(April 21, 2011)

See 20-25% return in FAG Bearings India over next couple of years, says SP Tulsian, sptulsian.com.

Tulsian told CNBC-TV18, "FAG Bearings India is the second-largest ball bearing and roller bearing makers, which have applications in railway, automotive and industrial applications. If we see their performance for year-ended December 2010, it has substantially improved the EBITDA margin as well as the PAT margin, EBITDA margin has improved by about 3.5%, PAT margin has also improved by about 2.5% and if I compare the performance of this company with the largest player being SKF, still they have the higher EBITDA of 19.3 against 13.3% of SKF and PAT margin at 11.5% against 8.5% of SKF."

He further added, "If you see the performance for calendar year ?0, the company has posted because of this improvement in the EBITDA and PAT margin as well as the normal growth of about 20% on topline, they have posted an EPS of close to about Rs 73 for calendar year ?0 which translates share ruling at a P/E multiple of about less than 13 while SKF is ruling at a P/E multiple of 18 times."

"If we see practically the company is having exactly 50% of the topline of SKF while their PAT is not in the similar proportion. So going forward I am quite positive because the company has been improving their margin, they have been doing quite well in the roller bearing where they have the higher margin and going forward, looking to the cash balance with the company of Rs 300 crore and the strong parentage with 51% stake held by the German parent and 30% by the institutional investor, I think this qualifies a sound bet in the portfolio which can consistently give a return of 20-25% over next couple of years."

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