By Vaishali Jajoo, Shreya Gaunekar (Angel Broking)

Performance Highlights

- Top-line falls, performance below expectation: For 3QCY2009, Net Sales de-grew by 4.8% yoy to Rs207.2cr, which was below our expectation of Rs217.6cr. FAG also recorded a 46.9% yoy decline in Bottom-line for 3QCY2009 to Rs16.5cr, which was also below our expectation of Rs24.6cr. Profit plummeted primarily due to poor Operating performance with Raw Material cost component at 31% of Sales (24.7%) rising by 625bp on the back of accumulated inventory stocked at higher valuation of inflated steel prices in the previous fiscal. Further, management has indicated that the substantial decline in Export volumes impacted the company’s realisations and OPM during the quarter.

- Margins decline by 906bp on higher Inventory cost: For 3QCY2009, FAG’s EBITDA Margins plummeted by a substantial 906bp to 12.3% (21.3%). This was basically due to the increase in inventory costs by 625bp during the quarter. Other expenditure and cost of finished goods also increased by 103bp and 224bp, respectively. This was however, marginally off-set by the 17bp fall in Staff costs. Overall, Operating Profit fell by 45.3% yoy to Rs25.4cr (Rs46.4cr), which came in well below our expectation of Rs36.8cr.

- Bottom-line declines by 46.9%: For 3QCY2009, FAG registered 46.9% yoy decline in Bottom-line to Rs16.5cr (Rs31.1cr) largely on account of the substantial fall in OPM and marginal increase in Depreciation by 2.2% yoy. 

- Bearings Industry roundup: The Indian Bearings market size is estimated at Rs5,400cr with an estimated 60% of bearings getting supplied to the OEM Segment and the balance servicing the After-market and Replacement markets. The Bearings industry is characterised by a varied supply structure with an estimated 60% of supplies flowing from major domestic bearing manufacturers, another 15% supplied via the domestic Unorganised Sector and the balance 25% through Imports. Imports constitute both supplies of niche products not manufactured in India as well as cheap imports from countries such as China, Thailand, Korea and UAE.