SECTOR: AUTO ANCILLARY
FAG Bearings India Ltd
STOCK INFO.
BLOOMBERG
BSE Sensex: 17,426
S&P CNX: 5,288
FAG.IN
REUTERS CODE
4 July 2012
Initiating Coverage
(Rs CRORES)
Accumulate
Rs1,450
FAGB.BO
Y/E MARCH
CY11A
CY12E
CY13E
We recommend to Accumulate FAG Bearings India Ltd. with
one year price target of
Rs1750
- 15xCY12E EPS.
INVESTMENT ARGUMENTS:
2nd largest player in India with a ~15% marketshare
Average Ebitda margin of 18.5% in last 5 years is attractive
Higher revenue growth & strong cash generation
GROWTH DRIVERS
Large parent group - a positive :
FAG Bearings is a member of
the Schaeffler Group - a leading player in the rolling element bearing
segment globally with sales of $10.7 billion. The parent has been ranked
as the 4th most innovative company in Germany with 1832 patent
applications in 2011. The parent has 70 plants worldwide with Asia
Pacific as a growth focus area. Fag Bearing expects to launch new
products out of it's parent's portfolio over the next few years.
2nd largest player in India with a 15% marketshare:
Fag Bearing,
the 2nd largest bearings player in India, derives 80% of its sales from
Automotive sector with Tata Motors, Maruti, M&M, GM, Ford and
Daimler Chrysler as key clients. Its dominant position in the Automotive
industry will result in a 12% revenue CAGR over CY11-CY14E.
Industry leading margins :
FAG bearing has Industry-leading
EBITDA margins in the Industry at 22% with the EOU at its Gujarat
unit supposedly the most efficient plant in the Indian bearing space.
Given likely volume growth and control over costs, margins are likely
to be maintained over next 3 years. This will allow operating earnings
to grow in line with sales - almost 50% higher than CY11 by CY14.
Healthy financials:
We estimate capex to slow down from
Rs150
cr
in CY11 to 1/3rd of CY11 spend p.a. for the next 3 years. Thus free
cash should rise to
Rs100-130
cr p.a. over the next 3 years. A debt free
balance sheet and almost
Rs250cr
of cash on books should allow for
PAINLESS growth in a DIFFICULT economic environment.
Valuations & View:
Profits have risen to 2.5x in CY11 over CY06 -
in line with revenue growth while profits for SKF India have moved
up by 100% for the same period. This was aided by 19.5% sales cagr
during last 5 years vs 12.5% cagr for SKF. FAG has better operational
efficiencies with average operating profit margin for last 5 years at
18.5% vis-a-vis 13.5% for SKF India. Despite better growth and
margins, FAG, at a trailing P/E of 13.5x trades at a discount to 15.5x
for SKF India. We feel FAG India can command a P/E of 15x on
CY12e earnings thus arriving at a target price of
Rs1750
per share.
Net sales
EBITDA
RPAT
BV/Share (Rs)
Adj. EPS (Rs)
EPS growth (%)
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div yld (%)
ROE (%)
RoCE (%)
1,299
285
176
439
106
43%
13.7
2.4
5.3
0.7
27
40
1,435
314
193
544
116
10%
12.5
2.7
6.6
0.7
24
35
1,622
354
220
664
133
14%
10.9
2.2
5.5
0.8
22
33
KEY FINANCIALS
Shares Outstanding (cr)
Market Cap. (Rs cr)
Market Cap. (US$ m)
Past 3 yrs Sales Growth (%)
Past 3 yrs NP Growth (%)
16.6
2410
430
21%
43%
STOCK DATA
52-W High/Low Range (Rs)
Major Shareholders (as of March 2012)
Promoter
Institutions
Public & Others
Average Daily Turnover(6 months)
Volume
Value (Rscr)
1/6/12 Month Rel. Performance (%)
1/6/12 Month Abs. Performance (%)
1814/960
51.3
32.1
16.5
5849
0.85
-15/24/28
-9/38/22
Maximum Buy Price :
Rs
Rs1,500
Ravi Shenoy
(ravi.shenoy@motilaloswal.com);Tel:+912230896865