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FAG Bearings 4QCY2013 performance highlights and results update

February 14, 2014, Friday, 07:21 GMT | 02:21 EST | 11:51 IST | 14:21 SGT
Contributed by Angel Broking

FAG Bearings (FAG) posted mixed results for 4QCY2013 with its top-line coming in slightly ahead of our expectations, while EBITDA margins were lower-thanexpected largely due to raw-material cost pressures. The bottom-line, however, was ahead of our expectations led by significant increase in other income. We marginally revise our earnings estimates downwards as we scale down our EBITDA margin estimates for CY2014/15E. We expect FAG’s performance to remain subdued over the next couple of quarters due to economic slowdown and weak consumer sentiments which are impacting demand in the automotive and industrial sectors. However, we believe that expected easing of interest rates in CY2014 following expected tapering of inflation will revive demand and drive growth in CY2014. We maintain our Accumulate rating on the stock.

Mixed results for 4QCY2013: The top-line for the quarter posted a strong growth of 7% qoq to Rs.403cr, which was slightly ahead of our expectation of Rs.388cr. The strong growth in the top-line was despite weakness in the automotive and industrial sectors which are the key growth drivers of the company. EBITDA margins declined sequentially (down 108bp qoq) to 12.4%, lower than our expectations of 13.9%, primarily due to raw-material cost pressures and sharp increase in other expenditure. Consequently, the operating profit and net profit declined 1.6% and 2.7% qoq to Rs.50cr and Rs.35cr respectively. On a yoy basis though, the net profit surged 17.6% led by strong top-line growth of 16% and was aided further by a sharp increase of 64.4% in other income.

Outlook and valuation: We maintain our positive stance on FAG, considering its strong parentage, debt-free status and cash balance of Rs.143/share on the books. At the CMP, the stock is trading at 13x CY2015E earnings. We maintain our Accumulate rating on the stock with a target price of Rs.1,710.