Fundamental Report
Price Targets: Short-Med Term: 145+ Med-Long Term: 200+ Duration: 9-12 Months
BSE Code: 522005
CMP: 110
Recommendation: Very Strong Buy
Industry: Bearings
Volumes: 30,000 (Average Volume)
INTRODUCTION
Austin Engineering is one of the leading manufacturers of all types of antifriction bearings namely Ball, Tapered Roller, Spherical Roller, Needle Roller and Thrust Bearing. The Company offers wide range of bearings to the different category of buyers like automobiles, Defense, State Road Transport Corporation, Steel Plants, Thermal plants, Cements Plants, Sugar and Paper Industries, Fan and Pump Industry and material handling equipments. The growth in domestic as well as booming outsourcing market augurs well for the company.
Bearing Industry
The Indian Bearing Industry is estimated at 30 billion rupees. There are various types of bearings such as Ball Bearing, Taper Bearing, and Needle Bearing. The industry has established a highly diversified product range of bearings having high volume demand.70% of the total demand is being met by domestic industries and the rest is being met from import, essentially for industrial application and special purpose. Bearing industry in India can be divided into 3 segments viz. the organized sector, un-organized sector and imports. The organized sector primarily caters to the OEM segment which is pre-dominantly automotive, railway and other industrial users. The replacement market is mainly dominated by the unorganized sector. 55% of the total sales of bearings belong to the organized sector and about 30% is being met from import.
Export opportunity
Export of bearing companies have increased at CAGR of 13% in the last 7 years from 1995-96 to 2000-01 to at Rs.2.5 billion and the same is expected to grow further. Austin exports its products to developed countries like USA, UK, Germany, Italy and others. The exports especially of auto bearings of the company are likely to increase rapidly in future with the entry of auto giants in India.
Concerns
The company faces risk in the event of slowdown in the domestic as well as global automobile industry or any sharp rise in input cost which it may be forced absorbed internally due to intense competition in the sector.
Outlook
The demand for bearing industry flows from original equipment (OE) and the replacement market. OE segments accounts for about 60 % while the Replacement accounts for about 40%.The Growth in demand for bearings however derived from demand in two key users segments i.e. automobile and industrial sector growth. The automobile industry is the largest growth driver for OEM market as it accounts for almost 45% of total bearing market. Engineering sector which account about 28% of total share holds the second growth driver. The fate of bearing industry is largely dependent on production of vehicles and other transport systems. It is also very much linked to heavy duty industrial application in rolling stock, rolling mills, heavy earth moving equipment and other machinery which accounts for about 21% of total bearing market. Austin is expected to witness exponential growth going forward owing its good status and one of the lowest cost producers of its products.
Financials
The company posted a jump of 21% in turnover at Rs.65.16 Crore for the year 2007 in all four quarter ended as compared to Rs.54.56 Crore for the corresponding last year. Net Profit for the same period rose by 62% to Rs. 5.35 Crore as compared to Rs. 3.2 Crore earlier. For the half yearly the turnover grew by 26% to Rs. 32.43 Crore while net profit flared up by 94% to Rs. 2.56 Crore as compared to Rs. 1.32 Crore posted in the corresponding six months last year. The growth in profitability was on account of lower interest costs, reduction in employee cost and power and fuel cost leading to higher EBITDA margins.
ShareHolders
Majorly Bajaj Auto Also Holding Around 3% Stake & JNJ Holdings has 1% stake in it.
Top line & Bottom-line
We expect the top line of the company to register a growth of 35% in FY08 & 26% in FY09 to Rs 87.96 Crore & Rs 110 Crore respectively on rising export thrust and on strong demand growth from the domestic market. The net profit is slated to almost double in FY08 to Rs 10.25 Crore owing to higher contribution from exports, industrial segment and special bearings. With a mere equity of 3.5 Cr EPS for 08 is expected to be around Rs. 30.
Valuations
Austin is expected to sustain its growth momentum going forward on the back of robust business model, higher visibility of exports and rising contribution from new product launches. In addition, increased outsourcing of needle roller bearings by Timken from low cost destinations such as India would provide further fillip to its growth. The stock appears attractive vis-à-vis other auto ancillaries at a PE of 3.66x FY08E EPS of Rs 30 & 2x FY09E EPS of Rs 40 .We believe investors can look for upside from current levels of Rs 110 to Rs 200 levels (upside of 90%) over the next 9-12 months.
INVESTORS CAN BUY AUSTIN ENG (AECL) FOR MEDIUM TO LONG TERM .
Compiled By Sources: guli & biggains
Source: DreamGains
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