FAG Bearings - Significant Gross Margin Expansion; Result Update Q3CY14 :: Edelweiss, PDF link

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->

FAG Bearings’ (FAG) Q3CY14 revenue and EBITDA came in below estimates by 4% each. Key positives were: (1) pick-up in growth in industrial and automotive OEMs, aftermarkets and exports; and (2) robust 440bps expansion in gross margin to 40.5% owing to better product mix and pricing hike. Negative was mere 118bps (down 160bps QoQ) expansion in operating margin to 14.6% due to hedges taken. With a diversified profile across auto and industrial segments with benefits of localisation in industrials, we expect FAG to be a beneficiary of the cyclical uptick in economy. Further, there’s scope for strong sales improvement riding huge gross block addition of 85% over the past three years, potential for robust margin improvement (16.5% in CY16E; historic average of ~17%, peak cycle margin of ~20% plus), earnings CAGR of 29% over CY14-16E, RoE expansion by 337bps during the period and market polarisation for high quality stocks.

Sales growth in line

FAG reported sales growth of 9% YoY (with base effect fading away) and 4.7% QoQ growth led by pick-up in industrial and automotive OEMs, aftermarkets and exports. The sales growth compares to SKF India’s 7% YoY and 2% QoQ growth.

Robust gross margin, EBIDTA margin lower

The company’s operating profit jumped 18.5% YoY, 4% lower than estimates. Gross margin catapulted by a strong 440bps YoY and 103bps QoQ to 40.5%, led by better product mix and certain price hikes taken. However, operating margin moved up by mere 118bps and fell 160bps QoQ to 14.6% due to the 380bps increase in other expenses, led by hedges taken.

LINK
https://www.edelweiss.in/research/FAG-Bearings--Significant-Gross-Margin-Expansion;-Result-Update-Q3CY14/27554.html