Target: ₹1,080

CMP: ₹886.2

MM Forgings is a manufacturer of automotive components. It manufactures steel forgings in raw, semi-machined and fully machined stages in various grades of carbon, alloy, micro-alloy and stainless steels.

As per the data published by SIAM, after two years from its peak in FY19, sales in both the passenger and commercial vehicles sectors have rebounded in FY22 on a low base, while the 2-wheeler sector, yet again has posted a third year of double digit decline.

Similarly, revenues for MM Forgings, which derives over 80 per cent of its top-line from CV players, in FY20 was impacted by slowdown in the auto industry especially in domestic market, while FY21 was impacted by covid-19 led demand disruption. However, the cyclical upswing in FY22 provided much needed respite that allowed it to rake in overall turnover of ₹1,104.64 crore, a growth of 52.2 per cent year.

Earnings growth in the coming years rests on the premise that the cyclical upswing in the commercial vehicle market would gain pace without being much tapered by the fears of global recession.

Moreover, growing forays into the machining business, product approvals by the OEMs and rising volume offtake in existing ones would also play a major role in determining the next leg growth.

On balance, we assign buy stock with target price of ₹1,080 (previous target ₹936).