MM Forgings Expects To Double Sales In Three Years Despite Looming Recession

MM Forgings Ltd. expects 2023 to be better than the year gone by, even amid fears of a global recession.

It is not a doomsday scenario for forging companies in India, and even in the worst case, news from customers and planners suggests that 2023 is going to be slightly better than 2022, according to Vidyashankar Krishnan, managing director of MM Forgings.

The company expects "significant growth" in the commercial vehicle segment in India, he said. "Surprisingly, we are also hearing that the CV segment will do well in Europe and the U.S.."

Krishnan attributed it to an ageing fleet.

Optimistic commentary from MM Forgings contrasts with global demand concerns as aggressive rate tightening to contain record inflation is expected to drive the U.S. and Europe into recession. That could prompt clients to cut spending.

The last big contraction in the world economy in 2008-09 saw manufacturing take a nosedive, he said. This time, however, Krishnan said companies are running lean and global clients expect 2023 to be strong in terms of demand.

In the domestic market, MM Forgings is seeing "tremendous demand" as a consolidated trend. Conversations with clients suggest a "very strong" fourth quarter, he said, adding that the pre-election spending will help sustain the strength.

All these factors will help double the revenue in three to four years, he said.

Krishnan said commodities have come off its peaks, but coal may still play spoilsport if prices move adversely due to supply-chain issues globally. For the medium term, he expects margins to move higher structurally as the company is now diversifying from forgings alone to components and assemblies.

The April-June and July-September quarters will see the added capacity of 10,000 tonnes for boilerplate and will be able to scale up from 70,000 to 75,000 tonnes up to 90,000 to 1,00,000 tonnes in FY24, Krishnan said. Some of this growth will come from farm equipment, and the company expects a 7% or higher contribution to overall sales.

All four analysts tracking the company have a ‘buy’, according to Bloomberg data. The average target price of Rs 1070 implies a 27% return potential.