Capex, better mix to drive margins; Anand Rathi retains Buy on MM Forgings

At the current market price, analysts said, the stock trades at an attractive valuation-around a 25 per cent discount to the past one-year forward mean-at 14/12x FY27/28e EPS

Brokerage firm Anand Rathi Research Team continues to hold a bullish view on MM Forgings, citing attractive valuations, even as the company reported a decline in its profit after tax (PAT) in the third quarter of FY26 (Q3FY26). The brokerage has also revised its target price upward despite near-term earnings pressure. 

Amid this, shares of MM Forgings were seen trading at ₹471.05 per share, up 2.73 per cent from the previous close of ₹458.55 on the BSE at 12:41 PM on Wednesday, February 18. At the current market price, analysts Mumuksh Mandlesha, Shagun Beria, and Dishant Jain said the stock trades at an attractive valuation—around a 25 per cent discount to the past one-year forward mean—at 14/12x FY27/28e EPS. 

 

The analysts have maintained a Buy rating on the stock with a revised target price of ₹600 (from ₹430 earlier), valuing it at 16x FY28e EPS versus 14x Sep-27e EPS previously.  CATCH STOCK MARKET UPDATES TODAY LIVE

MM Forgings Q3FY26 highlights: Ebitda, PAT broadly in line

During Q3FY26, PAT fell 19 per cent year-on-year to ₹25.8 crore, broadly in line with the brokerage’s estimate of ₹24.9 crore. Standalone revenue grew 11 per cent year-on-year to ₹405 crore, ahead of the estimate of ₹376 crore, led by higher exports. 

Domestic revenue rose 14 per cent year-on-year and 10 per cent quarter-on-quarter to ₹256 crore, while exports grew 7 per cent year-on-year and 7 per cent quarter-on-quarter to ₹148 crore. 

Earnings before interest, taxes, depreciation, and amortisation (Ebitda) declined 2 per cent year-on-year to ₹71.6 crore versus the estimate of ₹70.9 crore, impacted by lower-than-expected gross margins due to an adverse mix. The Ebitda margin contracted 250 basis points year-on-year to 17.7 per cent (versus the 18.5 per cent estimate), while the gross margin fell 440 basis points year-on-year to 52.9 per cent.

Healthy growth outlook

Analysts expect revenue and Ebitda to clock 13 per cent and 18 per cent CAGR, respectively, over FY26–28e, led by an expected 7 per cent CAGR in domestic M&HCV volumes on improved economic activity and better replacement demand. Overseas CV sales are likely to rebound in FY27/28e on a low base and early buying ahead of emission norms. Revenue growth is also expected to outpace the industry, supported by new orders, products, and a higher machining/heavy forging mix. 

The analysts, however, have trimmed their FY26e EPS estimate by 8 per cent. 

"We trim our FY26e EPS estimate by 8 per cent due to higher depreciation, interest, and tax, as well as lower other income, but raise it by 12–16 per cent for FY27/28e due to higher revenue and lower interest cost," said the analysts in a research note.  ALSO READ | E2E Networks shares hit roof on partnership with chip giant Nvidia

New products, capacity expansion

The brokerage highlighted that new products such as gear blanks, long shafts, and larger crankshafts for CVs/PVs have been developed. PV crankshaft capacity has increased to 50,000 units from 40,000 units. The company is also focusing on diversifying into PVs and non-auto segments and improving the machining mix from 58 per cent in FY25 to 65–70 per cent over the medium term.

Margin expansion and capex

Anand Rathi expects the Ebitda margin to improve from 17.7 per cent in FY26 to 19.2 per cent in FY28, aided by greater scale, a higher machining/heavy forging mix, and lower operating costs. 

The brokerage further highlighted that ₹185 crore capex is expected annually over the next two years to expand machining capabilities, forging capacity (20,000 tonnes; 16,500-tonne press line), and new products. Installed capacity stood at 126,000 tonnes (around 57 per cent utilisation) as of FY25. The net debt-to-equity ratio, analysts said, is likely to remain at around 0.7x.  =====================================================================

(Disclaimer: The views and investment tips expressed by the analysts in this article are their own and not those of the website or its management. Business Standard advises users to check with certified experts before taking any investment decisions.)