M M Forgings Limited (522241) Earnings Call Transcript & Summary

Sir, last clarity, sir, whatever fund we will be receiving because of these landfills? What will be the utilization of that, sir?

Go again, Subrutu?

Yes. Sir, we have -- in this quarter, we have sold our land and we have realized our money, sir. So what we will do with it?

That will be used to reduce our working capital and our CapEx and our capital borrowings.

The next question is from the line of Nishant from [indiscernible].

Yes, sir. I have a question about the current capacity utilization. On the -- how would you plan to increase the [indiscernible]? Like do you have kinds of capacity expansion in the near future?

I just answered that now, Nishant, when I answered Subrutu. So last year, we did 78,000 tonnes of pots of sales. This year, in Q1, 20,200 tonnes. And from Q2 onwards, we expect to strike somewhere between 23,000 and end the year at about 25-plus thousand tonnes.

Okay. And one more question, sir. Are we catering to any EV business, sir?

One sec. It should mean a run rate of 1 lakh tonnes a year. And that should set the tone for FY '27 to reach 1 lakh 10,000 -- 1 lakh to 1 lakh 10,000 tonnes. So that's [indiscernible] utilization, that thing is behind us.

Okay. And one more thing, sir, are we catering to the EV business to be the 2-wheelers or 3-wheelers?

We are catering from -- you say from the EV sub or you're talking from the parent company?

From the parent company, sir.

From the parent company. That's an easier question to answer. Yes, we are serving products to EV customers or that go -- not EV customers, that go into electric vehicles across several platforms. But not 2-wheeler, 4-wheeler. One line of product was export, another line is growing domestic.

The next question is from the line of Rajesh Maru from [indiscernible] Analytics.

Yes. Great set of numbers. One of my question has already been answered. I have one more clarification. I'm sorry if you [indiscernible] the specific question. We are setting up our large base of 16,500 tonnes. And you have already said that in next -- its revenue will creep in the next 2 years. Do we have plan to move towards hyperscaler or any other segments like defense or anything which you are looking to explore the opportunity with this kind of capacities?

We are definitely moving into businesses that hyperscalers. So we see that right in front of us, and a lot of business is coming our way. But with regards to defense, it's a mixed bag, it's a mixed bag because once we get into the business of defense, it won't stop just serving the Indian market. We will start looking at capacity utilization. Airline may not fill up entirely with the business from Indian defense. So immediately, we look at what we can do outside of the country. And that's something which, at a personal level, I'm not so inclined to do.

So the line for the current participant has dropped. Should we move to the next?

Yes, yes, of course. He'll join back, if required.

Okay, sir. The next question is from the line of Ramesh from SJ Investment. As there is no response, we will move to the next question. The next question is from the line of [ Suraj Malu ] from [ Catamaran ].

Sir, can you help us understand why did other expenses increased by 35% year-on-year?

Give me a few minutes, I'll come back to you on that. Okay. I don't have the -- one sec, my team is pulling it up. Hold on. Yes. Your other expenses will be a combination of a couple of things. One is -- what is attributable to the regular other expenses coming in the P&L. And it will also have -- a component of it is export expenses relating to freight. Freight has risen sharply. Other expenses, what we call as the traditional other expenses. We extend over at the running an organization like starting from rent up to fax and paper and computer IT, blah, blah, that runs at an increase of around 10%. From INR 8 crores, it has gone up to INR 9 crores. In quick nutshell, the biggest jump in other expenses of around INR 4 crores, INR 4.2 crores, an increase in the published results. Of that, export expenses, it still accounts for [ up ] INR 4 crores.

Understood.

That is largely due to freights going down the Strait of Hormuz for obvious reasons.

Sir, can you help us understand why the revenue from Europe declining for us because U.S. has grown, domestic business has grown.

Europe has grown -- degrown volume -- surprise for me, I don't think so.

Well, if you look at the last 4 quarters, in Q2 FY '26, we were INR 82 crores from Europe, which became 89, then drop to 68 and now 59.

Basically, Europe is a stable market and growth, reasonably up and down in tune with demand. Nothing noteworthy from Europe in terms of -- no business has been lost, not much I can say very clearly. It's just customer demand that's going up or down.

In general, we hear that European forging shops are shutting down. That should be a large opportunity for us, and it should reflect in the growth.

Yes. Overall, the trend continues.

Okay. Sir, in terms of machining, what would -- like what percentage of our gross block would be in the CNC machines?

Ladies and gentlemen, the line for the management seems to have dropped. Please hold while we reconnect them. Ladies and gentlemen, the line for the management has been reconnected. Thank you, and over to you, sir. Surat, sir, your question is answered?

