MMFLNSEQ4 FY2022May 26, 2022

MM Forgings Limited

5,913words

197turns

14analyst exchanges

4executives

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Management on call

Annamalai Jayaraj

BATLIVALA & KARANI SECURITIES INDIA PRIVATE LIMITED

Vidyashankar Krishnan

VICE CHAIRMAN

Venkatakrishnan

CFO - MM FORGINGS LIMITED

Vidyashankar Krishnan

Vice Chairman & Managing Director, and Mr. Venkatakrishnan – Chief Financial

Key numbers — 40 extracted

1123 Crore

yashankar K: Good afternoon, everyone. Thank you, Jayaraj. We ended last year with record sale of 1123 Crores up by 50% over the previous year’s level of almost 750 Crores and also recorded profit after tax

50%

afternoon, everyone. Thank you, Jayaraj. We ended last year with record sale of 1123 Crores up by 50% over the previous year’s level of almost 750 Crores and also recorded profit after tax of 111.77

750 Crore

nded last year with record sale of 1123 Crores up by 50% over the previous year’s level of almost 750 Crores and also recorded profit after tax of 111.77 Crores. Effectively our EBITDA was 220 Crores regis

111.77 Crore

by 50% over the previous year’s level of almost 750 Crores and also recorded profit after tax of 111.77 Crores. Effectively our EBITDA was 220 Crores registering a margin of around 19.61 on overall sales wit

220 Crore

almost 750 Crores and also recorded profit after tax of 111.77 Crores. Effectively our EBITDA was 220 Crores registering a margin of around 19.61 on overall sales with reduction in interest cost and also s

28%

11.77 Crores. Domestic sales grew by 50% as also export sales and production tonnage has grown by 28% as compared to FY2021 and sales tonnage by about 36% compared to the previous year. Our sales per

36%

rt sales and production tonnage has grown by 28% as compared to FY2021 and sales tonnage by about 36% compared to the previous year. Our sales per ton have grown from 1.54 lakhs to 1.73 lakhs per t

1.54 lakh

1 and sales tonnage by about 36% compared to the previous year. Our sales per ton have grown from 1.54 lakhs to 1.73 lakhs per ton. These are some of the key figures of the performance of the year and I wo

1.73 lakh

nnage by about 36% compared to the previous year. Our sales per ton have grown from 1.54 lakhs to 1.73 lakhs per ton. These are some of the key figures of the performance of the year and I would like to th

43%

t 50% and machine components at 51, so 49 and 51. Our sales of machine components has grown about 43% in the previous year to 51% this year. This trend is held good across both domestic and export sa

51%

at 51, so 49 and 51. Our sales of machine components has grown about 43% in the previous year to 51% this year. This trend is held good across both domestic and export sales with an increase of ar

is year. This trend is held good across both domestic and export sales with an increase of around 7% in each. Sales across continents; India stood at 46%, Europe 18, US 20 and South America and rest

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Guidance — 20 items

Krishna Kumar

“Having said that we have seen sharp drop in gross margins and also on incremental sales Q-O-Q within a slightly larger term, could you give some colour about how the pricing is taking over and what kind of margins from EBITDA perspective one can look from next year perspective.”

Krishna Kumar

“If you can share some volume numbers over the call that will be helpful.”

Krishna Kumar

“Sales and production volumes for the full year and fourth quarter if you can share that will be helpful for the participants.”

Vidyashankar K

“All these products are continuing to come into serial production even as we speak, so all that will be sales accretive.”

Vidyashankar K

“As a result, I would except that we will achieve somewhere in the region of 80,000 to 90,000 tons depending upon how the market goes, but broadly I will still hold whatever we have been saying earlier.”

Vidyashankar K

“May and June were very tight because of the second wave, the delta wave, as a result we do not expect such a prospect in the months ahead.”

Vidyashankar K

“From 1st of April onwards there is bound to be an increase and from 1st July I would expect it to correct including that increase.”

Shyam Sundar

“Is there any softening in exports per se that we are seeing going into the next year from this level of 540 what we have clocked.”

Shyam Sundar

“Is it expected that exports will be lower than this number or how are the schedules or your conversations with customer looking like at this point of time?”

Vidyashankar K

“At this point of time, numbers are okay, but we do expect some amount of softening.”

Risks & concerns — 4 flagged

This bar is also putting pressure myself as well as the zero COVID policy of China.

— Vidyashankar K

I am adding the statement a little bit that these are really volatile times, so India is definitely looking very positive.

— Vidyashankar K

Because you never know, as you mentioned these are challenging times to even ascertain on working capital, we could be sure maybe after a quarter or two quarters that is what I think so in a challenging environment, working capital could be volatile.

— Munzal Shah

The slowdown in export market is less likely.

