Fag Bearings: Recommendation review

We had recommended Fag Bearings to investors in DSIJ Vol. 26, Issue No. 21 (dated September 26-October 9, 2011), when it was trading at Rs 1261. Our recommendation was backed by factors like the safety which the stock offers in a turbulent market. In addition to this, other compelling factors were its strong financials, the debt-free status and last, but not the least, the fact of the company being an MNC. Its valuations were also fair. Considering all these factors, we had put a target price of Rs 1500 on the counter.

After our recommendation, the scrip moved up, and it achieved our target on 22nd February, 2012. Currently, it is trading at Rs 1450. In view of the volatile market conditions, we feel that booking profits could be the right strategy.

For CY 2011 (December closing), the company posted a strong performance, where its topline stood at Rs 1312 crore and the bottomline stood at Rs 175.97 crore as against Rs 1048.59 crore and Rs 121.50 crore in CY10. The best part is that its operating margins have improved despite the rising raw material prices. We feel that with raw material prices cooling down, the performance may only improve going ahead. Further, the debt-free status will only add to the benefits. FIIs have marginally increased their stake in the company in the December 2011 quarter.

On the valuations front, it is trading at 13.50x. We recommend that investors should book profits at the current levels.