Menon Bearings

India Equity Research | Auto Ancillaries

September 27, 2016
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CMP Target Price

Gearing for secular growth Rs80 NA

Rating Upside
Not Rated NA

We met the management of Menon Bearings Limited (MBL) and also visited Change in Estimates

their facility in Kolhapur (Maharashtra). MBL is one of the leading EPS Chg FY17E/FY18E (%) NA
manufacturers of Engine Bearings, Bushings and Thrust Washers for Target Price change (%) NA
M&HCV, LCV, 3W, Compressors, Gen sets, Axles, Pumps, Electrical Previous Reco NA
components and Tractor segment. It also competes with companies like
Bimetal Bearings, Federal-Mogul bearings and KSPG bearings in India. Emkay vs Consensus
Currently, MBL has a capacity of 38mn pieces p.a. and is running at 85% of EPS Estimates
capacity utilization. It exports ~22-25% of its production FY17E FY18E
Emkay - -
Expect to double the revenue by FY20: MBL has set up an ambitious target of Rs2 bn Consensus - -
revenue by FY20 (Rs1.1 bn FY16), with ~26% operating margin. Currently, M&HCV, Mean Consensus TP -
tractors and aftermarket contributes ~60%, 25% and 15% respectively. MBL is supplying
bearing and bushing to OEMs like Tata Motors, Greaves Cotton, M&M, John Deere,
Stock Details
TAFE, Cummins, Tata Cummins, Sonalika, and Emerson etc. MBL expects to add new
customers like Jamna Auto and new geographies for bearings and bushes business. Bloomberg Code MEN IN
Company has recently added new customers like Brakes India, Magna and Mitsubishi Face Value (Rs) 1
(Japan) and expects meaningful contribution from these customers, going ahead. It is Shares outstanding (mn) 47
planning to increase its capacity from 38mn pieces p.a. to 56 mn pieces p.a. in the next 52 Week H/L 93 / 36
three years. Currently, it has more than 300 dealers for Indian aftermarket business, and M Cap (Rs bn/USD bn) 5 / 0.07
targeting to enter the US aftermarket business this year.
Daily Avg Volume (nos.) 1,64,613
Diversifying its aluminum business: MBL plans to continue to focus on offering more Daily Avg Turnover (US$ mn) 0.2
value added products from its aluminum die cast business (Alkop) to customers like
Honeywell, Cummins, M&M, Concentric Pumps and expects to double revenues in the
Shareholding Pattern Jun '16
next 2-3 years. Alkop contributes ~22-25% of its total revenues and has an operating
Promoters 74.7%
margin of ~31%. Management has guided that it has received orders from Honeywell
(Korea) and expects to start supplying from October 2016 onwards. FIIs -
DIIs -
CAPEX plan: Management has guided for a capex of ~Rs500mn over the next three
years and is planning to add four lines every year for bearing and bushes on account of Public and Others 25.3%
strong growth from the domestic OEMs, export markets and new client additions. For
FY17, MBL will have additional four lines for bearing and bushes i.e. two bearing lines Price Performance
and two bush lines. Total twelve lines will be added in the next three years. (%) 1M 3M 6M 12M
Business Outlook: We believe MBLs strategy of focusing more on profitability rather Absolute 15 62 52 90
than chasing revenue, has been very visible, as MBLs Revenue, EBITDA, PAT grew by Rel. to Nifty 13 53 35 75
6%, 15%, 19% CAGR respectively over FY12- FY16. We believe companys thrust to add
new customers and enter into new geographies in bearing and bush segment, would Relative price chart
certainly help to increase revenue. However, we maintain our cautious view on Alkops 90 Rs % 110

margin profile and growth potential and will monitor the projected turnaround guided. 78 86

66 62
Financial Snapshot (Consolidated)
54 38
(Rs mn) FY12 FY13 FY14 FY15 FY16
Revenue 876 832 868 1,032 1,114 42 14

EBITDA 169 127 154 225 290 30 -10

Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16
EBITDA Margin (%) 19.2 15.3 17.7 21.8 26.0 Menon Bearings (LHS) Rel to Nifty (RHS)

APAT 74 37 62 115 149 Source: Bloomberg

EPS (Rs) 1.6 0.8 1.3 2.5 3.2
EPS (% chg) 16.1 (50.1) 67.1 86.9 29.0
ROE (%) 23.5 11.2 17.2 26.9 28.7
P/E (x) 50.5 101.1 60.5 32.4 25.1 Bibhishan Jagtap
EV/EBITDA (x) 23.1 30.9 25.2 16.9 13.1 bibhishan.jagtap@emkayglobal.com
P/BV (x) 11.8 11.3 10.4 8.7 7.2 +91 -022-66121334
Source: Company, Emkay Research

Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. Emkay Global Financial Services Ltd.
Menon Bearings (MEN IN) India Equity Research | Visit Note

Key Financials (Consolidated)

Income Statement
Y/E Mar (Rs mn) FY12 FY13 FY14 FY15 FY16
Revenue 876 832 868 1,032 1,114
Expenditure 708 704 714 807 824
EBITDA 169 127 154 225 290
Depreciation 41 46 48 42 46
EBIT 127 81 106 183 244
Other Income 3 9 6 7 5
Interest expenses 24 23 22 24 16
PBT 107 67 90 166 233
Tax 33 30 28 51 84
Extraordinary Items 0 0 0 0 0
Minority Int./Income from Assoc. 0 0 0 0 0
Reported Net Income 74 37 62 115 149
Adjusted PAT 74 37 62 115 149

