Stock To Buy: This Small-Cap Stock Can Grow 40%, Total Topline Gain 53% YoY: ICICI Direct

Reputed brokerage firm ICICI Direct has recommended to investors for buying the stocks of MM Forgings. In FY22 total topline of the company was Rs. 1088 crore, up 53% YoY, and the total sales tonnage for Q4FY22 was at around 17,000 tonnes. Additionally, MM Forgings guides for 80,000-90,000 tonnage in FY23, which was about 62,000 tonnage in FY22.

Target Price, Current Market Price, and Company Performance of MM Forgings

The Current Market Price (CMP) of MM Forgings is Rs. 890. ICICI Direct has estimated a Target Price for the stock at Rs. 1250. The stock has the potential to give a 40% return, in the upcoming 1 year. This is a small-cap company with a market capitalization of Rs. 2,148.50 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 890
Target Price	Rs. 1250
Potential 1 year return	40.00%
52 week high share price	Rs. 989
52 week low share price	Rs. 500.45

MM Forgings has recorded good Q4FY22 results, its standalone revenue stood at Rs. 313.6 crore, gained by 10% QoQ. On the other hand, EBITDA margins stood at 17.8%, which was down by 160 bps QoQ, amid around 85 bps QoQ. EBITDA/tonne for Q4FY22 was at around Rs. 33,250 per tonne, and in FY22 it was at around Rs. 33,400 per tonne. EBITDA margins for FY22 margins were at 18.4%, up 170 bps QoQ.

ICICI Direct on the stock advantages

The company's stock price has improved at around 24% CAGR, from around Rs. 305 levels in June 2017, by largely outperforming the Nifty Auto Index. The brokerage firm retains the buy rating due to supportive macroeconomics, increasing share of machining in product profile and inexpensive valuations.

ICICI Direct commented about the stock saying, "Healthy demand outlook across served markets. Likely beneficiary of cyclical upswing in the domestic CV space as well as US Class-8 trucks. With the introduction of new products as well as an increasing share of machining in product profile, sales are seen growing at a CAGR of 28.3% over FY22-24E. We expect sales volume to grow at a CAGR of 27% over FY22-24E to around 98,000 tonnes in FY24E vs. Operating leverage gains to push margins to 20% by FY24E with consequent RoE seen at healthy around 24% in that time-frame. Trades at inexpensive valuation of

Company profile: MM Forgings (MMF)

MM Forgings (MMF) is a significant forging player serving India, Europe and US markets (FY22 geographical mix - domestic ~46%, exports ~54%). FY22 segment mix - CV 85%, PV 10%, Others 5%. FY22 capacity utilization at ~61%, capacity to surpass 1.2 lakh tonne in FY23. Their forging capability includes mechanical press, CNC hammer, hydraulic press, pneumatic hammer, ring rolling, screw press, upsetter, and drop hammer. They have more than 300 VMC machines, above 30 product-specific lines. Under laboratory facility, they have spectrometric analysis, clemex imaging software, micro Vickers, tester, etc.

However, the company's consequent PAT de-grew around 6% sequentially to Rs. 29.2 crore in the last quarter. The gross margin has declined due to higher overhead costs.

Disclaimer

The above stock was picked from the brokerage report of ICICI Direct. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.