ABC Bearings Ltd - 100.00 Rs

Founded in 1961, ABC Bearings Ltd (ABL) is one of the oldest bearing companies engaged in manufacturing of taper roller bearing, cylindrical roller bearing and spherical roller bearing. Infact it is India’s largest producer of taper roller bearing and third largest for cylindrical roller bearing after FAG and NRB. Roller bearings basically find application in light, medium & heavy commercial vehicle, multi utility vehicles, tractors, cars, two wheelers, three wheelers etc. In short the whole automotive sector is the main consumer of roller bearings. Hence company’s clientele includes auto majors like Tata Motors, M&M, Ashok Leyland, Eicher Motors, Swaraj Mazda etc. Ironically, ABL is the single source supplier for transmission bearings for Toyota group of companies for exports. As bearings are precision products requiring sophisticated machinery, intensive technology & skill requirements, ABL entered into a technical collaboration in 1998 with NSK of Japan, which is one of the world’s largest bearing manufacturers. Today, ABL boast of following SAP ERP system and having ISO 14001:2004, QS 9000, TS 16949 certification.

After closing down its Lonavala plant in 2005, ABL has consolidated its manufacturing operation at its new Bharuch plant in Gujarat. The plant is having NC / CNC grinding lines from world renowned manufacturers like BWF- Germany, Famir – Italy, IZUMI-Japan and is equipped with “in process & post process gauging”, logarithmic crowning units which ensures consistent quality and high productivity. ABL is even backward integrated thru its associate company called ‘MIPCO Seamless Rings Ltd’ which produces the forging for most of the bearings manufactured by the company. Currently company has a total installed capacity of 6.5 million bearings per annum which will be soon enhanced to 8.00 million thru the ongoing expansion plan. Due to stiff competition and in order to reduce its dependence on OEM’s, company is planning to increase its business from the replacement market as well. It has a strong distribution and service network of nine warehouses, 168 dealers, 1000 retailers and four regional offices. Although negligible still company directly exports to countries like USA, USA, Canada, Dubai, Italy, Singapore, Bangladesh, Srilanka, Indonesia etc.

Notably, few months back company has formed a 25% joint venture with NSK Ltd., Japan to set up a new plant in Chennai for manufacturing of bearings mainly for Japanese and other transplant customers. For future growth, ABL also intends to enter the railway bearing segment and supply wheel bearings for freight wagons. For FY07, it registered 20% rise in sales to 182 cr whereas net profit increased by 30% to 20 cr posting an EPS of 17 Rs on equity of 11.55 cr against which it gave 40% dividend. This is after providing extraordinary expense of 4.30 cr towards VRS, else in actual sense the NP stands at 24 cr i.e. EPS of 21 Rs. However, due to slowdown in auto sector company’s sales declined by 25% to 36 cr whereas profit dropped by 40% to 3.10 cr for the first quarter of FY08. Hence the share price tumbled sharply from 150 Rs to current levels of around 100 Rs. Still for FY08 it is expected to report sales of 175 cr and PAT of 16.50 cr (after VRS provisioning). This translates into EPS of 14 Rs on current equity. Notably, there won’t be any VRS provisioning from FY09. At current market cap of around 120 cr it’s a pure value buy. Moreover as per unconfirmed reports, ABL is having a surplus land of around 18 acres in Lonavala which can fetch around 5~10 crore. Only long term investors are recommended to buy at current levels as share price can double in 15~18 months.