MM Forgings Q1 FY26: Decoding the Auto Forging Giant's Performance Amidst Headwinds – Is a Rebound Near?

MM Forgings Limited, a key player in India’s automotive forging sector, recently unveiled its Q1 FY26 financial results, painting a vivid picture of a company navigating through turbulent macroeconomic waters. The quarter, spanning April to June 2025, reflects the broader cautious sentiment prevalent in both global and Indian automotive markets, a backdrop the company’s management has openly acknowledged.

The Indian economy, despite its projected 6.5-7% GDP growth for FY26 driven by strong domestic demand, has seen a mixed bag in its equity markets. After a robust Q1 rally, a July correction is underway, attributed to weak earnings, cautious guidance, and global uncertainty. While sectors like banks and capital goods have outperformed, export-linked sectors, including parts of the automotive industry, have faced headwinds. This context is crucial to understanding MM Forgings’ latest performance.

Chairman and Managing Director, Shri. Vidyashankar Krishnan, highlighted a “fragile global economic outlook” marked by volatility, geopolitical dynamics, and potential tariff escalations. The Indian automotive industry, in particular, wrestled with “softer demand,” “moderated export momentum,” and “input cost pressures.” Amidst these challenges, MM Forgings states its focus remains on operational efficiency, innovation, and cost control.

So, how did MM Forgings fare, and what do these results signal for its future trajectory? Let’s delve into the details.

Order Book: A Glimpse into Near-Term Visibility

For a company like MM Forgings, which predominantly operates in the B2B space, understanding its order book provides vital clues about near-term revenue visibility.

The management has indicated that the order book for the next few months, specifically until October, stands at approximately ₹100-110 crores per month. While this offers a degree of short-term stability, the earnings call did not detail any significant, long-term order backlogs stretching beyond this period, nor did it specify the typical conversion cycle of orders into sales.

This short-term order visibility suggests that while immediate demand exists, the company is likely operating on a quarterly or bi-quarterly order cycle, which is common in the automotive supply chain. The lack of a substantially extended order book means that future sales performance will heavily depend on continuous order inflows amidst the prevailing market softness.

Sales Performance: A Dip in Demand and Product Mix Headwinds

The most immediate impact of the challenging market environment is evident in MM Forgings’ top-line performance. Both standalone and consolidated revenues registered a notable decline compared to the previous year.

Revenue from Operations (₹ in Cr.)

The decline wasn’t just about lower sales value; it was a deeper story of volumes and product mix. While production volumes saw a marginal uptick (from 17,300 tons in Q4 FY25 to 18,000 tons in Q1 FY26), sales volumes notably decreased from approximately 20,000 tons in Q4 FY25 to 17,780 tons in Q1 FY26. This disconnect points to a weakening demand environment, likely leading to some inventory build-up.

Compounding this, sales per ton declined from ₹2.03-2.04 Lakhs in the previous quarter to ₹1.92 Lakhs in Q1 FY26. Management attributed this largely to a product mix change, specifically a decrease in higher-margin machining sales. This shift is a critical indicator, suggesting a move towards lower-value or less profitable products, directly impacting overall realizations and, consequently, profitability.

Segmental and Geographical Breakdown (Q1 FY26):

MM Forgings’ sales continue to be heavily weighted towards the Commercial Vehicle (CV) segment, which accounted for approximately 80% of sales. Agri and Off-Highway (13%), along with Passenger Vehicles (7.2%), made up the remaining share. Geographically, exports remained a strong component, contributing 40.2% of total sales, with North America being a significant market (13% of total exports). This high reliance on the CV segment exposes the company to its inherent cyclicality. Management indicated a subtle future shift, expecting CV’s share to slightly decline to around 75% post-capacity ramp-up, with Passenger Car increasing to about 18%, hinting at diversification efforts.

Looking ahead, while the management hasn’t provided explicit sales forecasts for the next quarter, their overall outlook suggests performance will be “around the previous year’s level (plus/minus a small number)” for the next 6-9 months. This signals a consolidation phase with no immediate expectation of significant top-line growth.

Key Business Metrics: Underutilized Capacity and Tariff Troubles

Beyond the sales numbers, several operational metrics offer deeper insights into MM Forgings’ current state and future prospects.

The lower sales volumes, coupled with slightly increased production, led to capacity utilization hovering around 60% for both forging and machining. This underutilization is a significant concern as fixed costs are spread over a smaller revenue base, directly impacting margins. The company possesses substantial capacities – 120,000 tons for forging and 5.5 lakh parts/month for machining (against current 3.5-3.75 lakh) – indicating considerable headroom if demand rebounds.

A critical factor impacting profitability was the decline in machining sales contribution, falling to 51% of total turnover in Q1 FY26 from 59% in the previous year. As machining sales are typically higher margin, this shift directly contributed to the lower sales per ton and overall margin erosion.

The ongoing US tariffs (25%) on imports from India remain a watchpoint. While customers currently bear most of this duty, management acknowledges this isn’t a sustainable long-term solution. The concern is that over the next 12 to 36 months, US customers may seek cheaper local sources, potentially impacting MM Forgings’ export volumes and margins. The company, however, believes it can remain competitive in other geographies like Europe, Japan, and the Far East, albeit potentially at reduced margins.