— Vidyashankar K

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Q&A — 14 exchanges

Until we receive a few more questions I can rattle of a little bit more about our performance. Overall, the sales of forged components stood at about 50% and machine components at 51, so 49 and 51. Our sales of machine components has grown about 43% in the previous year to 51% this year. This trend is held good across both domestic and export sales with an increase of around 7% in each. Sales across continents; India stood at 46%, Europe 18, US 20 and South America and rest of the world balance. Commercial vehicles stood at 85%, overall, 10% passenger car and non auto at about 5%. Overall, we

Management

Congrats Sir on good performance on the first hand. Having said that we have seen sharp drop in gross margins and also on incremental sales Q-O-Q within a slightly larger term, could you give some colour about how the pricing is taking over and what kind of margins from EBITDA perspective one can look from next year perspective.

Vidyashankar K

What has happened is that there has been an increase in price of steel in price of raw material from Q3 to Q4, so as the base keep increasing it might not be possible to elongate the margins as well while the increase is passed on to customer, it cannot always result into a translation or retention of margins because the numerator and denominator grow at the same rate, so A/B becomes A+Delta/B+Delta and in fact the ratio will be less than A/B normally, so we can look at margins around these levels that we ended this year at plus or minus fraction, so around 19.5% plus/minus 1% would be the tar

Good afternoon. Thanks for taking my question. My question was on the steel price inflation that you spoke about. On a per ton basis, how much is the under recovery or yet to be recovered steel cost that is still pending from our end.

Vidyashankar K

Hardly anything left Sriram. Most of the steel cost have been recovered. Are you seeing the steel price softening due to government actions. Even before, it had started softening but the actions for the government have accelerated a sharp fall and surely steel prices are going to be much lower. Will we have to pass on this immediately starting from this quarter itself, is that how that works from 1Q FY2023? From 1st of April onwards there is bound to be an increase and from 1st July I would expect it to correct including that increase. Increase is lightly reversed. Okay understood Sir. From a

Actually, I have two questions. I will restrict only to them. The first one is that with export duty levels in India, Indian steel gets much cheaper, so how our export contracts based on Indian steel or based on global steel prices.

Vidyashankar K

Mostly we have reverted to Indian steel prices, mostly. They will revert to Indian steel prices. Yes. Okay the second question is on CV market. CV market in India and US if you can throw some light on that. CV markets in India are expected to be at least 15% higher than previous year level at least if not 30%. Markets in Europe are expected to be flat perhaps slightly down about 10%. Markets in the US, I would say would flat to 10% above. All exports flattish and domestic good growth. Thank you very much Sir.

Can you share the breakup of the tonnage for this year? Out of 63k, what is Indian tonnage and what is US tonnage?

Vidyashankar K

I could give you broad percentage numbers I think that should suffice. In terms of volume. I will give to you in terms of value, volumes I do not have it right now. Rough estimate will also do. You can broadly take it on the same percentages of the values. The percentage of what I said earlier. Okay Sir. Please share the numbers. India was at 46%. US and Europe at 20% each that takes you to 86 and South America and rest of the world 14%. When you are giving this outlook for India, Europe, and US, you mean also relevant for South America or what is the outlook on South America and rest of the w

Thanks so much for all the explanation. I have one very fundamental question. Can you give some colour on your comments, which said that the US will be marginally up and others could be flat this time; what our customers are doing, are they cutting back on volume guidance or are they just totally pulling back. Can you just give us some colour on that what is actually happening in those markets and what is driving those decisions?

Vidyashankar K

With trade between western Europe and Russia is grinding for halt, the requirement of trucks in the European market would definitely come down and consequently we will see a difference in those markets. It should juggle on barring a severe recession. There is still pent-up demand in the US market. People order a truck today and the truck delivery is 12 months away. The other question is that you 300 Crores capex in the context of this scenario. Is that a longer- term capacity building exercise? Largely longer term. None of that is required to achieve this 80,000 plus tons of production. Okay t

Sir just wanted to know more on the 300 Crores capex. One is how much increase in capacity would be because of this capex.

Vidyashankar K

The increase would largely be on the machining side and on the forging side, it would be debottlenecking and a little bit of capacity addition say about 10,000 tons in terms of capacity per annum. Then total capacity will be 1,30,000. 1,30,000 tons. 1,30,000 tons right, so we should expect debt to increase going forward, right? Naturally, debt will increase to some extent or be static. Because we do not generate that much of cash flow. Yes, debt will go up. Because you never know, as you mentioned these are challenging times to even ascertain on working capital, we could be sure maybe after a

Hi Sir my questions have been answered. I just wanted to confirm this 300 Crores will be incurred next year or it is over a period of time.

Vidyashankar K

We expect to incur it over the next 12 to 18 months, largely in a 12-month period. Any reason still our capacity utilization is quite lower and why we would like to go for such a big amount of capex. Because these will be into launching newer products or for products where capacity is not available. Okay fine Sir. Thank you.

