidence this kind of volume growth.”
“Other things will come down so operating margins could be a little bit more improved totally it is not linear, no change today is linear but multidimensional so I would broadly expect that yes Rs.30 to 32 should continue maybe even 36 level itself for the year.”
“So bulk of the capex will be in machining.”
Risks & concerns — 11 flagged
India market we expect the Indian GDP to grow well despite the war and we could say that worse case we would lose 2% points on our growth if there is a global slowdown, but otherwise India story strong.
— Vidyashankar K
Overall I would say things are looking positive with the joker in pack could be recession or a slowdown in global market riding in the back of inflation and its consequent impact so this is the situation as far as MMF is concerned and I would like to now open up ourselves for question.
— Vidyashankar K
Overall the impact of summer on production globally and I would say new parts kicking in Q2.
— Vidyashankar K
One times current EBITDA, so not a matter of concern over there on net debt basis so even if you take some borrowing for this year and some repayment of 90 Crores coming in that debt level go up a little bit also.
— Vidyashankar K
It could go up from one times to EBITDA to 1.5 times which is by another 100 Crores still not a matter of concern to me.
— Vidyashankar K
India holds a lot of promise because demography and we see lot of wage pressure down the line itself which augurs well demand which means Indians are demanding more wages because they want higher standards of living.
— Vidyashankar K
Okay but even currently are you seeing continuous pressure on the gross margins per se or you think we are kind of past that and we should see a little bit of growth from there.
— Navin Matta
These days I will admit that these days there is huge pressure if not on anything at least on wages.
— Vidyashankar K
People have not encountered this kind and that to uncertain waiting.
— Vidyashankar K
See the advantage for MM Forging is that we straddle four geographies but overall slowdown is there.
— Vidyashankar K
Well any industry is subject to an overall slowdown, so I would say investing for the CV market is not all that bad otherwise the next conclusion should be okay find a better business to be in.
— Vidyashankar K
Q&A — 12 exchanges
Q
Congratulation on good set of numbers. I just wanted to know what is the current capacity of the company and the current utilization levels as on March 2022?
Vidyashankar K
Current capacity stands at 1 lakh ton. We have had some delays in commissioning 6300 tons press. Press is now ready as its associated equipment, we are waiting for some tooling and the press will be commissioned in the month of June so it is anytime due. Therefore our capacity is 1 lakh ton and you can quickly say that were at about 60% capacity utilization. Next year continuing on same type could be picked up for others as well. Next year we expect to end up or this year we will reach 120000 tons and we expect a utilization of 80 to 90,000 tons on 120000 so if it is 80,000 tons capacity utili
Q
Good afternoon Sir and congratulation on good set of numbers. Couple of questions from my side. When you talk about volumes of about 89,000 to 90,000 tons next year would you be able to highlight what are the new OEMs to that we have added this year, that is the first question. You also mentioned about the number of turnover which if I am not mistaken is about 1400 Crores that implies the realization of about Rs.155,000 a ton where if I look at this particular quarter itself the LSR seems to have been significantly higher so where is the disconnect over there and final question is on your EBIT
Vidyashankar K
Can you repeat your first question a little bit elaborate. So when you say 90,000 tons volume next year verus 62 to 63,000 what are the new OEMs or orders that we have got in the last let us say 12 months basis which us giving us the confidence this kind of volume growth. Basically we see not much of a customer addition other than one major player in the PV market but largely that will not give too much of tonnage but definitely it will contribute a little bit and it is a door open for MM Forgings otherwise mostly it is expansion of business with existing OEs. This order book is already in pla
Q
Sir thanks a lot for the opportunity. I just want to know that your Q4 performance is it not a little below of what you thought will happen about five to six months back.
Vidyashankar K
I would say we could have down about 5 to 10 Crores plus easily, but ballpark it has been reasonable. Because I remember clearly that you were looking at some new program starting in this March quarter itself and which was supposed to give a major improvement in quarterly revenue run rate compared to the previous one where as your March quarter number is slightly below what other commercial vehicle manufacturers have reported which is why I am asking you this question. Overall I would say these numbers are satisfactory. Doing a little bit better than what we do but I would say overall these nu
Q
Congrats for strong set of numbers in a tough quarter. Sir although the European market is down due to the ongoing war but energy crisis is also increasing in Europe and Sir there is an increase in manufacturing cost there so how do you see this as an opportunity for the Indian exports.
Vidyashankar K
Definitely Abhishek it is a good opportunity no doubt about it but what we could see is demand in Europe itself is coming down then to some extent there could be a shift and when demand comes down sometimes customers are loath to change sources, but the energy crisis in Europe will afford a tremendous opportunity. For example if this war continues close to next December I think it will be a huge opportunity for any kind of metal products getting into Europe. And it will also help to expand your margin as well. Yes definitely. And Sir to diversify your business what is your plan for expansion i
Q
Hello thank you Sir. My question is as you said there is large order backlog of class 8 trucks in North America so how do you see the situation improving from second half of FY2023. What is your guidance on recovery?
Vidyashankar K
Gaurav it is a million dollar question. Whether there will be a significant impact on account of inflation on demand itself and even the best economist are stumped by this question however with the tools available at the hands of central banks and today is very information driven world so I would say that banks have a lot of tools these days and hopefully God willing it should not enter into a slow down. I have to guard my statement if that does not happen the class 8 market will go very strong and I would imagine that with a sharp rise in interest rates, already steel prices cooling of, we ha
Q
Hi Sir thanks for the opportunity. Sorry I joined a little late I just wanted to firstly check what was the domestic and exports mix during the quarter.
