FAG Bearings - Result Review - Angel Broking

FAG Bearings (FAG) reported weak results for 2QCY2013, which were lower than our expectations on account of continued slowdown in automobile production and industrial activity. However, operating margins for the quarter came in ahead of our expectations largely due to easing of commodity cost pressures.

For 2QCY2013, top-line posted a significant decline of 18% yoy at Rs.312cr, which was lower than our expectations of Rs.334cr. 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. The operating profit too fell significantly by 34.9% yoy as EBITDA margins witnessed a sharp contraction of 345bp yoy to 13.4%. While, the raw-material cost as a percentage of sales declined by 513bp yoy; other expenditure and employee expenses as a percentage of sales surged 570bp and 290yoy respectively. This we believe could be due to lower utilization levels. On a sequential basis though, operating margins expanded by 116bp and were ahead of our expectations of 12.5% primarily on account of the savings on the raw-material front. As a result the operating profit remained flat sequentially despite an 8.3% qoq decline in the top-line. Net profit for the quarter stood at Rs.26cr (down 44.7% yoy and flat qoq) and came in lower than our expectations of Rs.29cr. At Rs.1,445, the stock is trading at 13x CY2014 earnings, which is broadly in-line with its historical average. We maintain our Neutral rating on the stock.

Source : Equity Bulls

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