FAG Bearings India Ltd - Rs 325.00
Incorporated in 1962, FAG Bearings India Ltd (FBIL) is a 51% subsidiary of Schaefer FAG group Germany – who are the second largest supplier of bearings in the world next to SKF Sweden. Thus, FBIL is primarily engaged in manufacturing of different types of ball bearings (deep groove, four point, self aligning) & roller bearings (cylindrical, spherical, tapered). These bearings are mainly used in the automotive, mechanical and electrical engineering industries as well as the Railways. Bearing market size in India is estimated at Rs. 5400 cr. Approximately 45% of this demand is met through imports and the balance is met through indigenous products. In domestic market (without Imports), the sales of the organized bearing industry are estimated at Rs. 2400 cr. And with nearly 13% market share in organized segment, FBIL is the second largest player in India. It caters to the OEM market, the replacement market and the export market. Currently it derives 40% of revenue from automotive segment, 15% from railways and balance from other core industries. At the same time company also trades by importing bearing from its German parent and selling it domestically.
FBIL’s production facility is located at Vadodara, Gujarat and is equipped with one of the most advanced manufacturing technology. Post the capex of Rs 80 cr in 2006, company’s current production capacity stands at around 47 million pieces of bearing per annum. Importantly, company has been operating at over 100% capacity utilization since the last five years. It has a huge list of clientele from across the industries like Tata Motors, Maruti Udyog, Ashok Leyland, M&M, GM, Hero Honda, Ford, Hyundai, Bajaj Auto, TAFE, TVS, ABB, BHEL, Crompton, Siemens, Greaves Cotton, NTPC, SAIL, LMW etc. To cater the rising demand, company is further contemplating massive expansion plan for production of needle bearing with an investment of approximately Rs 350 cr. Incidentally, the fortunes of the bearing industry in India are mainly linked to the growth of the automotive industry. Hence the bearing industry recorded a growth of 7% during the year 2007 in terms of sales value. Besides, the prices of major raw material like steel etc also shot up substantially. Moreover, OEM industries such as two-wheelers & four wheelers are facing price competition in their own markets and continue to exert price pressure on the local bearing suppliers. Despite all these, FBIL was able to maintain a decent double digit growth for calendar year 2007.
Accordingly for current fiscal also, FBIL’s performance is affected by the continued slowdown in the auto and industrial sectors. For the first half ending June 2008, it registered flat bottomline of Rs 43 cr on 12% rise in topline to Rs 350 cr. On account of fall in peak custom duty, domestic bearing industry is also facing the heat due to import of cheaper bearings from China and Eastern Europe. However the fall in steel prices is the only silver lining to safeguard the margins. Considering the current market conditions, FBIL’s management is cautiously optimistic about future prospects and may end CYO8 with sales of Rs 700 cr and NP of Rs 85 cr. This translates into EPS of Rs 51 on equity of Rs 16.60 cr. Fundamentally, this MNC subsidiary is a debt free company with strong cash flow and huge reserves of more than Rs 300 cr making it a strong bonus candidate. Hence, although company is not expected to grow aggressively in near future still it’s a value buy. As the scrip is making new lows, investors are recommended to buy at current levels with a price target of Rs 475 in 15 months.
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