Recommendation from Auto Ancillaries - Bearings
This section gives a recommendation of a stock having a stock price below Rs 150 with sound fundamentals and expected to give handsome returns over a one-year time horizon.
MENON BEARINGS: MOVING WITH THE TREND
HERE IS WHY
✓Strong product portfolio
✓Established export channel
✓Impressive profitability
Ball bearing, also known as an anti-friction component, is a highly engineered precisely made component that helps in the smooth moving of components. Bearings play a crucial role in the automobile industry and are also extensively used in many other industries. The market for bearings has gained significant impetus led by the growing utilisation of bearings in motors and the rising popularity of electric vehicles (EV). Owing to huge opportunities in the bearings segment, our low price recommendation for this issue is Menon Bearings.
Incorporated in 1991 as a part of the Kolhapur-based Menon Group, Menon Bearings Ltd. (MBL) is engaged in the business of bearings, bushings and thrust washers and aluminium die casting components. These are used in heavy and light commercial vehicles, tractors, construction equipment, material handling, stationery, diesel, and gasoline and CNG engines. The company has three manufacturing facilities in Kolhapur, Maharashtra. These facilities are spread over an area of 26+ acres. The company also has a warehouse and an office in Indianapolis, USA.
MBL is among the few companies to have facilities to produce next-generation parts through lead-free material to comply with the future emission norms. Because of its three decades of existence and the quality of products and services the company offers, it has created strong ties with key clients such as Eicher Motors, Mahindra, Honeywell, Magna, Cummins and Tata Motors, among others. The best part is that no single customer contributes more than 10–12 per cent of the total revenue
The company has two major product lines – bi-metal products and aluminium (Alkop Limited). The company has recently introduced its new product line in brakes which will produce asbestosfree brake lining and brake shoes. In FY22, bi-metal products contributed 77 per cent and aluminium (Alkop) segment the rest to the company’s total revenue. The company earns 66 per cent of the total revenue from India while the rest (34 per cent) comes from exports. MBL is a market leader in the bearings segment and a dominant source for top automotive OEMs across the world.
It company exports its products to over 24 countries with major countries being USA, Brazil, Mexico, Netherlands, Africa and Japan. In Q3FY23, the company reported consolidated revenue of ₹49.65 crore that grew slightly by 1.20 per cent YoY from ₹49.06 crore. The EBITDA margins grew by 663 bps YoY and 325 bps QoQ and stood at 26.5 per cent. The net profit margin grew by 483 bps YoY and 221 bps QoQ at 15.6 per cent. The company has planned ₹30 crore for capex on plant and machinery till FY25, of which 30 per cent will go to the bi-metal division to meet increasing market demand and the remaining 70 per cent are set aside for the Alkop division
At TTM, MBL is trading at a PE of 17.9 times which is lower than its three-year median PE (19.3 times). The valuation also looks cheaper if we compare it with the industry PE (35.1 times). MBL has achieved an average ROE and ROCE (five-year) of 24.03 per cent and 27.46 per cent, respectively. MBL has interest coverage of 13.45 times over its debt to equity of 0.21 times. MBL has a wellestablished market position and a strong outlook. Furthermore, the company has a robust balance-sheet and is available at an attractive valuation. Owing to these factors, we recommend BUY.
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