Austin Engineering Company
Awesome prospects
Focused on industrial bearings the company has sound prospects for revenue growth, and it has strategies in place to improve OPM also
Buy
Austin Engineering Company
BSE Code
522005
NSE Code
Not listed
Bloomberg
AUST@IN
Reuter
AUST.BO
52-week High/Low
Rs 131 / Rs 71
Current Price
Rs 123 (as on 5th September 2007)
Incorporated in 1978, Austin Engineering Company went public in 1985. Qualified 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 4000 different types of bearing at its plant located at Patla in the state of Gujarat.
Leading manufacturer of Industrial bearings
AECL is the leading manufacturers of all types of antifriction bearings namely Ball, Tapered Roller, Spherical Roller, Needle Roller and Thrust Bearing. The company offers wide range of bearings to the different category of buyers like automobiles, Defence, State Road Transport Corporation, Steel Plants, 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 handful of customized bearing manufacturers worldwide to produce bearings with 1200 mm diameter.
Its special bearing range includes, Steel Plant bearings, Heavy duty bearings for Railways, Mining Equipment, Material handling equipment, Bearings for cement, sugar, paper and other continuous process industry, Special bearings for high speed heavy duty turbines (used in power plants) and Oilfield applications.
The company continues to launch a numbers of new and higher value added products which will further strengthen the company's competitiveness in the future.
Benefiting from the capex upturn
Austin Engineering is a leading player in Industrial bearings. With its wide 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 expansion in most of the industries has lead to most of the manufacturing sector working at near full capacity utilisation. This has lead to pick up in investment in fixed assets to expand and modernise capacities to cater to future growth in demand. Notably, huge investment projects are lined up in the mining, manufacturing and the infrastructure sector, which has lead to massive expansions by Steel companies, Indian Railways, Mining Equipment companies, Material handling equipment companies, Cement companies, Sugar companies, Paper companies, Continuous process industry companies, High speed heavy duty turbines 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
'AECL' restrict its exports domain only to the most quality conscious markets 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.
The company has tied up with highly reputed international customers in the most quality conscious markets in US and EU like Bonfigloli Srl., GE, Westinghouse and GM Loco etc.
Financials are soaring
After registering 19% rise in its revenues to Rs 65.16 crore in FY 2007 and 67% jump in net profits (to Rs 5.35 crore) in FY 2007, the company has reported encouraging results for the first quarter of FY 2008.
For the quarter ended June 2007, sales rose 19% to Rs 18.27 crore. OPM improved from 13.7% to 15.9%, which took OP up by 39% to Rs 2.90 crore. Other income (down 35% to Rs 24 lakh), interest cost (down 10% to Rs 37 lakh) and depreciation (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.
Expanding profit margins
The operating margins which were in the range of 6% to 8% about 3 years ago have now risen to about 16% coupled with relatively lower capital intensity leading to higher operating efficiencies.
The management is confident that the operating margins will further improve 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 more than doubling its net profit from FY 2004 to FY 2006. Its net profit stood at Rs 55 lakh in FY 2004, which zoomed by 149% to Rs 1.37 crore in FY 2005. In FY 2006, its PAT soared 134% to Rs 3.20 crore.
FY 2007 saw its PAT rising 67% to Rs 5.35 crore.
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.
Outlook is buoyant
The ongoing capex, estimated to be in the range of Rs 900000 crore has opened 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, earthmoving and mining sectors.
Apart from this, very profitable opportunities are opening up as existing dilapidated power plants and steel plants are required to be modernized. Most of these are 30 years or older, with unavailability of key components like bearings.
These players like SAIL, NTPC, NHPC and others are willing to pay top bucks for custom designed bearings to keep these plants running. With overall demand from other sectors improving, bargaining power of buyers has been steadily declining. This has led to a steady improvement in operating margins which have improved from 6-8% in 2003 to around 15.5% in current year and is expected 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 very close to commercialization which are:
* Developing bearings for aerospace applications.
* Development of Geared Slewing Rim bearings for Heavy Earth Moving and construction equipment.
To sum up the management is upbeat about the company’s prospects going forward. The management is confident that the company is in a growth mode and its operating and financial performance outlook for the future continues to be strong.
Valuation is very attractive
In FY 2008, we expect the company to register sales and net profit of Rs 77.59 crore and Rs 7.16 crore, respectively. On a small equity of Rs 3.53 crore and face value of Rs 10 per share, EPS works out to Rs 20.7. The share price trades at Rs 123. P/E works out to just 5.9.
Austin Engineering Company: Financials
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.
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;
Face Value: Rs 10
Figures in Rs crore
(P): Projections
Source: Capitaline Corporate Databases
Austin Engineering Company: Financials: Results
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
15.5
12.5
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
15.2
9.1
* Annualised on current equity of Rs 3.53 crore;
Face Value: Rs 10
Figures in Rs crore
Source: Capitaline Corporate Databases
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