Indian Stock Market

Date: 11 Sep 2007 13:35:04 -0000 Subject: Fwd: Wednesday Telefolio : Austin Engineering Company
Subject: Wednesday Telefolio : Austin Engineering Company
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=20 =20 Austin Engineering Company=20 Awesome prospects=20 Focused on industrial bearings the company has sound prospects for revenue= growth, and it has strategies in place to improve OPM also=20 Buy=20 Austin Engineering Company BSE Code 522005 NSE Code Not listed Bloomberg AUST@IN Reuter AUST.BO 52-week High/Low=20 Rs 131 / Rs 71 Current Price Rs 123 (as on 5th September 2007) Incorporated in 1978, Austin Engineering Company went public in 1985. Qual= ified engineers having vast experience in the bearings industry promoted it.= It manufacturers a wide range of ball and roller bearings. It has an annual= installed capacity of 2.5 million. Austin Engineering manufactures over 400= 0 different types of bearing at its plant located at Patla in the state of G= ujarat.=20 Leading manufacturer of Industrial bearings=20 AECL is the leading manufacturers of all types of antifriction bearings na= mely Ball, Tapered Roller, Spherical Roller, Needle Roller and Thrust Bearin= g. The company offers wide range of bearings to the different category of bu= yers like automobiles, Defence, State Road Transport Corporation, Steel Plan= ts, Thermal plants, Cements Plants, Sugar and Paper Industries, Fan and Pump= Industry and material handling equipments. It manufactures bearings for very demanding applications. It is among a ha= ndful of customized bearing manufacturers worldwide to produce bearings with= 1200 mm diameter. Its special bearing range includes, Steel Plant bearings, Heavy duty beari= ngs for Railways, Mining Equipment, Material handling equipment, Bearings fo= r cement, sugar, paper and other continuous process industry, Special bearin= gs for high speed heavy duty turbines (used in power plants) and Oilfield ap= plications. The company continues to launch a numbers of new and higher value added pr= oducts which will further strengthen the company’s competitiveness in the fu= ture. Benefiting from the capex upturn Austin Engineering is a leading player in Industrial bearings. With its wi= de range of products and services, it is rightly positioned to capitalise on= the pick up in investment in industries as well as infrastructure sectors. Good economic growth over the past few years and lack of any major expansi= on in most of the industries has lead to most of the manufacturing sector wo= rking at near full capacity utilisation. This has lead to pick up in investm= ent in fixed assets to expand and modernise capacities to cater to future gr= owth in demand. Notably, huge investment projects are lined up in the mining= , manufacturing and the infrastructure sector, which has lead to massive exp= ansions by Steel companies, Indian Railways, Mining Equipment companies, Mat= erial handling equipment companies, Cement companies, Sugar companies, Paper= companies, Continuous process industry companies, High speed heavy duty tur= bines manufacturers (used in power plants) and Oilfield companies. Austin Engineering is well placed to benefit from the strong capex by all = its user industries. Good export standing=20 ‘AECL’ restrict its exports domain only to the most quality conscious mark= ets like USA and Europe, which accounts for over 40% of its revenues (up 47%= to Rs 28.56 crore in FY 2007). It has setup 100% subsidiaries in USA, which= also act as marketing front-end.=20 The company has tied up with highly reputed international customers in the= most quality conscious markets in US and EU like Bonfigloli Srl., GE, Westi= nghouse and GM Loco etc. Financials are soaring=20 After registering 19% rise in its revenues to Rs 65.16 crore in FY 2007 an= d 67% jump in net profits (to Rs 5.35 crore) in FY 2007, the company has rep= orted encouraging results for the first quarter of FY 2008.=20 For the quarter ended June 2007, sales rose 19% to Rs 18.27 crore. OPM imp= roved from 13.7% to 15.9%, which took OP up by 39% to Rs 2.90 crore. Other i= ncome (down 35% to Rs 24 lakh), interest cost (down 10% to Rs 37 lakh) and d= epreciation (down 3% to Rs 30 lakh) fell. This took PBT up by 42% to Rs 2.47= crore. Provision for taxation rose 43% to Rs 87 lakh. Finally, PAT grew 42%= to Rs 1.60 crore.