Indian Bearing industry comprises of 10 major players and several units in unorganised segment. Due to technology barriers, the industry is dominated by foreign players like SKF, FAG Bearing etc. and hence these players have high margins.
ABC Bearing is one of the largest player in tapered roller bearings which find usage in CV & Tractor industry. ABC has the technological collaboration with NSK, Japan and hence it has also developed a certain market share for itself. The co has a long standing relationship with automotive majors like Tata Motors, Ashok Leyland, Mahindra etc.
If one analyses the financials of the company, the company has had high operating margins in the range of 20-25%. Between FY 2002 and FY 2007, the company had grown steadily from 65 to 182 Cr turnover and had very strong profitability. In FY 2008 & 2009, the CV industry went through a rough phase and so did the company had a decline in turnover and profitability. Now the CV segment is back to strong growth and ABC should do well. Based on the last few quarter numbers, the company is already posting all time high turnover (200 Cr annualised).
- The co has constructed a new factory in Uttarakhand in a record time of 4 months. The plant was inaugurated on 28th March, 2010. This plant will primarily cater to the Ashok Leyland’s Uttarakhand plant. Sales growth should start coming up in next few quarters.
- The co is setting up another manufacturing facility for – Slewing Bearing & Large bearing. This is expected to get completed by end of this year.
Valuations at CMP of 155:
- For FY 2011, the company is expected to post a turnover of 205 Cr+. i.e.. a growth of more than 25%
- For FY 2011, the co may be able to post a NP of more than 25 Cr+, hence an EPS of more than 22.
- Stock is trading at about 7 times expected FY 2011 earning.
- The co has consistent record of high dividend pay-out of 25-30%. Last year the company paid a dividend of 45%.
- Co has enjoyed high ROCE of 30%+ consistently.
- Its almost a debt free company. Co repaid a loan of about 50 Cr in FY 2010.
If one looks at the valuations of bigger players in the industry like SKF, NRB, FAG Bearing etc, they trade at 15-20 PE.
Given the strong growth prospects for the company ahead over next 1-2 years, it seems to be a good growth story at attractive valuations.