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FAG Precision Bearings India – Analysis

April 23, 2008

Fag Bearings’ (FBIL) Q1CY08 results were better than our expectations. Net sales grew by 9.4% YoY from Rs1.57bn to Rs1.72bn (we expected Rs1.75bn), mainly due to slowdown in the auto and industrial sectors. There was a sharp drop in two-wheeler and commercial vehicle sales during the quarter, which has affected overall sales growth.

The company’s EBIDTA margin declined by 30bps from 22.2% to 21.9% YoY (we expected 16.0%), due to increase in personnel cost. Personnel cost increased by 200bps from Rs115m to Rs159m due to rise in salaries and lower sales growth. Material cost declined by 80bps from 53.9% to 53.1% despite rise in prices of steel and components, as the company was able to pass the same to its customers. FBIL’s net profit improved by 15.5% YoY from Rs220m to Rs254m due to lower tax rate (we expected Rs178m).

We expect the company on a conservative basis to report an EPS of Rs 65 for FY09.

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