1
May 04, 2018
Menon Bearings Ltd
Consumer Discretionary - Automotive
Menon Bearings Ltd
India Research - Stock Broking
BUY
Bloomberg Code: MEN IN
Recommendation (Rs.)
CMP (as on May 04, 2018) 105
Target Price 135
Previous Target Price 150
Upside (%) 29
Stock Information
Mkt Cap (Rs.mn/US$ mn) 5873 / 88
52-wk High/Low (Rs.) 124 / 66
3M Avg. daily value (Rs. mn)
0.1
Beta (x) 1.2
Sensex/Nifty 34915 / 10618
O/S Shares(mn) 56.0
Face Value (Rs.) 1.0
Shareholding Pattern (%)
Promoters 70.7
FIIs 0.0
DIIs 1.2
Others 28.1
Stock Performance (%)
1M 3M 6M 12M
Absolute 5 (5) 10 35
Relative to Sensex (1) (4) 6 17
Source: Bloomberg
Relative Performance*
Source: Bloomberg; *Index 100
Analyst Contact
Arvind Vinjamoori
040 - 3321 6275
arvind.vinjamoori@karvy.com
For private circulation only. For important information about Karvy’s rating system and other disclosures
refer to the end of this material. Karvy Stock Broking Research is available on Thomson Reuters &
Bloomberg (Code: KRVY<GO>)
Exhibit 1: Valuation Summary
YE Mar (Rs. Mn) FY16 FY17E FY18 FY19E FY20E
Net Sales 1109 1228 1449 1609 1968
EBITDA 286 324 364 425 533
EBITDA Margin (%) 25.7 26.4 25.1 26.4 27.1
Net Prot 149 191 211 246 293
EPS (Rs.) 3.2 3.4 3.8 4.4 5.2
RoE (%) 28.7 29.8 27.3 26.4 25.7
PE (x) 15.5 21.4 26.1 23.9 20.1
Source: Company, Karvy Research; *Represents multiples for FY16 & FY18 are based on historic market price
Expansion Plans to Complement Higher Demand
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 rm in
new facilities to start paying o by FY20E. We retain “BUY” rating with a target price
of Rs.135, with an upside of 29%.
In view of new client additions & incremental revenue from its capacity expansions along
with the shift in market dynamics in favor of BS VI, we expect the margins to stabilize by
FY20E with EBITDA margin reaching 27.1% and PAT margin reaching 14.9%.
Aluminum die-cast plant: Menon has invested Rs. 400 Mn towards enhancement
of aluminum division and the facility is expected to be ready by FY20E to cater
to increased customer demand. We believe with enhanced capacities, Menon
is in good place to de-risk its product mix. Considering the strong clientele like
Honeywell, Cummins, John Deere & new contracts, we are of the positive view
about Menon’s focus on increasing the aluminum segmental share from the current
levels of ~30%. We also expect the segment to witness a faster growth ahead.
Strong financials: Net debt to equity of 0.1x in FY18, net working capital to sales
at less than 25% and cash per share of Rs. 3.3 indicate its balance sheet strength
to remain debt free in future while maintaining operational superiority.
Earning Revision: We largely maintain our revenue and PAT estimate for FY19E
and FY20E respectively. Based on rural market recovery, improving tractor & CV
sales, Menon’s focus on increasing the wallet share from each client, we expect
Menon to report 16.5% revenue CAGR and 18.0% PAT CAGR over FY18-20E.
Valuation and Risks
At CMP of Rs. 105, Menon Bearings is trading at 20.1x to FY20E EPS. In view
of the recent capacity enhancements, de-risking of product mix and healthy
protability margins, we ascribe a multiple of 26.0x to FY20E EPS (5 year average
of one year forward PE) and recommend a “BUY” rating for a target price of
Rs. 135 representing an upside of 29%. We believe that on account of high return
on capital at 33.6% over last 3 years, the company has potential to be re-rated.
Threat of counterfeit products which mainly cater to aftermarket segment (10%
of Menon revenues) along with slowdown in industrial & automotive segments
especially tractor & CV sales may pose risk to the call.
Earnings Revision (%)
YE Mar FY19E FY20E
Sales (%) (0.1) (0.1)
EBITDA (%) 0.3 (0.7)
PAT (%) 3.0 1.2
Source: Karvy Research
L
L
L
L
L
L
Company Update
80
110
140
170
May-17
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar -18
Apr-
18
May-18
MEN
Sensex
2
May 04, 2018
Menon Bearings Ltd
YoY revenue grew at
21.9% and the full year
revenue grew by 18%
owing to improved
volumes.
Pressure on Protability
margins is due to higher
material & employee costs
and we believe the same
to fade in near future.