I have two questions one of the realization sides, what kind of realization increase are yet to happen on account of steel price or do you see a situation where this Rs. 175 a kg realization, which was there for FY2022 will start seeing a lower number or lower price now considering the steel price.

Vidyashankar K

This is most likely to go up in Q1 due to increase in price of steel and in Q2 it is likely to crash. On annual basis, we will see low realization, right. I cannot predict what will happen in Q3 and Q4, but assuming that the trend of Q2 is held, I would say that we would revert back to raw material prices of the previous year. Realization of about 160. No. I am taking about prices of steel, so I would say look at it this way April onwards there is an increase from June very lightly, July lightly of a lightly reduction so we are lightly to end up September at prices that are very close to March

Last quarter we had some discussion. Is there any development on the EV side currently or in the near future?

Vidyashankar K

We are producing lot of parts for export, which goes into EVs. Domestic, it’s a matter of parts only and we expect to strengthen our presence in the EV market in the months to come. Thankyou. Just a small request. Whenever we announce any capex or anything generally, we give a disclosure, so it will be great whenever we make some investment or something related to EV in the disclosure, we mention that it would be great. Sure, it will come, so that will be market sensitive. If we are seeing something that is specific on the EV side, we will definitely let you guys know. Ok thank you.

Thanks for the followup. My first question is on the subsidiaries between the standalone and the consolidated when we look at the profit numbers there is not much of a deviation per se. How are the subsidiaries performing including recently Cafoma acquisition that we did the DVS; can you share some perspective on that?

Vidyashankar K

DVS could do a lot better. Cafoma is tiny, but going ahead as planned but both these are adding to the sales of parent to the opportunities that come to the parent, so simple consolidation itself does not do much justice to both the subsidiaries. Of course, Cafoma just starting to see realizations on the sales side. As far as DVS is concerned, the subsidiary itself could do a lot, lot better candidly, but overall MM Forgings has benefited considerably and I hold the view. The same question raised by you or by someone else on running of the subsidiary. Overall MM is only benefited by it. This c

If we break all the three markets, the US, Europe, and India, in all these three markets, which country would be your competition, like will it be Chinese, can you just throw some light on this actually?

Vidyashankar K

Mostly these three markets competition will be India. Will it be Indian companies who will be fighting for orders. Mostly yes. Are there are any other countries, which you see as a threat for example like China if it opens up, you do not see as a threat in the form of competition? No. I do not see much of a threat. Okay. Thank you very much.

Thank you for taking my question. I just had a query on new product. What is the contribution of new product for Q4 and FY2022 and if I understand correctly probably crank shaft sales was expected to be around 60 odd Crores for FY2022 and that is likely to hit 400 to 500 Crores in the next two to three years, so if you could highlight on that, it would be great?

Vidyashankar K

I do not think I have said 400 to 500 on just one part, so I would have to really go back and take a look at those numbers, but new products would have contributed around 30 Crores for that quarter at a bare minimum. What would be that for full year. About 70 Crores. 70 Cores? Okay. Which are the main products we are working on and probably what is our target in terms of scaling of this? The scaling up numbers have already been discussed. They are reflected in our projection, so we expect to do this year anywhere in the region of 80,000 to 90,000 tons. Huge numbers of parts starting from horn,

We thank all the participants. We thank management for taking time out for the call. Have a good day.

Vidyashankar K

Thank you all. Thank you, Jayaraj.

Speaking time

Vidyashankar K

Shyam Sundar

Subrata Sarkar

Munzal Shah

Moderator

Pritesh Chheda

Vidrum Mehta

Krishna Kumar

Govind Parikh

Jeetu Punjabi

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Opening remarks

Annamalai Jayaraj

Thank you. On behalf of B&K Securities welcome to MM Forgings Limited 4Q F2022 Post Results Conference Call. From the management side we have with us today Mr. Vidyashankar Krishnan – Vice Chairman & Managing Director, and Mr. Venkatakrishnan – Chief Financial Officer. I now hand over the call to the management for the opening remarks to be followed by question-and-answer session. Over to you, Sir.

Vidyashankar K

Good afternoon, everyone. Thank you, Jayaraj. We ended last year with record sale of 1123 Crores up by 50% over the previous year’s level of almost 750 Crores and also recorded profit after tax of 111.77 Crores. Effectively our EBITDA was 220 Crores registering a margin of around 19.61 on overall sales with reduction in interest cost and also slightly higher depreciation, net profit stands at 111.77 Crores. Domestic sales grew by 50% as also export sales and production tonnage has grown by 28% as compared to FY2021 and sales tonnage by about 36% compared to the previous year. Our sales per ton have grown from 1.54 lakhs to 1.73 lakhs per ton. These are some of the key figures of the performance of the year and I would like to throw the floor open for questions.

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