Menon Bearings Ltd. share price target

Value Unlock in Aluminum Division: Q3FY19 results came in line with our estimates. YoY earnings grew by a marginal 3.9% mainly on account of increased finance cost.

Expansion Plans & Value Unlock in Aluminum Division: Q2FY19 results came broadly in line with our estimates. YoY earnings haveimproved by an impressive 22.7% mainly on account of improved volumes and low base effect. YoY revenue grew by 23.9% aided by increased wallet share from majorOEMs coupled with a 14% exports growth.

Expansion Plans, Exports Growth, Higher Revenue: Q1FY19 results marginally exceeded our estimates. YoY Earnings have improved by an impressive 58.1% mainly on account of improved volumes and low base effect. YoY revenue grew by 45.1% aided by increased wallet share from major OEMs coupled with a 16% exports growth.

Menon continues to grow: Owing to improved volumes & higher revenue growth (18%), FY18 full year EPS has witnessed a 10.3% growth despite a contraction in EBITDA margin (125 bps). We expect the pressure on margins to fade and margins to stabilize around 27% by FY20E. Also, we expect investments made by the firm in new facilities to start paying off by FY20E. We retain BUY rating with a target price of Rs.135, with an upside of 29%.

Top line growth to continue with new investments: YTD EPS grew by 18%, as the slight contraction (112 bps) in EBITDA margin was compensated by a top line growth of 17%. We expect the pressure on margin to fade and margins tostabilize around 27% by FY20E.

MBL makes engine bearings, bushes and thrust washers for commercial vehicles (CV). Bearings business represents 55% of its total sales, where it caters only to CVs. On that backdrop, the recovery in the CV sales is going to be positive for MBL. Company claims that the bearings business has certain entry barriers, hence its customer base i..

Witnessing Significant Demand Pick Up: Impressive Q4 numbers along with double digit YoY growth - Menon Bearings has registered turnover growth of 12.8% sequentially mainly owing torecuperating demand environment nullifying the demonetization effect, however has shown a flattish YoY growth of 7.8% for Q4FY17. EBITDA & EBIT margins haveexpanded by 41 bps, 263 bps QoQ, however contracted by 278 bps & 153 bps YoY respectively though. PAT margin has recorded an impressive expansion of 391 bps QoQ & 385 bps YoY. Whole year performance (FY17) has been optimistic with asales growth of 10.8% along with EBITDA, EBIT & PAT Margin expansion of 84 bps, 78 bps & 223 bps to reach 26.6%, 22.4% & 15.7% respectively compared to FY16.

Significant Demand Pick-up to Aid Growth: Q3 numbers hit by Macro factors - Menon Bearings has registered turnover de-growth of 11.8% sequentially mainly owing to unfavorable demand environmentcaused due to demonetization, however has shown 11.9% YoY growth for Q3FY17 owing to improved volumes. EBITDA & EBIT margins have contracted by 207 bps,266 bps QoQ and 125 bps & 196 bps YoY respectively. 9 months YTD performance has been optimistic with a sales growth of 11.9% along with EBITDA, EBIT & PAT Margin expansion of 217 bps, 166 bps & 167 bps to reach 26.9%, 22.3% & 14.7% respectively.

Significant Demand Pick-up to Aid Growth: Consistent revenue growth along with healthy ratios: Menon Bearings has registered a turnover growth of 2.9% sequentially & 11.9% YoY growth for Q1FY17owing to improved volumes.However, H1FY17 turnover has recorded a 14.1% growth compared to YoY. Though EBITDA margin has contracted by 70 bps QoQ ithas expanded by 200 bps YoY. Also the H1FY17 EBITDA margin has expanded by 370 bps YoY. EBIT & Net profit margins have also clocked similar trends comparedto QoQ & YoY.

Surge in auto & auto components sales & uptick in industrial activity to up revenue by 10.3% for FY15-FY18E: With automotive industry estimated to grow at a CAGR of 10.1% for FY15-FY17E coupled with auto components industry expected to record a CAGR of 24.5% to reach a high of $115Bn by FY20E from the current levels of $38.5 Bn combined With IIP & core sector growth, finally exhibiting signs of recovery on the back of strong macro-economic factors. Menon bearings, having a near perfect correlation with auto sales & IIP growth, is well poised to grow at a CAGR of 10.3% for FY15-FY18E.