Saturday, June 28, 2014
Recently many companies from Auto and Auto ancillary space reported decent gain in anticipation of a revival in demand scenario. Even after such a run up ,some quality companies still available at attractive valuation . This week let us look into one such company – MM Forging ( MMFL).
MM Forging originally started operations as ‘ The Madras Motors Ltd ‘ in 1946 as an importer and distributor of the products of Royal Enfield Motors from UK.Company started manufacturing of forgings in 1974 and later stopped the dealership of Royal Enfield in 1990 and decided to concentrate solely in forgings production.MMFL now producing forgings mainly for auto , engineering and oil industries .Company increased its forging capacity step by step and now operating four factories in Tamilnadu.Company’s product line also expanded and it is now capable produce forgings varies from 0.20 Kg to 60 Kg in more than 475 categories.Company is one of the largest forgings exporter from India and more than 70 % of total income coming from exports. Foreign auto majors like .Company/s marque clients includes Chrysler Group ,Ford, GM ,Ashok Leyland ,TAFE,BEML,BHEL ..etc. MMFL also owns two wind farms one each at Muppandal in Tirunelveli District and other at Meenakshipuram at , Theni District both in Tamilnadu. Electricity from these units are using for captive consumption and close to 50 % of company’s total electricity requirements are meeting from these wind farms. This is very critical for a company operating all factories in a state like Tamilnadu where power shortage is a big issue.
Amid severe recession in auto sector both in overseas market and local market ,company’s performance was reasonably good.In last five years MMFL’s top line grown from Rs.215 Cr to Rs.411 Cr and its last year profit was Rs.29 Cr with an EPS of Rs.24 .Promoters are holding close to 60 % stake without any pledge. Company is liberal in dividend distribution and in the case of bonus shares too. Company has given 1:1 bonus two times in last 9 years.
Since MMFL is mainly selling products in export market ,appreciation of INR may slightly affect its margin.But I believe,revival in US and EU economy and their auto sector will help the company to increase its volume and thus mitigate the effect in profit to a great extent.Once Indian auto sector starts to improve ,company can gain from its already created extra production capacities.All together ,a good company from auto related sector available at a decent valuation with P/E multiple of just 7 where its largest peer Bharat Forge is trading with a P/E close to 30 . Recommending to BUY and HOLD for long term @ CMP of Rs.187 .Stock listed in both exchanges.
Link to Company Website HERE
Disc: It is safe to assume that I have vested interest in MMFL