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FAG Bearings - Buy -3QCY2010 Result Update
FAG Bearings (FAG) recorded strong 3QCY2010 performance.
Top-line broadly came in line with our estimates aided by the
robust performance registered by the auto and industrial
segments. Operating performance improved on better
operating leverage. Net profit surged on better operating
performance and higher other income.
Top-line surges on robust auto growth and increase in industrial
segment: For 3QCY2010, the company's net sales grew 31.5%
yoy to `272cr (`207cr) as against our expectation of `276cr.
This was largely driven by a jump in overall auto volumes and
sharp recovery in the industrial bearing segment. Overall pickup
in economic activities helped the company to clock robust
top-line growth.
EBITDA margins up by 381bp on lower input cost: EBITDA
margin expanded by a substantial 381bp yoy to 17.7% (13.8%)
basically due to decrease in raw material costs by 480bp during
the quarter. Further, better operating leverage helped 48bp yoy
reduction in staff costs during the quarter. Other expenses,
however, increased by 147b yoy to 17.6% (16.1%). Overall,
operating profit increased substantially by 67.6% to `48cr
(`29cr), though marginally lower than our expectation by ~6%.
Bottom-line up 90.1%: For 3QCY2010, FAG registered 90.1%
yoy increase in bottom-line to `31.4cr (`16.5cr) largely on
account of robust top-line growth and substantial jump in
operating performance. Further, higher other income aided the
robust growth in net profit to a certain extent and helped the
company to register NPM of 11.5% (8%).
Outlook and Valuation
We believe that robust demand in the auto and industrial
segments will aid FAG in registering a CAGR of ~17% in net
