ABC Bearings (ABC) is amongst the leading players in tapered roller bearings. It supplies to most of the commercial vehicle OEM’s, who form ~45% of the total Indian bearings demand. Spurred by higher manufacturing growth and improved road infrastructure we believe demand for commercial vehicles (CVs) would continue to grow strongly in the future, in turn fuelling demand for ABC’s products as well.
ABC has the potential to double its revenues over the next 3-4 years with its capacity expansion initiatives. At the CMP of INR 105, ABC is trading at 6.0x its FY07 earnings, which is at a steep discount to the average industry P/E of 13x TTM, inspite of its high margins and return ratios.
Ador Welding (Ador), one of India’s largest welding equipment manufacturers, has over five decades of experience. Ador’s strong relationships with clients and superior product offerings place it well to exploit opportunities arising in the welding industry. At a growth of 11.3% Y-o-Y, FY07 saw the Indian IIP grow at its fastest since FY96.
Ador is targeting revenues of INR 4.5 bn over the next three years with total investments of ~INR 700 mn over FY05-FY08 to achieve this target. We expect good traction for each of Ador’s businesses, on the back of its linkages with the IIP and a robust outlook for the Indian economy. At CMP of INR 265, the stock is attractively valued at 11.1x its FY07 earnings with a 5% dividend yield.
Automobile Corporation of Goa:
Jointly promoted by Economic Development Corporation of Goa (EDC) and Tata Motors Ltd. (TML), Automobile Corporation of Goa (ACGL) started commercial production of bus bodies for TML in 1989. The company’s bus body division, which contributed 70% of FY07 sales, has registered a volume growth of 38% CAGR since FY03 on the back of strong export sales of TML’s bus division which grew at 50% CAGR over the same period. ACGL has increased its installed capacity from 1,200 units in FY04 to 4,200 units in FY07 and plans to further augment it to 10,000 units by FY10E. Since ACGL currently meets only ~35-40% of TML’s export requirements.
ACGL’s revenues and profits have grown at 43% and 31% CAGR respectively over FY04-07. We expect the company to post a 22.2% CAGR growth in revenues over FY07-10E. At the CMP of INR 385 the stock trades at 9.4x FY07 EPS of INR 41.1.
Bajaj Electricals (BEL) is among the leading providers of home appliances, high masts and poles, luminaries, and fans in India. It commands a 65% market share in the high masts and poles segment and is a market leader in OTG, water heaters, and irons segments. BEL is primarily focused on marketing and believes in creating a strong distribution network rather than investing in manufacturing facilities. The company has a strong marketing and distribution network comprising 19 branch offices with over 120,000 retail outlets in India.
BEL is on a high growth trajectory, given its dominant position in most of the product segments, strong distribution network, and focus on high-margin premium products. Post the “Odyssey 1001”, through which the company embarked its journey to achieve sales of INR 10 bn in FY07, the company has now set its eyes to achieve sales of INR 20 bn by 2009-10 through the theme “Zoom ahead”.
Fem Care Pharma:
Fem Care Pharma (Fem), has been one of the pioneers in the domestic women’s bleach market. Fem currently controls ~ 90% of the INR 460 mn women’s bleach segment in India, which is expected to grow by ~15% over the next three years. The company has recently launched its premium variant Oxybleach at the retail level, which contributed ~12% of bleach sales in FY07.
The company expects to triple its turnover over the next four years on the back of expanded capacities coming on stream, cashing in on its dominant position in the women’s bleach market, and new product launches, thereby expanding its addressable market. Also, there will be tax benefits accruing from its Himachal plant, and excise benefits accruing from its export focused unit at Nashik which would enhance its net margins and EBITDA margins, respectively. At CMP of INR 505, the stock is trading at just 13.4x its FY07 earnings.