Balance Sheet
Y/E Mar (Rs mn) FY12 FY13 FY14 FY15 FY16
Equity share capital 47 47 47 47 47
Reserves & surplus 269 284 313 383 473
Net worth 315 331 360 430 519
Minority Interest 0 0 0 0 0
Loan Funds 215 253 197 167 123
Net deferred tax liability 26 35 37 36 40
Total Liabilities 556 619 594 633 683
Net block 311 365 377 357 350
Investment 7 3 1 1 0
Current Assets 327 339 358 421 442
Cash & bank balance 54 58 66 90 54
Other Current Assets 0 0 0 0 0
Current liabilities & Provision 147 111 148 150 116
Net current assets 180 228 210 271 326
Misc. exp 0 0 0 0 0
Total Assets 556 619 594 633 683

Cash Flow
Y/E Mar (Rs mn) FY12 FY13 FY14 FY15 FY16
PBT (Ex-Other income) (NI+Dep) 104 58 84 159 228
Other Non-Cash items 0 0 0 0 0
Chg in working cap 21 (34) 28 (37) (88)
Operating Cashflow 104 28 105 76 48
Capital expenditure (88) (65) (43) (20) (41)
Free Cash Flow 15 (37) 61 56 6
Investments (6) 4 3 0 1
Other Investing Cash Flow 1 (10) (6) (9) (5)
Investing Cashflow (90) (62) (40) (22) (41)
Equity Capital Raised 0 0 0 0 0
Loans Taken / (Repaid) (16) 38 (55) (31) (43)
Dividend paid (incl tax) 30 22 33 44 57
Other Financing Cash Flow (6) 1 (10) (20) (41)
Financing Cashflow (16) 38 (56) (31) (43)
Net chg in cash (2) 4 9 24 (36)
Opening cash position 56 54 58 66 90
Closing cash position 54 58 66 90 54

Emkay Research | September 27, 2016 2

Menon Bearings (MEN IN) India Equity Research | Visit Note

Key Ratios
Profitability (%) FY12 FY13 FY14 FY15 FY16
EBITDA Margin 19.2 15.3 17.7 21.8 26.0
EBIT Margin 14.5 9.7 12.2 17.7 21.9
Effective Tax Rate 30.8 45.0 31.5 30.6 36.2
Net Margin 8.4 4.4 7.1 11.2 13.4
ROCE 14.7 8.0 11.4 19.0 22.2
ROE 23.5 11.2 17.2 26.9 28.7
RoIC 16.0 7.6 12.0 20.8 24.1

Per Share Data (Rs) FY12 FY13 FY14 FY15 FY16

EPS 1.6 0.8 1.3 2.5 3.2
CEPS 2.5 1.8 2.3 3.4 4.2
BVPS 6.8 7.1 7.7 9.2 11.1
DPS 0.6 0.4 0.6 0.8 1.0

Valuations (x) FY12 FY13 FY14 FY15 FY16

PER 50.5 101.1 60.5 32.4 25.1
P/CEPS 32.4 44.8 34.2 23.7 19.2
P/BV 11.8 11.3 10.4 8.7 7.2
EV / Sales 4.4 4.7 4.5 3.7 3.4
EV / EBITDA 23.1 30.9 25.2 16.9 13.1
Dividend Yield (%) 0.7 0.5 0.8 1.0 1.3

Gearing Ratio (x) FY12 FY13 FY14 FY15 FY16

Net Debt/ Equity 0.5 0.6 0.4 0.2 0.1
Net Debt/EBIDTA 1.1 1.0 1.5 0.9 0.3
Working Cap Cycle (days) 58.6 86.8 75.8 78.5 90.3

Growth (%) FY12 FY13 FY14 FY15 FY16

Revenue 10.0 (5.1) 4.4 18.9 7.9
EBITDA 10.0 (24.4) 20.7 46.6 28.7
EBIT 9.9 (36.4) 31.1 72.5 33.4
PAT 16.1 (50.1) 67.1 86.9 29.0

Quarterly (Rs mn) Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17

Revenue 267 285 263 295 310
EBITDA 60 72 69 84 87
EBITDA Margin (%) 22.5 25.3 26.5 28.4 28.0
PAT 30.08 39.31 37.09 42.42 46.68
EPS (Rs) 0.6 0.8 0.8 0.9 1.0

Shareholding Pattern (%) Jun-15 Sep-15 Dec-15 Mar-16 Jun-16

Promoters 74.7 74.7 74.7 74.7 74.7
FIIs - - - - -
DIIs - - - - -
Public and Others 25.3 25.3 25.3 25.3 25.3

Emkay Research | September 27, 2016 3

Menon Bearings (MEN IN) India Equity Research | Visit Note

Emkay Rating Distribution

BUY Expected total return (%) (Stock price appreciation and dividend yield) of over 25% within the next 12-18 months.
ACCUMULATE Expected total return (%) (Stock price appreciation and dividend yield) of over 10% within the next 12-18 months.
HOLD Expected total return (%) (Stock price appreciation and dividend yield) of upto 10% within the next 12-18 months.
REDUCE Expected total return (%) (Stock price depreciation) of upto (-) 10% within the next 12-18 months.
SELL The stock is believed to underperform the broad market indices or its related universe within the next 12-18 months.

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