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Buy MM Forgings with a target price of Rs 1125

ICICI Direct has suggested buying the stock of MM Forgings with a target price of Rs 1125 resulting in a gain of 28% in 12 months from the current market levels. M.M. Forgings Limited is a leading company that manufactures and sells iron and steel forgings. The firm is a major manufacturing player in India, Europe, and the United States (FY21 geographical mix: domestic 50%, exports 50%).

According to the brokerage, the company’s standalone revenue growth was at Rs 261.3 crore for Q2FY22, EBITDA margins were flattish at 18.2% amid operating leverage gains; gross margins down ~250 bps sequentially and consequent PAT grew ~16% sequentially to Rs 27.7 crore.

Key triggers for future price performance of MM Forgings according to ICICI Direct

• Healthy outlook across served markets; would benefit from impending India CV revival as well as pick-up in US Class 8 truck orders. Underlying market growth, new product introduction led to 36.1% FY21-23E sales CAGR.
• We expect sales volume to grow at a CAGR of 27.5% in FY21-23E to ~78,000 tonnes in FY23E vs. ~48,000 tonnes clocked in FY21.
• Operating leverage gains, better mix to push margins to 20% (FY23E).
• FY23E RoCE at ~15% on margin improvement, sweating of assets.
• Trades at an inexpensive valuation of (less than 14x P/E, less than 10x EV/EBITDA on FY23E).

What should investors do?

The brokerage has said “The company’s stock price has grown at ~33% CAGR from ~Rs 215 levels in November 2016, thereby vastly outperforming Nifty Auto Index. We value MMF at 17x PE on FY23E basis for a revised target price of Rs 1125 per share (earlier target price Rs 925).”

Buy Action Construction Equipment with a target price of Rs 320

ICICI Direct has recommended buying Action Construction Equipment’s stock with a target price of Rs 320, implying a gain of 22% in a year from current market prices. The stock was trading at Rs 260 per share at the time brokerage’s buy recommendation, however, today it is trading at a price of Rs 256.90. ACE – Action Construction Equipment Ltd is India’s foremost material handling and construction equipment manufacturer having a dominant position in the Mobile Cranes and Tower Cranes segments.

According to ICICI Direct ACE reported revenue for the Q2FY22 at Rs 360.9 crore, up 35% YoY & 12% QoQ, the absolute EBITDA of the company remains at Rs 34.8 crore, up 15.2% QoQ and 43.8% YoY and PAT remains at Rs 23 crore vs. Rs 14.6 crore in Q2FY21 & Rs 19.3 crore in Q1FY22.

Key triggers for future price performance of ACE according to ICICI Direct

• Strong growth in FY22E & FY23E with sustained EBITDA margins.
• The construction equipment segment growing and occupying a larger pie in overall revenue contribution.
• Upcoming government & private CAPEX provide a fillip to the sector.

What should investors do?

ICICI Direct has reported in its research report that “ACE continues to tread on its growth path. Even with a disrupted H1FY22, the management has guided for 20-25% growth. We continue to remain positive and retain our BUY rating on the stock. We value ACE at Rs 320 i.e. 15x EV/EBITDA (FY23E).”

Disclaimer

The above stocks are picked from the brokerage report of ICICI Direct. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.