Vidyashankar K
51% domestic, 49% exports. Okay and this is just a followup questions with regards to the average selling prices that seems to be varying quite sharply between quarters so I just wanted to know is there any kind of freight recovery element out here or it is a product mix. Largely product mix Navin. Sir you mentioned that we are looking to do close to around 80 to 90,000 tons for next year out of that how much will be let us say new products contribution and how much would be organic growth in the markets. About 15 to 20,000 tons will be new product, 50:50 I would say. Okay so of the incrementa
Q
Hi Sir. Sir I want to understand what is the kind of demand environment for the US class 8 truck you know our order book which you said was just before COVID and we are still ramping up on that but are we seeing any new orders coming in from the class 8 end.
Vidyashankar K
We are seeing newer products being developed there and demand there is largely going to be riding on how the sector itself performs. As of now they have a 10 month backlog, if that backlog continues which I think it cannot be, a 10 month back log cannot disappear overnight. I understand that point but are we seeing newer orders for class 8 truck in our portfolio in the last six months or is it like the earlier back log is being executed as of now. Only earlier orders being executed as of now.
Q
Hi Sir thank you for the opportunity. Sir I just wanted a clarification on the net debt number. Can you repeat that number please?
Vidyashankar K
Yes sure. Net debt stands at roughly 240 Crores as of end of this year. Okay and Sir on 6300 tonnage line so when will that be commissioning and what will be the potential contribution in FY2023 from that line, like in a tonnage perspective. The press is commissioned. I do not know if you missed it out. It is going to be commissioned in the month of June and it should add about 8000 to 12,000 tons minimum this year. Okay and Sir a clarification on the EBITDA per ton as well. For Q4 the EBITDA per ton was around 30,000 so do we expect it to go to previous level of 36,000 for FY2023. Like I just
Q
Thank you very much for another opportunity. I have a question on our recent acquisition in Cafoma. I understand that in the previous call you highlighted that it will start contributing from April this year so what has been the contribution now in 1Q has it started contributing in terms of top line. Second question is that I understand that EBITDA margin is there at least in FY2021 were positive in sort of 2020 would that number be correct so about 8 Crores top line in FY2021 EBITDA turned out to be roughly about 1.6 Crores is that assumption correct as in the first question what is the contr
Vidyashankar K
Cafoma is turning out to be positive as we had planned. From April onwards customers have started getting parts from us and that is definitely top line positive. We except the acquisition of Cafoma to add around 60 to 80 Crores of turnover for this year. 60 to 80 Crores this year. Is that number probably significantly lower than what we are expecting or at the beginning of Q4 when we did the previous call? It is almost in line with what we have been saying. You were highlighting something about 30 Crores a quarter this now turns out to be about 20 Crores a quarter which is why I am asking and
Q
Firstly if you could please share your geographical mix between India, Europe and US.
Vidyashankar K
46% India, 20% Europe and US, balance South American and rest of the world. Secondly you alluded to some restriction because of the inflation thing plus they could use pent up demand so for FY2024 what could be your expectations on what we can do. As I said I am no economist and economist themselves are struggling on these questions. I would say that pent up demand from where I sit okay with my eyes you put it down to visual thinking or whatever, the way I see is that pent up demand will override slow down. FY2023 itself will be a year of growth only. So in that case we should be exceeding our
Q
Good afternoon Sir. Thank you for this opportunity. If you can just highlight when you were saying class 8 truck there is a pent up demand and basically the waiting period is 10 months so just trying to understand because of this chip shortage we were making 100 and because of this shortage now they are making 80 and that is where there is a backlog so eventually the number will be lower than the previous number so from their stand point there is a pent up demand and they have waiting period of 10 months from our logic point of view how do we correlate that number.
Vidyashankar K
Very good question. Very interesting one. See the point to be looked at is that in this light there has been an increase in price of commodities leading to inflation and such a high rise that economist are all considering whether this would burst the demand and cause a recessionary trend so this if you view that in terms of a backlog of deliveries I would say that demand should not fall of the cliff, demand should be at least steady so there is one thing that is lifting the curve and one thing that is pulling down the curve worse case the curve will be flat. Thank you so much.
Q
Thank you one and all, it is a pleasure answering these questions. Many of them were very incisive and provoking our thought as well and as much as we tried to cover all aspects cannot we match with the initiative of 20 analyst each one trying to see a new facet of the organization so all these meetings are a good learning experience for us and this one has been no different so we look forward to a strong year ahead and we require all your good wishes for this year so that we look at reaching our 80 to 90,000 tons target.
Opening remarks
Abhishek Jain
Thanks Peter. Good afternoon everyone. On behalf of Dolat Capital, I welcome all of you in 4Q conference call of MM Forgings. We thank the management for giving us opportunity to host the call. From the management side we have with us Mr. Vidyashankar Krishnan, Vice Chairman and Managing Director and Mr. Venkat Krishnan, CFO MM Forging. Now I hand over the call to Mr. Krishnan for opening remarks followed by the question and answer. Over to you Sir!
Vidyashankar K
Morning Abhishek. Great morning investors for joining us on this call. We have achieved a record turnover of 1123 Crores in FY2022 and our EBITDA margin stands at 19.6% with net profit at 9.95% and amount of 111.77 Crores. Our interest costs have come down marginally last year from 31 Crores to 27 Crores largely on back of swapping some debt into foreign currency. Most of our debt is largely in foreign currency only. We have depreciation provided at about 2.5 Crores higher than the previous year and provision for taxation has considerably gone up from 8 Crores to 21 Crores. So company as a whole we have achieved 1155 Crores of turnover and EBITDA levels of 20.36 which stands close to 229 Crores of operating profit with interest going to 32 Crores and provision for taxation at 24 and overall profit at 111 Crores. Basically this is the summary of the previous year. On the operations side we have produced close to 61,000 tons and sold about 62 to 63,000 tons in the previous year. This com