Recommendation from Bearings sector
This section gives a recommendation of a stock having stock price below Rs 150 with sound fundamentals and expected to give handsome returns over a one-year time horizon.
MENON BEARINGS LTD.: SMALL BUT STRONG
HERE IS WHY
✓Strong presence in its segment
✓Focus on cost control
✓Huge growth opportunities
Menon Bearings Ltd. (MBL) is a leading engine bearing manufacturer in India. It is engaged in the designing, testing, validation and manufacturing of bearings, bushes and thrust washers which find applications in automotive engines, compressors, marine engines, earth movers, and many others. Although the company is relatively smaller considering the market capitalisation size of ₹ 521 crore, it holds out promising opportunities for the future. The financials too are getting stronger. For fiscal 2021, the company reported net sales of ₹ 149.5 crore as compared to ₹ 139 crore in FY20. That is a growth of nearly 7.55 per cent.
Nearly half of the revenues are generated through original equipment manufacturers (OEMs). MBL has increased focus on exports such that they contribute about 37 per cent to revenues. The EBIDTA came in at ₹ 36 crore in FY21 as against ₹ 31 crore in the previous year, which saw a jump of over 16.1 per cent. Also, the PAT got better by 32 per cent to ₹ 19 crore while it was at ₹ 14.4 crore in FY20.
The lockdowns and the pandemic situation have brought liquidity crunch to some extent as cash flows from operating activities decreased to ₹ 24.2 crore in FY21 by 20.6 per cent. The debtor days too worsened from 93 days to 108 days in FY21.
In Q3FY22, revenue grew by 13.06 per cent YoY to ₹ 49 crore from ₹ 43.4 crore in Q3FY21. On a sequential basis, the top-line was up by 1.1 per cent. Its tractor segment posted a slowdown, yet MBL was able to deliver good sales numbers. PBIDT exclusive of other income was reported at ₹ 9 crore, down by 6.4 per cent YoY and the corresponding margin was reported at 18.28 per cent, contracting by 380 basis points. PAT was reported at ₹ 5.3 crore, down by 6.87 per cent YoY. The PAT margin stood at 10.81 per cent in Q3FY22, contracting from 13.13 per cent in Q3FY21.
Looking at some of the key ratios, the ROE and ROCE stood at 20.25 per cent and 22.45 per cent, respectively. The inventory turnover ratio has improved to 3.30 from 2.78 in the previous year. The debt-to-equity ratio has come down to 0.30 from 0.44. It has a good dividend yield of 2.16 per cent. The stock has a PE multiple of 21.3. MBL is one of the leading manufacturers of highly critical moving engine components. It has emerged a market leader in the segment and has a strong client base with some popular names such as John Deere, Tata Group, Mahindra and Mahindra, Honeywell, Ace Tractors, Cooper Corporation, etc.
It has also been focusing on non-engine applications such as brakes, transmission, suspension and other parts. These applications have the potential to boost revenue growth. On the ESG front, it is among the few companies to produce lead-free material and parts and comply with emission norms. Few players are involved in the industry in which MBL operates. Given the nature of the products and its complexity in manufacturing, it presents high barriers to entry, which augurs well for MBL. The downturn in the automobile industry in recent times is expected to normalise going ahead. By virtue of all these factors, we recommend our reader-investors to BUY this low-priced scrip.
