Galaxy Bearings

Creating this topic for Galaxy Bearing Ltd

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Lets meet with our 2 Characters called Krishna Dev Roy and Tenali RK who will help you understand the company….

Krishna Dev Roy-”Tenali give me all details about this company called Galaxy Bearings within 1 week”

Tenali Rk-”Yes sir ”

After one week…

Krishna Dev Roy-”Ok I hope you would have prepared analysis on Galaxy Bearings, Lets start then , What does the company do?”

Introduction

Tenali RK-”Yes sir, the company Galaxy Bearings operates in Bearings Industry and makes tapered roller bearings, cylindrical roller bearings and wheel hub bearings.Their bearings are used by automotive OEMs,industrial , state transport etc.

Business

Let’s us first understand what is friction. Friction is what opposes your motion and hence it reduces your speed , hence to reduce friction between surfaces many methods are used.

You might have heard Static Motion ,Sliding motion and Rolling Motion in your physics books . What does these motions state ? That ,in Rolling Motion the friction is least , and in Rolling motion their are bearing which are used to reduce friction.”

Krishna Dev Roy-”All my doubts about bearings got cleared now, Now lets us proceed to their 3 Products in depth”

Products

Tenali RK-”Yes sir their Products are :-

  1. Tapered Roller Bearings:-These bearings have tapered inner and outer ring raceways between which tapered rollers are arranged. Tapered roller bearings are commonly used to moderate speed, heavy-duty applications where durability is required.

2.Cylindrical Roller Bearing: -Galaxy Bearing Ltd. manufactures many types and sizes of cylindrical roller bearings, the majority being single row bearings with cage & also with a full compliment of rollers. The Galaxy Bearing Ltd. manufacturing program also included precision single and double row cylindrical roller bearings for machine tool applications and double cylindrical roller bearings for rolling mill and other heavy engineering applications as per the customer requirements. The bearings are designed for additional strength and are used when the application carries radial loads.

3.Wheel hub bearings:-Wheel bearings are sets of steel balls or tapers held together by a metal ring. They enable the wheels to rotate smoothly with minimal friction.

Krishna Dev Roy-”Seems interesting… What are growth drivers in this industry”

Growth & Risks

Tenali Rk-”Major growth depends on Automotive and Industrial Sector as they are the major customers for bearing industry.”

Krishna Dev Roy-”Oh ok got it can we consider this as a risk for this companies business?And what are the things in which these bearings are used at?”

Applications of Product

Tenali Rk-”Yes sir this is absolutely a risk for this business , we can call this a shallow cyclical business. to answer your 2nd Question sir:-

Their bearings are used for

  1. Wheel & Axle Application- Galaxy bearings is specialized in manufacturing anti - friction belt used in wheel & axle assemblies for applications such as equipment carrier , bulk tank trail , etc. They also manufacture axle spare part & export it to other country.

  2. Earthmoving & Crane Application- Their bearings are used in earth moving equipments such as Pick-n-carry cranes , industrial sew cranes etc.

3.Motor & Compressor Application- It leads in this space as by their decade cooperation they are mastering advancements in bearings. They provide highest quality service by both time & Cost efficiency .”

Krishna Dev Roy-”Very good seems like we have got whole overview of this company , lets proceed to its financials"
Their financials are robust as their sales is growing at 32%, ROCE at 24%,OPM% at 19%. They are reduced their borrowings significantly and their reserves at also increasing manifolds.”

Krishna Dev Roy- “Thanks Tenali RK. I got to learn a new company today.“

Tenali RK- “Welcome sir“

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Can u share the list of its to 5 customers

Sir it has many customers more than 5
Like it’s customer’s are :- Tata Motors, Mahindra & Mahindra, Ashok leyland , Maruti Suzuki, Cummins India Ltd, Swaraj Engines , Either Motors, premier Ltd, Larsen and tubro , a many more

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Tenali if you can share competition and the competitive advantage of the company, I would be obliged…

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Tenali RK - " Competition of this Company are SNL Bearings, Menon Bearings , SKF India are GalaxyBearings nearest peers
Now the Moat (Competitive Advantage) are:-

  1. It’s large customer base of more than 30+ OEMs.

2.Specialized in manufacturing anti - friction belt used in wheel & axle assemblies.

  1. Cost efficient in many applications

  2. In P2P comparison among its peers , It’s beats every peer with best financials"

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Anyone still tracking this company?

Not tracking the company much. But it is interesting that from Sep-22, the promoters stake has gone up by 5% to 54%.

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posting the link of their 32nd AGM - https://www.youtube.com/watch?v=neHQ4qDdKyI&t=333s

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CWIP = Netblock,
Going for capacity expansion,Doubling their Gross block,can be a trigger

This is from last years AGM,
important points highlighted
1.exports contributes 72% to revenue vis a vis 28% by domestic
2.Margins are volatile due to fluctuation in price of raw materials
3.Quarter 1 is generally lean as orders are mostly from international clients
4.capacity utilisation of 80 %
5.17 cr capex planned opf which 5 cr was utilised
6.expanded customer base in last few years
7.exports mainly to Germany,Italy,Us,Turkey and UAE
8 .Automotives contribute 60%, Agro equipment 15 % ,Industrial equipment 15%

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Hi Any one has attended the 33rd AGM of Galaxy bearings on September 26th ? Please post the key takeaways of galaxy bearings AGM.

There was not much update in AGM.

Ongoing capex will be completed by the end of this financial year, demand continue to be very strong as per management, these are the key take aways.