Exhibit 2: Q4FY18
YE Mar (Rs. Mn) Q4FY18 Q3FY18 QoQ % Q4FY17 YoY %
Turnover 387 371 4.4 317 21.9
Expenditure 293 278 5.6 237 24.0
EBITDA 94 93 0.7 81 15.9
Depreciation 10 10 (2.6) 9 7.2
Interest 7 5 55.5 3 176.2
PBT 77 79 (2.3) 69 10.8
Other Income 8 4 104.3 2 398.3
Ta x 33 27 21.7 13 152.2
PAT 51 55 (6.8) 58 (11.2)
Adjusted PAT 51 55 (6.8) 58 (11.2)
EBITDA Margin (%) 24.2 25.1 (89) bps 25.5 (126) bps
EBIT Margin (%) 21.7 22.5 (71) bps 22.7 (93) bps
Net Prot Margin (%) 13.2 14.8 (159) bps 18.2 (493) bps
Source: Company, Karvy Research
Exhibit 3: Margin Analysis
YE Mar Q4FY18 Q3FY18 QoQ (bps) Q4FY17 YoY (bps)
Material Expenses As % Of Net Sales 39.1 37.5 156 34.3 475
Employee Expenses As % Of Net Sales 9.4 8.4 101 9.8 (37)
Other Expenses As % Of Net Sales 27.0 29.2 (221) 29.4 (242)
EBITDA Margin (%) 24.2 25.1 (89) 25.5 (126)
Tax Rate (%) 43.4 34.9 853 19.1 2435
Net Prot Margin (%) 13.2 14.8 (159) 18.2 (493)
Source: Company, Karvy Research
Exhibit 4: Consistent Revenue Growth
Source: Company, Karvy Research
-25%
-10%
5%
20%
35%
0
110
220
330
440
Q1FY15
Q2FY15
Q3FY15
Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3 FY17
Q4 FY17
Q1 FY18
Q2 FY18
Q3 FY18
Q4 FY18
Revenue (Rs. Mn)
YoY Growth (%)
Full year EPS grew
by 10.3% despite a
contraction in EBITDA
margin (125 bps) due to
higher revenue.
3
May 04, 2018
Menon Bearings Ltd
Historically, Menon
Bearings is trading at
26x PE which is a 5 year
average of one year
forward PE.
Exhibit 8: 10yr PE Band- Menon Bearings
Source: Bloomberg, Karvy Research
Exhibit 9: PE Band- S&P BSE Industrial Price Index
Source: Bloomberg, Karvy Research
Exhibit 7: Change in Earnings Estimates
YE Mar - Standalone (Rs. Mn)
FY19E FY20E
Old New % Change Old New % Change
Net Sales 1610 1609 (0.1) 1969 1968 (0.1)
EBITDA 423 425 0.3 537 533 (0.7)
EBITDA Margin (%) 26.3 26.4 10 bps 27.3 27.1 (18) bps
Adj. PAT 238 246 3.0 290 293 1.2
EPS (Rs.) 4.3 4.4 3.0 5.2 5.2 1.2
Source: Karvy Research
Exhibit 5: Improving EBITDA Margins
Source: Company, Karvy Research
Exhibit 6: Healthy PAT Margins
Source: Company, Karvy Research
5%
10%
15%
20%
25%
30%
0
20
40
60
80
100
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3 FY17
Q4 FY17
Q1 FY18
Q2 FY18
Q3 FY18
Q4 FY18
EBITDA (Rs. Mn)
EBITDA Margin (%)
0%
5%
10%
15%
20%
0
20
40
60
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3 FY17
Q4 FY17
Q1 FY18
Q2 FY18
Q3 FY18
Q4 FY18
PAT (Rs. Mn)
PAT Margin (%)
0
40
80
120
Apr-08
Aug-08
Dec-08
Apr-09
Aug-09
Dec-09
Apr-10
Aug-10
Dec-10
Apr
-11
Aug
-11
Dec-11
Apr-12
Aug-12
Dec-12
Apr-13
Aug-13
Dec-13
Apr-14
Aug-14
Dec-14
Apr-15
Aug-15
Dec-15
Apr-16
Aug-16
Dec-16
Apr-17
Aug-17
Dec-17
Apr-18
Price (Rs.)
29.9x
21.9x
13.9x
5.9x
1000
2000
3000
4000
5000
6000
7000
Apr-15
Jun-15
Aug-15
Oct
-15
Dec-15
Feb-16
Apr
-16
Jun-16
Aug-16
Oct-16
Dec-16
Feb-17
Apr-17
Jun-17
Aug-17
Oct-17
Dec-17
Feb-18
Apr-18
Price (Rs.)