No. My question was how many CNC machines do we have? And how much does that amount to of the INR 2,100 crores gross block?

A tough question, Suraj. I don't have that number across the board. It will run into hundreds, that I can tell you. I'll note it down. We'll note it down, and we'll come back to you on this. But I can tell you what it constitutes. One sec. I can tell you what our investment machine shop constitutes out of the 2,100. If you give me a minute, if you give me -- the thing I can look at a chip for you. That is possible. One second. I'll get back to that answer. We have the data, just fishing it out.

Sure, sir. And sir, 2 quarters ago, you had mentioned about reaching INR 3,000 crores in revenue by FY '30. So we still look to that number?

Yes.

The next question is from the line of [ Gautam Kishan B. Mehera ] from 360 ONE.

Trust you are well. Congratulations on a great set of numbers. Sir, as we move from 20,000 tonnes per quarter to 25,000 and eventually to 27,000, 30,000, where do you think or believe your maximum growth could come from? Is it the Indian markets or the European markets or the American markets or a combination of all?

Combination of all. First answer will be a combination of all. India, today, being 63% of our sales actually will carry a lot of the tailwind. We are also getting a lot of order wins on the export side. So that also [indiscernible] well. And overall, I would say, numbers should go across the globe. See, the point is that many customers are also setting shop in India. So global customers. Some amount of global business is becoming Indian business.

And just a small follow-up. Sir, of the last, say, 3, 4 cycles, do you think the combination of all 3 regions of yours, this is the highest growth you could see? The current cycle?

Please repeat, Gautam.

So we've had multiple cycles over the last 20 years. The current combination of business being great from India, Europe and America, do you feel the current scenario is the best in the last 3 or 4 cycles that we've seen?

I think so. We have this level of, what shall I say, strength in demand across all customers. At some point of time, some customers, some region or the other has been more even. But this time around, it's -- as I told a few minutes back, every cell, every machining line is running to the full list of its capability. We have tons to go in terms of productivity improvement, at least from buying vision. So we are working and my team is working really hard on that. We have a lot to do on the productivity side even at these levels. So that's the headroom that we have. But having said that, today, every line is virtually running at its reasonable fullest. But that can be pushed by -- easily. This is -- it takes a lot of work, but that work is anyway, it's a must, it's unavoidable, and it must be done to improve the overall asset utilization of the organization. And wherever, during such quests, we find that we have to debottleneck or replace. We are also considering that.

Great. And we look forward to fantastic numbers in F '27 and F '28. Congratulations once again.

The next question is from the line of [ Rajesh Maru ] from [indiscernible] Analytics.

In last 2, 3 calls, you had consistently said that we have taken some cost-saving measures in terms of saving the power and fuel cost, in terms of interest cost as well as labor cost by putting robotics. And if I'm right, in one of the institutional calls, as you had said that you are also incrementally trying to use AI to become more efficient on the ancillary functions of the company. So given all these things and with the volume going up, do you see any headroom for EBITDA margin to expand from current 18% level, sir? And if yes, then what kind of margin we can see, sir?

Thank you. Can I get your name, please?

My name is Rajesh Maru, sir.

Rajesh, you were there a few rounds earlier. Or just before [indiscernible]. Yes, Rajesh, there is a scope for EBITDA improvement. I would be -- the thing to say that there is no scope or that we have reached peak EBITDA. There is a scope, and we have to work on it to get to -- I would say all previous listing, our target would remain a 20-plus goal. We have to squeeze out 2%, 3% from the system. 1% is -- I can -- I have the clear visibility for 1% to 2%. But I would say 2% to 3% should -- that should be our goal, and that's talent for the team.

The next question is from the line of [ Siya Garvit Goyal ] from Srini Alpha Analytics LLP.,

Am I audible?

Yes, sir.

Yes.

Sir, my question on working capital side. Like in the last 2 years, we see the working capital around 30% of the revenue growth. And in FY '24, which is about 23%. So in given stand-alone revenue and operational contract around INR 409 crores. So are we able to convert this cash in state receivable and other in quarter 1 FY '24 -- '27? And is there any working capital intensity still there? Or we can -- some with 23% as the part performance?

Very good question, Garvit. We are working on this increase in working capital, and it is our endeavor to bring it down. That's the goal. No doubt about it. By cutting down on -- and to answer a previous -- I don't know, you asked this question about AI?

No, sir. My question on working capital.

