FAG Bearings - Q1CY2013 results - Angel Broking

FAG Bearings (FAG) reported disappointing set of results for 1QCY2013 as EBITDA margins declined 530bp yoy owing to raw-material cost pressures and lower utilization levels.

For 1QCY2013, FAG's top-line posted a decline of 6.5% yoy (2.2% qoq) at Rs. 340cr, which was slightly above our expectations of Rs. 329cr. The top-line performance continued to be impacted by the slowdown in the automotive and industrial sectors which are the key drivers of the company's revenue performance. The operating profit fell significantly by 34.8% yoy (flat qoq) as EBITDA margins witnessed a sharply led by raw-material cost pressures and lower utilization levels. While, the raw-material cost as a percentage of sales surged 165bp yoy; employee expenditure as a percentage of sales jumped 140bp yoy during the quarter. Further, due to lower operating leverage benefits, other expenditure as a percentage of sales grew by 230bp yoy. Led by a weak operating performance and lower other income, the net profit declined 45% yoy (14.3% qoq) to Rs. 25cr, lower than our expectations of Rs. 30cr.

We revise our earnings estimates downwards for CY2013/14 by 18%/16% primarily to factor in the margin pressures witnessed during the quarter. We expect the company's performance to improve going ahead, led by easing of interest rates in CY2013 which is expected to revive demand in the automotive and industrial sectors. Nevertheless, at 12.5x CY2014 earnings, we believe the stock is fairly valued leaving limited room for potential upside. Hence, we recommend a Neutral rating on the stock.

Source : Equity Bulls

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