On a more positive note, the crankshaft business, particularly for the agri sector (CAFOMA), continues to show strong performance, with significant scope for growth given the vast Indian tractor market. The company has also ramped up CV crankshaft production.

Earnings Analysis: A Sharp Plunge and Margin Squeeze

This is where the combined impact of lower sales, unfavorable product mix, and rising costs truly manifests, resulting in a significant contraction in profitability.

Profitability (₹ in Cr.)

The decline in Profit After Tax (PAT) is particularly sharp, plunging over 30% YoY for both standalone and consolidated results. This significant contraction points to an intense margin squeeze.

Key drivers for the PAT decline were:

• Lower Sales Volume and Unfavorable Product Mix: Directly impacting the top line and average realizations, as discussed.
• Increased Depreciation: Up by ₹3 crore YoY, reflecting investments in new capacities that are yet to fully contribute to revenue. This is typical when CapEx ramps up faster than revenue from new assets.
• Higher Finance Costs: Up by ₹4 crore YoY, indicating increased borrowings to fund CapEx.
• Rising Power Costs: Attributed to a 5% annual hike by the Tamil Nadu Government and the impact of lower sales volumes making fixed power costs appear higher on a reduced base.
• EBITDA Margin: The EBITDA margin (excluding other income) for Q1 FY26 stood at 18%, a noticeable drop from 19.4% in the previous quarter. This 200 basis point decline was primarily due to the change in product mix (lower machining sales).

Given its deep ties to the cyclical automotive industry, especially commercial vehicles, MM Forgings appears to be acting as a cyclical company currently facing headwinds. Its profitability is directly linked to the health of this sector. The management’s emphasis on “operational efficiency, innovation, and cost control” signifies an immediate prioritization of protecting the bottom line in a tough environment. They are actively pursuing a “wide range of cost reduction efforts” across various expense heads, which will be crucial for margin recovery.

Capital Expenditure (CapEx) & Financing: A Pragmatic Pause

The company’s capital allocation strategy reveals a pragmatic adjustment to current cash flow realities and market conditions.

MM Forgings spent approximately ₹55 crore on CapEx in Q1 FY26. However, in a significant revision, the initial FY26 CapEx projection of ₹300 crore has been scaled back to ₹150-200 crore. The primary reasons for this reduction are clear: “lack of sufficient cash generation” and a desire “not to increase borrowings significantly.” This is a cautious, but necessary, move to preserve financial health.

While prudent, this adjustment means a slower ramp-up of new capacities. The substantial new investments, including a 16,000-ton press, are now expected to be commissioned in Q4 FY26 and go into production from FY27 onwards. This effectively delays the revenue contribution from these new assets, impacting growth prospects in the immediate term. The previously anticipated ₹800 crore delta in business over 3-5 years is now expected to be delayed by 1-2 years.

On the financing front, term loans increased by about ₹30 crore in Q1 FY26, contributing to the higher finance costs. However, the management stated their intention to end FY26 with no significant increase in borrowings, projecting net term loans around ₹550 crore. They termed this level as “peak debt,” indicating a clear shift towards debt stabilization and balance sheet de-leveraging in the coming quarters. This disciplined approach is positive for long-term financial stability, even if it temporarily constrains aggressive growth.

Key Takeaways for Investors 💡

MM Forgings Limited navigated a challenging Q1 FY26, clearly impacted by the prevailing headwinds in the global and Indian automotive sectors. The decline in revenue was coupled with a significant drop in profitability, driven by lower sales volumes, an unfavorable product mix, and rising costs (depreciation, finance, power).

1. Short-Term Consolidation, Long-Term Potential: The company is currently in a consolidation phase, prioritizing cost control and balance sheet strength. The revised CapEx plan and “peak debt” stance reflect this pragmatic approach.
2. Margin Recovery is Paramount: The focus on “wide range of cost reduction efforts” is crucial. Investors should monitor EBITDA margins closely in coming quarters for signs of improvement, as this will be the primary lever for PAT recovery in the near term.
3. Delayed but Promising Growth Drivers: The new capacities and the new powertrain subsidiary (targeting the 3-wheeler market initially) are expected to kick in from Q4 FY26/FY27. This provides a clear timeline for potential revenue acceleration, but patience is required. The crankshaft business remains a strong segment.
4. Cyclical Nature Demands Patience: MM Forgings’ performance is closely tied to the automotive cycle. While the current cycle is challenging, a rebound in the broader economy and automotive demand could significantly benefit the company.
5. Watch Exports Closely: The US tariff situation presents a long-term risk of market share erosion despite customers currently bearing the cost. Diversification into European markets and robust domestic growth will be critical for mitigating this.

For investors, this quarter reinforces the need for stock-picking criticality, focusing on valuation comfort (especially during a downturn) and earnings visibility (which is muted for the next few quarters but promising in the medium term). MM Forgings is demonstrating resilience through disciplined financial management, setting the stage for a potential rebound when market conditions stabilize and its new capacities begin to contribute meaningfully. The next 6-9 months will be about maintaining stability, while the real growth story for MM Forgings is poised to unfold in the 12-18 month horizon.

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