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Sunday, Aug 04, 2002

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Industry & Economy - Bearings, Castings & Forgings
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Bearings cos: How do they stack up?

B. Krishnakumar

Recommendations
SKF Bearings: Book profits on uptrend
NRB Bearings: Book profits on uptrend
Fag Bearings: Hold

AFTER passing through a relatively rough business patch, bearings companies have seen some sort of a relief from the recent upturn in auto production and economic fundamentals. The financial performance of bearings companies could see some improvement if the recent improvement in automobile production lasts longer.

From an investment perspective, probably only NRB Bearings, SKF and Fag Bearings would warrant a closer look. These companies have a strong presence in the product type they produce. Besides, they have also taken steps to withstand competitive pressure from imports and the unorganised sector.

The remaining companies in the organised sector might not quite graduate to a portfolio status either due to smaller size of operation and lack of liquidity at the stock market and/or weak fundamentals. Over a period of time, quite a few companies would either face closure or would be acquired by stronger companies.

The share prices of the three companies mentioned have settled at higher levels in comparison to their September lows. Though a part of the rise could be attributed to the overall improvement in the broad market sentiment, the recovery in the auto sector and some early indications of an improvement in economic fundamentals have also played a role in pushing fuelling the rally in share price.

NRB Bearings has probably been the biggest gainer since September lows.

In comparison to Rs 24.4 in late September, the NRB stock is currently traded at Rs 57.7. SKF has seen its share price recover from Rs 26 to Rs 38.45, while the Fag Bearings scrip has recovered from Rs 38 to a high of Rs 66 in early July.

Though the expectation of an improved financial performance has played a key role in triggering the recent rally in the share price of bearings companies, the actual performance has not matched market expectations. Except for NRB Bearings, the other two companies have not come up with any robust increase in performance.

By virtue of a strong presence in the niche market in the automobile sector, NRB has managed to come up with robust growth in performance for the quarter ended June 2002. It presently has a strong presence in the needle roller bearings market. It also has a limited presence in taper roller and ball bearings segment. The company is taking steps to broad base its product portfolio and is taking efforts to enhance its presence in the industrial bearings market.

The company's share price has already appreciated steeply over the last eight months. Hence, fresh buying may be deferred for the time being. Moreover, the recent entry INA and the acquisition of a taper roller facility by Fag Bearings could have some impact on NRB's business prospects.

In SKF's case, the company is the market leader. It has the technical backing of the Swedish major - the SKF group. The company's financial performance has improved over the last couple of years on account of the launch of hub bearings - widely used in latest generation cars. It also has a wide product range catering to different industries.

SKF has also reduced its face value of shares from Rs 100 to Rs 10 last year. This has imparted some liquidity in the stock. From an investment perspective, shareholders could remain invested and use price increases to reduce exposures. Fresh buying may be deferred for the time being. Fag Bearings has also managed to record a good performance in the last couple of years, despite the business environment being not all that favourable. The company commissioned a 100 per cent export oriented unit and the backing of the German major - FAG Kugelfischer Georg Schäfer AG.

The company also has a presence across a wide industry base and a strong presence in the ball roller bearings market. Its product portfolio also includes spherical and cylindrical roller bearings.

Recently, the company entered the taper roller bearing market through a joint venture entity. Meanwhile, INA Bearings of Germany recently acquired the controlling stake in Fag AG of Germany. This could have positive implications for Fag Bearings India from the long-term perspective. Shareholders could remain invested. while evidence of an improvement in the automobile market could be used to enhance exposures.

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