One interesting thing is they have put up presentation on company website regarding expansion.
Seems like expansion is massive and big.

https://www.galaxybearings.com/future-expansion

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Have studied another microcap Bearing roller company
and as per My understanding
the value chain is First Cage (Harsha Engineering) is manufactured,
Then the rolling element [Needle and Ball Rollers (SKP Bearings)] are been put into the Those Cages
then the cages is packed with Seals Made (Sealmatic India and Menon Bearings)
The same is jammed Between Inner and Outter Rings (Rolex Rings)

As per my conversation with Roller manufacturer CEO, This precision engineering tools are very Important as the same if causes error can result into even life damage and so OEM generally prefer not to switch the Suppliers unless there is something very wrong with the supplier.
Majority of the revenue comes from the existing client’s repeat order stating the Customer Stickiness

To onboard new clients in this Space every System and Quality Audit is required and this process can take anywhere between 6 months to 2 Years

So I guess the Moat of the company is That OEM once landed as client will remain with them for Years and in some cases Decades
And Switching time in industry is high which can be Advantage as well as Disadvantage
Disadvantage as in they wont be able to land the new client Smoothly and Fastly
Advantage - Customer won’t take so big of buffer time. so instead of Changing the supplier they’ll continue with current manufacturer

Disclaimer - Invested In SKP Bearings

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If Anybody’s active in this Thread i had several Question
Recently i started Learning about this company

  1. the capex is of 35 crores post to which the company will have the capacity of more than 9.5 Million bearings P.a. the capex is to be completed by the end of this year. SO anytime line regarding the capacity utilization schedule? Since 4x of original capacity means that the Depreciation will start to hit the P&L Statement as soon as the product is put to use but the Revenue will Build up steadily
  2. Who are their Export clients? since majority of their revenue is Export oriented and i saw they are exporting it to Italy and Germany, but in current scenario there is Import duty on European OEM if they import from India (around 10%). In last 2 AGM i didn’t hear anything about the same. how did they stay put if the product of there’s becomes Expensive? Any Measure since the margin are more or less Stable
  3. If I Understand correctly the money parked in Mutual Funds are for CAPEX, Since the capex money is required in next 6-12 months wasn’t the prudent strategy to keep it in Liquid Fund. Does any body find the management Risk Averse?
  4. What is causing such Huge capex? I understand correctly that the structure of Industry is such that there is not Above hand Orders but still is there management Rationale behind the same.?
  5. The cash generation ability of the company is very poor. In AGM one of the participant asked the question on this line and the answer was Quite fluke by the management.
    Anybody has any idea regarding the above questions then will be Great
    Thanks
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Hi Shanid, is there any link where the latest AGM is uploaded?

Pl. Search galaxy bearing AGM Youtube

Galaxy Bearings has neatly positioned itself among its peers (Timken, Shaeffer, NRB, SKP, Menon bearings) with respect to Net Asset turns, EBITDA margins and cash conversion days.

Across 5 Yrs Galaxy Bearings Schaeffler India Timken India SKF India NRB Bearings Menon Bearings
Mcap (Cr) 467 50,333 24,330 22,720 2,797 751
PE 25.8 54.6 67.9 47 25.6 25
Gross M % 50–55 38 40–47 40 60–65 60–65
EBITDA M % 15–20 (^) 17–20 17-20 17 17 20–25
Net M % 13 (^) 13 14 12 9 15
ROE % 16–23 (^) 20 19 22.5 14.5 20–25
Net Asset Turns 9.92 (^) 6.11 3.33 8–10 3 2.88
Asset Turns 1.23 1.2 1.1 1.35 0.88 1.2
Rev Growth CAGR 3 yr % 35 16 20 15 11 16
EPS Growth CAGR 3 yr % 42 33 17 26 47 31
Cash Conversion Days 102 (decreasing) 66 124 69 292 121

Midcaps are valued 2x small-caps even with similar ROE’s. Most bearing companies are doing great post-covid with improving ROE’s. The growing manufacturing & automotive sector is providing impetus to the bearing industry.

I think Galaxy Bearings has comparable ROE’s, Gross margins & faster growth than the big players because Galaxy sells to other bearing makers, does aftermarket sales & services and mainly exports to other countries.

Few Questions:

  • What is driving such profitability & growth for Galaxy?
  • Do bearing manufacturers face raw material (steel) cost escalation (Raw material price risk)?
  • What differences or advantages does the export market have over the domestic market, if there are any?

Galaxy Bearings has a huge 35 Cr capex for expanding bearing manufacturing capacity from 2.1 Mill/ Yr to 9.6 Mill/ Yr, a roughly 4.5x expansion, which shall be completed by early FY2025. Promoter has also been consistently increasing stake in the company. Most efficiency metrics are improving. Demand seems to be strong, as Schaeffler is also doing significant capex. NRB Bearings promoters are increasing their stake. The stock has been in a long consolidation.

Disc: No position. Tracking.

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I just watched the AGM. Though couldn’t really discern anything much from the last AGM , as the promoter said they can’t disclose their order books in view of competition.
However , w.r.t the capex only discernible takeaway could be him saying that company CU is currently at 90 percent utilisation, which may say that capacity augmentation would lead to more order implementation as the restrain in capacity might be causing a bit of constraint in terms of taking on or committing to increased orders.
Can anyone shed light on order/demand situation currently for the industry ?

Okay so let me tell you one thing in bearings you dont have Order book
So please forget order book investing now in bearings industry dynamics is that you build capacity you offer OEM capacity after you build and slowly them ramp up production so no prder / mcap investing lol

However risk which no one has highlighted im putting the same down → red sea issue freight of container are 3.5x and Galaxys major revenue are on back of exports we can see EBITDA Margins taking a hit in near term

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