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
