NRB Bearings: Smooth ride

Volumes, better realisations help NRB Bearings offset rising input costs

NRB Bearings has reported 27.2 per cent y-o-y growth in its consolidated operating profit to Rs 63.9 crore in FY06 compared with 18.1 per cent growth in net sales to Rs 261.58 crore.

Operating profit margin also rose 174 basis points y-o-y to 24.4 per cent in FY06. The company's management highlighted that in FY06, its emphasis was on expanding volumes and getting better price realisations to offset rising raw material costs.

In the case of needle roller bushes and cages, sales volumes improved to 30 million units in FY06 compared with 27 million units a year earlier, thanks to strong demand from the automobile industry.

Also, realisations are estimated to have grown 2-3 per cent in FY06. Similarly, in the case of ball and roller bearings, sales volumes stood at 15.5 million units in FY06 compared with 11.8 million units a year earlier.

The company has a well diversified customer base with major components being OEM sales (49 per cent of total turnover), replacement market (24 per cent) and auto ancillary sales (15 per cent).

The management explained that for key input costs such as bearing steel, prices have not come down, given that it is a specialised steel product.

Adjusted raw material costs, as a percentage of net sales, rose approximately 50 basis points y-o-y to 33.9 per cent in FY06. However, an improved sales performance helped offset the rise in input costs.

The promoter, Sahney family, had earlier bought out the stake of Timken France SAS in NRB Bearings.

In addition, the company is understood to have implemented nearly 60 per cent of its Rs 100 crore capex plan and the expanded capacity for needle roller and cylindrical roller bearings is expected to be fully operational by December 2006. The stock appears reasonably priced at about 11.4 times estimated FY07 earnings.

Gujarat Petronet: Stepping on gas

Gujarat State Petronet (GSPL) has seen its operating profit grow by an impressive 50.4 per cent y-o-y to Rs 194.28 crore in FY06 compared with 29.5 per cent growth in net sales to Rs 263.47 crore.

Operating profit margin too has grown by 1020 basis points y-o-y to 73.7 per cent in FY06. The company runs a transmission grid, which enables it to transport 13 MMSCMD of natural gas from Hazira to Kalol via an approximately 433 kilometre network.

Analysts estimate GSPL's share at nearly one-third of the total natural gas transported via pipelines network in Gujarat.

GSPL is extending its gas transmission network by 742 kilometers by July 2007. To fund its expansion plans, GSPL had earlier raised 372.6 crore from its IPO.

The company is reported to have already utilised Rs 162.6 crore from the issue proceeds by the end of March 2006 and has recently commissioned some capacity.

Analysts say that as GSPL is merely a transporter of natural gas to its customers in industries such as fertilisers and steel, it is not exposed to fluctuations in the price of gas.

The street however, appears to have ignored the improved performance of the company in FY06 "" the stock has declined about 20 per cent since the listing of the stock in mid-February 2006 compared with over 4 per cent dip in the S&P CNX 500.

The difference between demand-supply of natural gas in Gujarat is expected to widen and this is expected to provide suitable growth opportunities for GSPL.

It has also started transportation of 1 MMSCMD from the Panna-Mukta-Tapti field. However, with the stock trading at nearly 27.3 times trailing earnings, it does not leave much scope for further appreciation in the medium term.

Mutual Funds: Changing tack

While FIIs are back in the markets, it is domestic mutual funds which have turned out to be sellers in June thus far.

FIIs have already purchased stocks worth Rs 4480 crore in June thus far after being net sellers of Rs 11,950 crore between May 11 and May 31. Mutual funds, which were net buyers of Rs 6677 crore, have sold shares worth Rs 2060 crore till June 22.

The reason for mutual fund selling will only be certain once mutual funds declare their portfolios at the end of the month.

While funds are likely to have increased their cash position, industry experts are making some calculated guesses that redemption pressure was also a major reason.

According to Value Research, diversified equity funds had increased their cash position to 8.6 per cent in May from 7.6 per cent in April.

And even despite the fall in May, equity funds saw net inflows in existing funds of Rs 4678 crore and new funds collected another Rs 5884 crore.

Fund industry analysts say that some corporates and high net worth individuals, who have been sitting on profits in their equity funds, moved the money into liquid funds till the market stabilises. In the past two days, funds have once again turned net buyers.

For markets, the saving grace has been that FII inflows have been higher than fund sales this month, especially this week. Had there been any further imbalance between these two institutional investors, and the recent recovery would have got pushed further.