Rajesh Maru asked it. Yes. I'm sorry. One sec. Using the 2 together, we are using now AI tools to identify where the inventory is getting stuck. And as in the last 7 to 10 days, it's become a real -- it's become a revaluation on the stock inventory. So many teams are now -- a rapid action in force has been formed to dissolve this inventory, if I can use the word. Literally, push it out. That means which customers want. And second is to get down our money that is stuck in goods. So a point well taken. That is one of our goals for the months to come. And in answering this, I also would say that Rajesh's question on AI tools. That we are using those effect quite -- we've started using at least to crunch the data and see the insights are amazing, really amazing because it's able to map down and say, this is the data. These are the parts. These are the particular part numbers, which are required and in stock, and we need to push these. So it's giving a lot of insights to the management team. And I hope in the next few weeks, we should see -- that I hope I expect over the next few weeks is to start yield results. And what we want to do as a result of this is to convert our WIP to a [indiscernible], say, a week time, and move everything else as finished goods. Overall, there would be a reduction in inventory numbers, but not insanely low levels. But at some point, I would focus on getting that inventory to a bare minimum in WIP terms, means work in process terms, and push the numbers on, convert all that into what we call as RFD or ready for dispatch.

The next question is from the line of Priyankar Sarkar from Square 64 Capital Advisors LLP.

Congratulations on a good set of numbers. Sir, just one basic question. Is there any update on the enabling QIP resolution that the Board had passed a few months back?

Yes. I answered it a few rounds back. The QIP is largely centered around a sharp opportunity that we might see in market. So we are -- certainly, it's on the cards, and we are bundling it. At an appropriate time, we would definitely consider it.

The next question is from the line of [ Nithya ] from [ KK ].

My question has been answered already.

The next question...

Yes. Please go on. Before you could [indiscernible] the next caller, please. One of the data that was required was, what is our CapEx in the machining side? And what are we -- where have we put the money in? So overall, we have invested about INR 1,100 crores in the machining side, of which in the last 5 years, we have put in INR 625 crores. And last 10 years, the number is about INR 1,000 crores. So INR 100 crores prior to 10 years has now become INR 1,000 crores in the last 10 years, and that -- of that INR 1,000, INR 625 crores has been invested in the last 5 years. I hope I'm clear. Just repeating the numbers, about INR 1,100 crores overall on the machining side, of which, INR 100 crores dates back beyond 10 years, INR 1,000 crores is for the last 10 years -- I'm giving approximate numbers, okay, all around of last 10 -- INR 5 crores, INR 10 crores, INR 20 crores. So INR 1,000 crores for the last 10 years. And of the INR 1,000 crores, INR 625 crores in the last 5 years.

So should we take next question? The next question is from the line of Ramesh from SJ Investments.

So as you already alluded to a fact that you spent around about [ INR 900 ] crores over the last 10 years, like I'm just trying to understand how does the capacity develop? Or 10 years ago, how much is the capacity versus what is it today in machining today?

Machining capacity is extremely difficult to pin down in terms of numbers or in terms of tonnes because I can tell you there's one part that is very heavy and requires relatively especially. Another family of parts, very popular. Today accounts are about a good portion of our sales, which is heavy and requires extensive machine. Then there are light parts that require less. We'll try to quantify this over a period of time. Give us a couple of months, I'll put -- note it down from the first question that Mumuksh himself has asked. So right from there, this question is persisting. We have a number tracker, but that number tracker is of no use to you guys. So we need to quantify machining capacity. We'll work on it and come back to you with a method of quantifying our own machining capacity. I'm sorry, that we're answering such an important question with such a vague manner, but that's where things stand. We'll apply our mind and try to put -- bring some method to that matter. If we...

Understood, sir. Got it, sir. That will be helpful. So just -- and one more thing, sir. [indiscernible] American opportunity. Right now, our contribution is around 10% or 15%, right? Where do you think the contribution from U.S. is going to expand to the next years because you're very bullish about it, right?

It is around 16% now, if I'm not mistaken. And U.S. should increase by around -- so we hold these levels, 18% now. It should maybe increase by 1% or 2%. The rest of the world is also growing [indiscernible]. This time around, it's not just one part that is growing in regards to the others. Every zone is reasonably growing, buying a little bit of uplift from Europe. So...

Got it, sir. So just one more thing, sir. Trying to understand the market. So most -- like most of our exports go to Europe. Just trying to understand, are force products more used in Europe than U.S.? Is that the fact? Or is it the fact that we have a long relationship with the European customers than U.S. customers? Could you explain -- trying to get the...

Forge parts are tools in any economy, in any economy, forge parts are used. Now because without forgings, you don't have motion as we know it today. As engineering stands today, forgings are at the center of where motion is, where transportation is. So we know how both are so critical to any economy, right? But what happens is that where we get consumed is the original equipment manufacturers or the Tier 1s. Now where are they located? And therefore, where does it get? It gets sent to those geographies. Obviously, it will be unwise to say that -- the rest of Asia is -- it will be downright foolishness to say, rest of Asia, not at all into the transportation or the forgings market there. Rest of Asia is huge, Japan, China, Korea, but these are all traditionally closed markets as India is. So that is the reason why everybody looks at forgings, castings and all into Europe and Americas. These are -- this kind of metalworking is popular and strong in the Asian economies, and not and is declining in the other economies.

