Reco price: Rs 554
Current market price: Rs 525
Target price: Rs 600
Upside: 14.3%
Brokerage: HDFC Securities
FAG Bearings India (FBIL) has reported poor results for fourth quarter ending December 2009. The company reported a growth of 17 per cent in net sales to Rs 219 crore on the back of demand from auto and industrial segments. However, the company’s EBIDTA margin dropped by 710 basis points to 12.4 per cent due to increase in material cost. Material costs as a percentage of net sales jumped by 830 basis points from 54.9 per cent to 63.2 per cent due to higher metal prices and FAG’s inability to pass on this increase to customers. As a result of the decline in EBIDTA margins, net profits declined by 23 per cent year-on-year to Rs 16.5 crore.
For the year ending December 2010, net sales is expected to rise by 13 per cent and net profit by 29 per cent due to improvement in EBIDTA margin from 15.2 per cent in CY09 to 17 per cent in CY10. FAG Bearings, which is debt-free, is poised for rapid growth led by demand from the auto and industrial sector. The brokerage maintains a ‘HOLD’ rating on the stock with a target price of Rs 600 (10 times CY10 earnings).
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