ABC Bearings - Rs.124.00

Promoted by M.I. Patel Group, ABC Bearings Ltd. (ABL) was established in 1960 by setting up a plant in Lonavala in collaboration with Steyr Diamler Puch of Austria. Today, ABL is the market leader in tapered bearings with its main area of focus on roller bearings for commercial vehicles and tractors. The company’s revenues are predominantly from domestic sales with 75-80% of it coming from OEM supplies and the rest through aftermarkets. Its client list includes most of the auto and tractor players such as Tata Motors, Mahindra & Mahindra, Escorts, Eicher, Ashok Leyland, Punjab Tractors etc. In the international market its products are exported to USA, Canada, Dubai, Peru, Italy, Singapore, Indonesia, Bangladesh, Sri Lanka etc.

Earlier, the company had two plants one in Gujarat and other in Maharashta. But since October’05, it stopped manufacturing activities in Lonavala, Maharashtra and shifted the machineries to its Bharuch plant. This has led to savings in labour cost and other incidental expenses besides concentration of manufacturing at one place. Presently, it has an installed capacity of 6.4 million bearings per annum. ABL also has a long-term licensing and technical assistance agreement with NSK to upgrade its manufacturing process and improve the quality of its products. To expand its presence in industrial bearings and increase exports, ABL is undergoing expansion to double its capacity to 12 million bearings by 2010. Moreover, to reduce its dependence on the original equipment segment, the company has recently shifted its attention towards the lucrative replacement market. Importantly, the company has a wholly owned subsidiary by the name MIPCO Seamless Rings Ltd. engaged in the production of ring manufacturing & forgings for captive consumption by ABL.

For FY06, its sales increased by 20% to Rs.152 cr. but net profit jumped 40% to Rs.15.70 cr. registering an EPS of Rs.14 on its equity of Rs.11.55 cr. It gave Rs.4 as dividend compared to Rs.3 last year. Although in FY06, profit margin was impacted to some extent by rising metal prices this has cooled off now as evident from its first quarter numbers. For the June’06 quarter, turnover grew by 30% to Rs.48 cr. but PAT increased by 55% to Rs.5.40 cr. Notably, its OPM improved to 21% compared to 14% last year. Company is also one of the best tax payer shelling out nearly 35-40% of PBT as tax. For the full year, it is estimated to report a top-line of Rs.185 cr. and profit of Rs.18 cr. i.e. an EPS of Rs.16. Hence investors are advised to buy only at declines with a price target of Rs.200 (60% appreciation) in 12-15 months.