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Rising contribution from die-casting division to drive top-line: Few years back, the company had diversified into a new business stream of aluminum die-casting called ‘Alkop’. During FY22, the aluminum casting division contributed 25% (Rs.49 cr) to the sales; the die-casting division also has substantial contribution in exports which is expected to grow, going forward. With the aluminum casting division stabilizing and well-placed to grow, the company has de-risked its business model from its dependency on bi-metal (bearings, primarily) business

Robust fundamentals, consistent expansion and healthy financial profile to benefit: Over the last 5 years, the company’s topline has grown at a double digit rate and profit margins have remained stable (figure 2 on Page 9) and it has maintained healthy return ratios (figure 4 on Page 9). Further, the company has expanded its capacity for bi-metal products (bearings, bushes and thrust washers) from 3 cr pieces p.a. to 4.3 cr pieces p.a. over the last 3 years and is on course to expand it further to 5.0 cr pieces p.a. Over the past 3 years, the long-term debts have come down from Rs.27.3 cr in FY19 to Rs.6.6 cr in FY22; the total debt-equity ratio has also dipped to 0.2x from 0.5x during the same period.

Industry-wide tailwinds to help the company making a good rebound: With pent-up demand in passenger vehicles and commercial vehicles segments along with several impetuses by the government like lower corporate taxes, Production Linked Incentive scheme, vehicle scrappage policy, the automotive industry is now showing signs of reaching the pre-pandemic levels of sales volume. During the first two months of current fiscal, automobile sales volumes have showcased gradual recovery. However, high commodity prices including crude oil prices may continue to play headwinds for the industry but, we believe volumes are likely to stabilize and recover, going forward.

Outlook and Valuation

MBL is engaged in the business of manufacturing of highly critical moving engine components such as bearings, bushes, thrust-washers, bi-metal strips along with aluminum die-cast products. With consistent expansion, rising share of exports and tailwinds in the automotive industry, we expect MBL to register healthy growth over the next few years. The company has been maintaining healthy profitability, return ratios and dividend pay-out. Going forward, we expect MBL to deliver an EPS of Rs.6.2 in FY24; assigning a target multiple of 15x we arrive at a target price of Rs.94 showcasing an upside potential of 32.4% from current levels with an investment horizon of 18-24 months.

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