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Management shares robust growth outlook for FY23E

About the stock: MM Forgings (MMF) is a prominent 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 utilisation at ~61%, capacity to surpass 1.2 lakh tonne in FY23

Q4FY22 Results: MMF reported healthy Q4FY22 results

* Standalone revenue was at | 313.6 crore up 10% QoQ

* EBITDA margins were at 17.8%, down 160 bps QoQ, amid ~85 bps QoQ gross margin decline as well as higher overhead costs

* Consequent PAT de-grew ~6% sequentially to | 29.2 crore

* Guides for 80,000-90,000 tonnage in FY23E vs. ~62,000 tonnage in FY22

What should investors do? The company’s stock price has grown at ~24% CAGR from ~| 305 levels in June 2017, thereby vastly outperforming Nifty Auto Index.

* We retain BUY rating on the stock amid supportive macroeconomics, increasing share of machining in product profile & inexpensive valuations

Target Price and Valuation: Introducing FY24E, we now value MMF at 14x PE on FY24E basis for a revised target price of | 1250 per share (earlier target price | 1125)

Key triggers for future price performance:

* Healthy demand outlook across served markets. Likely beneficiary of cyclical upswing in the domestic CV space as well as US Class-8 trucks. With introduction of new products as well as 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 ~98,000 tonne in FY24E vs. ~62,000-63,000 tonne clocked in FY22

* Operating leverage gains to push margins to 20% by FY24E with consequent RoE seen at healthy ~24% in that timeframe

* Trades at inexpensive valuation of <10x P/E, <7.5x EV/EBITDA on FY24E

Alternate Stock Idea: Besides MMF, in ancillary coverage, we like Apollo Tyres.

* India CV revival beneficiary focused on debt reduction, higher return ratios

* BUY with target price of | 250

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