Got it, sir. So basically U.S. and Europe is where these capacities are reducing, and we are -- our opportunity also like it. So I was just trying to understand a little bit...

And also at South America [indiscernible].

South America [indiscernible] declining?

So another tough question to answer that. Now Brazil is fighting back. There are a lot of indigenous forges now coming up in Brazil. A lot are coming up. So it's quick to write off and say South America is a declining market. South America is another market where there is scope. That much I can very clearly say.

Understood, sir. That's fair. So I was just trying to understand the roots of why European customers are much [indiscernible] efficient in terms of revenues. I was just trying to understand what exactly -- because usually it is other way around. U.S. is higher proportion compared to Europe.

They are high-cost economies, high labor cost economies. So labor and cost pressures ensure that such businesses go out of those geographies.

Got it, sir. But for us, how do...

Posed by the U.S. government in recent times. The -- none of the forging buyers in the U.S. have evolved as a result of that. Fortunately, for M M Forgings, huge fortune that none of our contracts we bear the custom's duty. So that would have been held otherwise. So since -- even though there is huge amount of duty imposed, customers are still buying that they are not able to -- one, setting up these capacity is difficult. Setting up a forging capacity, getting hold of people to operate forging process and processing the parts, not easy, it's difficult. Even in India, forgings will be a sector that will be difficult to man in the next few years. Man or woman, I can use the word. Currently, we have -- we do have a significant portion of women coming into our workforce. Definitely, the part of the matter is that these economies will find it difficult to -- and also the skills get lost over a generation. If for 20 years you haven't forged, then getting back is difficult. But you can also jump to skill game. So quick, the thing in glances. India jumping the 3G, the GSM bandwagon, we didn't go through the CDMA route and struggle on the mobile phone side, connectivity side. We straightaway dumped into GSM, and we left forward by about 20 years. So like that in the forging side, it is possible to somehow gain, but that will have to come in very restricted circumstances where there is a huge level of automation, and you had a pour in capital which means that you need to have customers who are backing you to the hilt. So all these are strategic seismic shifts in the costing landscape which will take -- it will be very difficult to unravel.

Understood, sir. Sir, just one last question. Just trying to understand. So you mentioned that because of declining capacity, we're getting orders. So probably our main competition is China. So where do you think they're getting most of orders? Is it because declining capacity or China resourcing?

So we are getting new orders also because customers there are growing their business. And they want to source from BCC or LCC, best cost countries or low-cost countries for those respective parts. So I want to say -- those markets are in pure decline alone for all that the U.S. market may be growing also in forgings. For all that I know. I have no clue. But many orders are coming our way across the global landscape because customers want to buy from India. Ultimately, the N2 at an entrepreneur or at an organization level, to service the business at 18% EBITDA will be a lot higher and servicing a same business at 5% EBITDA.

No, fair enough.

Right. So that N2 makes for customer satisfaction.

Got it, sir.

This is might -- over the last 15, 20 years.

How much more expensive would be compared to China versus China...

Sorry to interrupt, Ramesh sir. We'll take this as a last question from you due to time constraints, sir.

Mail or something, and we'll try to answer it for you.

Ladies and gentlemen, that was the last question for today due to time constraints. I would now like to hand the conference over to management for closing comments.

Thank you all for participating with your time. And as usual, with your interest or questions, which have given us a bit more of insight into our own business. And hopefully, we'll see more of this as we go on. And I expect that M M Forgings would do strong in the quarters to come, with about -- targeting 25,000 tonnes of sales at a bare minimum in the coming 2 to 3 quarters. Restart and then look beyond to touch 27,000 and then 30,000 tonnes every quarter, thereby quickly galloping to -- and a capacity utilization of around 1 lakh 20,000 tonnes, backed up by strong machining exposure. As we see, most of the orders that we are getting now are all machined and very few are as forged. So that, in turn, means that capital requirements are more. So as we move forward, we see challenges on the cost side. And we also need to do some trimming internally in terms of both the cost as well as working capital and inventory, which all came up over the last few months internally as well as in this meeting. So thank you all for your wonderful participation, and looking forward to posting better numbers in a much more growth in the quarters to come with the hard work of the team and of course, [ God's grace ]. Thank you all.

Thank you, sir. On behalf of 360 ONE Capital Markets Private Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines. Thank you.