=20 Expanding profit margins The operating margins which were in the range of 6% to 8% about 3 years ag= o have now risen to about 16% coupled with relatively lower capital intensit= y leading to higher operating efficiencies.=20 The management is confident that the operating margins will further improv= e and would stabilize around 22-23% band going forward. Has more than doubled its bottomline from FY 2004 to FY 2006; soared by 67= % in FY 2007 After being in red in FY 2003 (loss of Rs 22 lakh), the company has been m= ore than doubling its net profit from FY 2004 to FY 2006. Its net profit sto= od at Rs 55 lakh in FY 2004, which zoomed by 149% to Rs 1.37 crore in FY 200= 5. In FY 2006, its PAT soared 134% to Rs 3.20 crore.=20 FY 2007 saw its PAT rising 67% to Rs 5.35 crore.=20 During the same time its EPS rose from Rs 1.7 in 2004 to Rs 4.2 in FY 2005= to Rs 9.1 2006. It stood at Rs 15.2 in FY 2007.=20 Outlook is buoyant The ongoing capex, estimated to be in the range of Rs 900000 crore has ope= ned up very exciting long-term opportunities for a niche but quality driven = player like Austin Engineering. This capex would be spread over the next 4-5= years and would involve very high level of investments in steel, power, ear= thmoving and mining sectors.=20 Apart from this, very profitable opportunities are opening up as existing = dilapidated power plants and steel plants are required to be modernized. Mos= t of these are 30 years or older, with unavailability of key components like= bearings.=20 These players like SAIL, NTPC, NHPC and others are willing to pay top buck= s for custom designed bearings to keep these plants running. With overall de= mand from other sectors improving, bargaining power of buyers has been stead= ily declining. This has led to a steady improvement in operating margins whi= ch have improved from 6-8% in 2003 to around 15.5% in current year and is ex= pected to improve in the next couple of years and likely to stabilize around= 22-23% band. The company is also actively working on the following areas, which are ver= y close to commercialization which are:=20 =20 Developing bearings for aerospace applications.=20 =20 Development of Geared Slewing Rim bearings for Heavy Earth Moving and con= struction equipment.=20 To sum up the management is upbeat about the company’s prospects going for= ward. The management is confident that the company is in a growth mode and i= ts operating and financial performance outlook for the future continues to b= e strong.=20 Valuation is very attractive=20 In FY 2008, we expect the company to register sales and net profit of Rs 7= 7.59 crore and Rs 7.16 crore, respectively. On a small equity of Rs 3.53 cro= re and face value of Rs 10 per share, EPS works out to Rs 20.7. The share pr= ice trades at Rs 123. P/E works out to just 5.9. Austin Engineering Company: Financials =20 =20 0403 (12) 0503 (12) 0603 (12) 0703 (12P) 0803 (12P) Sales 31.93 39.24 54.56 65.16 77.59 OPM 9.8 10.8 12.5 15.5 16.8 OP 3.12 4.23 6.84 10.11 13.04 Other inc.=20 0.31 0.51 0.58 1.26 1.00 PBIDT 3.43 4.74 7.42 11.37 14.04 Interest 1.29 1.53 1.53 1.77 1.59 PBDT 2.14 3.21 5.89 9.60 12.45 Dep. 1.06 1.01 0.93 1.15 1.20 PBT 1.08 2.2 4.96 8.45 11.25 Tax 0.53 0.83 1.76 3.10 3.94 PAT 0.55 1.37 3.20 5.35 7.31 EPS (Rs)* 1.7 4.2 9.1 15.2 20.7 * Annualised on current equity of Rs 3.53 crore;=20 Face Value: Rs 10 Figures in Rs crore (P): Projections Source: Capitaline Corporate Databases =20 Austin Engineering Company: Financials: Results =20 =20 0706 (3) 0606 (3) Var. (%) 0703 (12) 0603 (12) Var. (%) Sales 18.27 15.31 19 65.16 54.56 19 OPM (%) 15.9 13.7 =20 15.5 12.5 =20 OP 2.90 2.09 39 10.11 6.84 48 Other inc. 0.24 0.37 -35 1.26 0.58 117 PBIDT 3.14 2.46 28 11.37 7.42 53 Interest 0.37 0.41 -10 1.77 1.53 16 PBDT 2.77 2.05 35 9.60 5.89 63 Dep. 0.30 0.31 -3 1.15 0.93 24 PBT 2.47 1.74 42 8.45 4.96 70 Tax 0.88 0.54 63 2.71 1.11 144 Deferred Tax -0.01 0.07 -114 0.39 0.65 -40 PAT 1.60 1.13 42 5.35 3.20 67 EPS* (Rs) 18.1 12.8 =20 15.2 9.1 =20 * Annualised on current equity of Rs 3.53 crore;=20 Face Value: Rs 10 Figures in Rs crore Source: Capitaline Corporate Databases =20
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