Menon Bearings: Gaining Traction both operationally and stock wise


(prash814) #1

Menon Bearings ( MBL), a Menon Group company was established in 1992 and is one of the few companies in the continent having fully integrated manufacturing facilities under one roof, to produce a wide range of critical auto components like bi-metal engine bearings, Bushes & Thrust Washers for light & heavy automobile engines, two wheeler engines as well as for compressors, refrigerators, air conditioners etc. The company started its commercial production in April 1993.

MBL is listed on the BSE ( Bombay Stock Exchange ) & is globally positioned with business activities spanning 24 countries around the globe. Exporting 35 % of its production capacity, with exports growth at more than 25 % per annum, the engineering capabilities at MBL enjoys strong brand equity among leading OEMs all over the world.

Menon Group is a multi-product, high end critical auto components group with a turnover exceeding Rs 300 crore & globally positioned with business activities spanning 24 countries around the globe exporting 35 % of its production. The Menon Group’s historic commitment to quality and customer service, strong corporate values, disciplined & professional management systems, emphasis on trust in business relations & its ability to meet special needs is recognized the word over.

MBL manufactures a whole range of bi-metal engine bearings, bushes & thrust washers for light medium & heavy automobile engines, 2 wheeler engines as well as for compressors & for refrigerators & air conditioners.

Product range of the company includes:

Bearings
Bearings for Connecting Rods
Bearings for Crank shafts
Flanged Bearings
Trimetal Bearings
Bushes
Truncated bushes for Connecting rods
Ball indented bushes
Bushes for Connecting Rods
Cam Shafts, Rock Shafts
Rocker Arms
Thrust Washers
Washers with Thrust
Face Contours
Ring Type
Thrust Washers.

This information was gotten from their home website. This particular stock popped on one of my screens, and seemed quite interesting.

Fundamentals

It is a micro-cap with a total market cap of 478 Cr, that has suddenly beginning to show improving OPM’s from 15% in 2013 all they way upto 27% now.

ROE has increased from 25.37% in 2012 to 31.46% in 2016.
ROCE has increased from 17.61% in 2012 to 25.94% in 2016.

TTM Profit at 17.36 Cr
TTM Sales at 118.69 Cr

Although I feel ROE and ROCE in excess of 15% is itself good enough for most companies and extremely difficult to maintain in the long term.

Operating Profit Margins at 26.08% (2016). Highest levels over the last ten years
NPM at 13.4%(2016)
Debt to equity at a manageable 0.24 having come down from 0.69 levels in 2012.

The stock has also strong dividend payouts in excess of 30% over the last ten years. This seems to indicate that they do value the interest of minority shareholders as well.

With the expected pickup in the auto ancillary space, I feel this may be a multi-bagger in the making especially at the current juncture. I feel it’s not too expensive currently at 4 P/S for a firm with a high profit margin doesn’t seem like a lot to me. More than that I feel the long term value creation is more important, and if this stock is capable of delivering profit and sales growth in excess of 15-20%, the stock returns may eventually be rewarding.

CAGR Sales over 3 Years 10.22% (This is still a bit dull, I look for a minimum of 15%)
Profit CAGR over 3 Years 61.83%
Promoter Holding 74.67%

Please do provide your insights into this company.

Thanks,
Prashanth


(Chirag) #2

Menon Bearing has come out with good growth in both Q1 and Q2 of FY17.

Just a word of caution that, it is currently trading near its higher valuation band.

Disclaimer: Holding and planning to buy on any correction that takes the price below 75.


([email protected]) #3

Hi,

Read the post on Menon Bearings. If you look at the cash flows of the Co in the last 5 yrs, there is hardly any surplus cash generated by this Co. Also growth is very slow given the industry it is into…secondly having an EBIDTA of over 15% for a small size Auto Ancillary coupled with no cash flows may suggest that the Co is capitalizing some of its PL items.
I would rate this Co expensive at 26PE… or would buy only after digging deep into its P&L numbers and cash flows… which might not happen only with Annual report.

R
Amit L.


(Akbar Khan) #4

About 50% of revenues with related parties. I would rather stay away.


(Muser) #5

whats unique about the products or the company? Many such auto parts companies around

Are the high ROE or ROCE a temporary blip…are they sustainable?


(Sujay Ghosh) #6

(Yogesh Sane) #7

Can you please elaborate on the 50% number? From the annual report of 2017, I can only see 22% sales going to related parties.


Source: Annual Report 2016-17

Sales to related parties is ~ 28 cr against total sales of 133 cr.


(Akbar Khan) #8

Hi Yogesh,

The comment was in 2016… so you will have to look at 2016 AR… however the figures are similar. Check the enabling resolution for related party transactions.


(Salman_kn99) #9

As per 2018 Annual report it is just 13% related party transaction. Looks good to me. PE 15 ROE & ROCE is almost above 25% but price is keep moving downward. Also last two years cfo was good.


(simplyraghav) #10

@Yogesh_s Are you still tracking the company or invested in it ?


(Rajat Setiya) #11

company seems to be the best company in bearings space going by sales growth and ROCE over the last decade. However, a big red flag emerges from Cash flow statement (CFS) - there is no outflow of taxes going by CFS. as per P&L company’s tax liabilities come to a cumulative sum of 50 Crores over the last 10 years however, company has only paid 7 crores going by CFS.

A bit of googling on this topic threw the following news article which talks about Axis bank freezing the bank accounts of menon bearings as the company has one common independent director with Gitanjali Gems.

No outflow of cash for tax liability seems a bit scary to me.

best - rajat


(Rajat Setiya) #12

Hi, I’d like to correct myself on tax outflow point here.

Company’s cash flow statement starts with PAT as opposed to PBT which is usually the case. Because of which they have not mentioned taxes separately. And I ignored this changed reporting pattern and assumed there is no cash outflow for taxes.

Thanks to one of the VP participant who pointed this out to me.

Now, to know cash outflow for taxes, is there a way to know this from annual report?

best - rajat


(Pratik--Patel9) #13

Any one tracking this company? On the paper it looks really good considering last 5 years of track record. It fits following criteria.

Profit growth 5Years > 20 AND
Profit growth 3Years > 10 AND
Profit growth >10 AND
YOY Quarterly profit growth > 10 AND

Sales growth 5Years > 10 AND
Sales growth 3Years > 10 AND
Sales growth > 10 AND
YOY Quarterly sales growth > 10 AND
Return on capital employed > 15 AND
Return on invested capital > 20 AND
Return on equity > 15 AND
Average return on capital employed 3Years > 20 AND
Average return on equity 3Years > 15

Add to this, the capex which can bring further growth if demand sustains. The debt level is also very low.
The concern however is that its a small cap and lots of related party transactions generates fear. Has anyone done any research on management quality and track record?

consistent and healthy ROE and ROCE do speak well for management though.