ABC Bearings-Smooth Tapered Bearings

ABC Bearings-Smooth Rolling

BSE 505665, CMP Rs 165

 

Shares o/s: 11.5 mn

EPS FY06: Rs 13.6

EPS FY07 e: Rs 18

PE on FY06 : 12.5

PE on FY07 e earnings: 9

 

ABC bearing's 1QFY07 net sales grew by 31% YoY to Rs 56 crore. Ramp up in sales was mainly due to strong growth in all the serviced segments viz cars (including a resurgence in supplies for the Toyota models like Innova), commercial vehicles and the tractors segment. Higher volume growth also became possible as additional capacities created in Q4 FY06 at Bharuch began to contribute to the top and bottomline.

 

During the first quarter of FY07 ABC has grown to become the Number 1 in India for Automotive Tapered Roller Bearings. 

 

With capacity expansions in place, ABC is likely to consolidate its position by showing much higher growth than the industry growth in the current financial.

 

ABC continues to focus on achieving the growth in profitability through continuous cost reduction measures, Kaizen, OEE improvement and optimum utilisation of resources.

 

While ABC continues to remain strong in the OE business, the after market segment has shown substantial growth as a result of increased dealer network and improved services.

 

The proof lies in the numbers

 

Q1 Revenues were placed at Rs 56 crore (Rs 42 crore), with after tax profits at Rs 5.3 crore (Rs 3.5 crore). Q1 EPS rose to Rs 4.7 (Rs 3). These numbers compare favourably with FY 06 Revenues of Rs 176 crore (Rs 149 crore), PAT of Rs 15.7 crore (Rs 11.5 crore) and EPS of Rs 13.6 (Rs 9.98).

 

Outlook and valuations

 

The outlook for the auto ancillary sector remains buoyant. ABC Bearings with its strong technical collaboration with NSK Japan is well positioned to leverage global opportunities and improve its competitiveness in the domestic automobile market.

 

With robust performance from the company and better outlook going forward Revenues are expected to cross the Rs 210 crore mark in FY07, with after tax profits closer to the Rs 21 crore mark.

 

At the current market price of Rs170, the stock trades at 12.5x and 9.0x earnings FY06A and FY07E respectively. 

 

The stock could attain a price target of Rs 225 in a year.