43.9x
38.8x
33.7x
28.6x
23.5x
4
May 04, 2018
Menon Bearings Ltd
Financials
Exhibit 10: Income Statement
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Revenue 1109 1228 1449 1609 1968
Growth (%) 7.5 10.7 18.0 11.1 22.3
Operating Expenses 824 904 1084 1184 1434
EBITDA 286 324 364 425 533
Growth (%) 26.7 13.5 12.4 16.6 25.6
Depreciation & Amortization 46 51 41 48 65
EBIT 240 273 323 377 468
Other Income 10 14 19 13 10
Interest Expenses 16 12 19 18 21
PBT 233 275 323 372 457
Tax 84 84 113 127 164
Adjusted PAT 149 191 211 246 293
Growth (%) 29.0 28.3 10.3 16.6 19.4
Source: Company, Karvy Research
Exhibit 11: Balance Sheet
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Cash & Equivalents 54 169 185 226 339
Sundry Debtors 250 292 354 370 453
Inventory 114 124 145 161 198
Loans & Advances 24 33 49 49 49
Gross Block 782 857 1002 1102 1202
Net Block 349 370 478 530 565
CWIP 6 35 45 45 45
Miscellaneous 2 2 0 0 0
Total Assets 799 1025 1257 1382 1650
Current Liabilities & Provisions 116 134 198 194 223
Debt 123 214 253 220 250
Other Liabilities 40 35 35 35 35
Total Liabilities 280 384 486 449 508
Shareholders Equity 47 56 56 56 56
Reserves & Surplus 473 586 715 877 1086
Total Networth 519 642 771 933 1142
Total Networth & Liabilities 799 1025 1257 1382 1650
Source: Company, Karvy Research
We expect the revenue to
grow at 16.5% CAGR &
earnings to grow at 18%
CAGR during FY18-20E
Working capital as a % of
sales is at 22.4% and a
healthy cash position
5
May 04, 2018
Menon Bearings Ltd
Exhibit 12: Cash Flow Statement
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
PBT 233 275 323 372 457
Depreciation 46 51 41 48 65
Interest (16) (12) (19) (18) (21)
Tax Paid (84) (84) (113) (127) (164)
Inc/dec in Net WC (116) (2) (18) (64) (66)
Other non cash items (10) (14) (19) (13) (10)
Cash ow from operating activities 53 214 195 198 261
Inc/dec in capital expenditure (41) (76) (145) (100) (100)
Inc/dec in investments 1 0 0 0 0
Others 10 14 19 13 10
Cash ow from investing activities (30) (61) (126) (87) (90)
Inc/dec in borrowings (17) 17 13 (5) 5
Issuance of equity 0 (9) 0 0 0
Dividend paid (57) (57) (84) (84) (84)
Interest paid 16 12 19 18 21
Cash ow from nancing activities (59) (38) (52) (71) (58)
Net change in cash (36) 114 17 40 113
Source: Company, Karvy Research
Exhibit 13: Key Ratios
YE Mar FY16 FY17 FY18 FY19E FY20E
EBITDA Margin (%) 25.7 26.4 25.1 26.4 27.1
EBIT Margin (%) 21.6 22.2 22.3 23.4 23.8
Net Prot Margin (%) 13.4 15.6 14.5 15.3 14.9
Dividend Payout Ratio (%) 38.6 30.1 39.9 34.2 28.7
Net Debt/Equity (x) 0.13 0.07 0.09 (0.01) (0.08)
RoE (%) 28.7 29.8 27.3 26.4 25.7
RoCE (%) 37.3 31.9 31.6 32.7 33.6
Source: Company, Karvy Research
Exhibit 14: Valuation Parameters
YE Mar FY16 FY17 FY18 FY19E FY20E
EPS (Rs.) 3.2 3.4 3.8 4.4 5.2
DPS (Rs.) 1.2 1.0 1.5 1.5 1.5
BVPS (Rs.) 11.1 11.4 13.8 16.6 20.4
PE (x) 15.5 21.4 26.1 23.9 20.1
P/BV (x) 4.4 6.4 7.1 6.3 5.2
EV/EBITDA (x) 8.3 12.8 15.3 13.8 10.9
EV/Sales (x) 2.1 3.4 3.8 3.7 2.9
Source: Company, Karvy Research; *Represents multiples for FY16 - FY18 are based on historic market price
Healthy cash ow from
operations to continue
Earnings to grow at 18%
CAGR during FY18-20E
6
May 04, 2018
Menon Bearings Ltd
Stock Ratings Absolute Returns
Buy : > 15%
Hold : 5-15%
Sell : < 5%
Connect & Discuss More at
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