Sunidhi Securities is bullish on Fairfield Atlas and has recommended buy rating on the stock with a target of Rs 170 in its December 13, 2012 research report.
“Fairfield Atlas is a subsidiary of Fairfield Manufacturing Co. Inc., USA and is a part of SAURER Group of Switzerland (Oerlikon Group of Switzerland). In addition to the production of Transmission Gears, it also produces “Custom Gearing” and their propriety item of “Torque Hubs”. Fairfield Atlas manufacturers Gears and Gear System for India and overseas market. Exports constitute over 50% of sales. In the year 2000, Fairfield acquired Atlas Gear in India. The newly formed Fairfield Atlas expanded from 75,000 square feet to over 170,000 square feet and added the manufacture, assembly and painting of complete gear assemblies to the company’s capabilities. In the year 2006, it was purchased by Saurer AG, the world’s leading textile machinery manufacturer. As part of this acquisition Fairfield joins the Graziano Trasmissioni Group, expanding the footprint and capabilities throughout the world.”
“During FY12, sales advanced by 50.6% to Rs246.5 crore but net profit rose by 76.1% to Rs31.0 crore. OP and NP margin stood at 22.7% and 12.6% against 16.7% and 10.8% respectively in the corresponding period last year. EPS stood at Rs11.4. The debt-equity ratio as on FY12 stood 0.47 Vs 0.7:1 in FY11 whereas the value of the gross block, stood at Rs147 crore. During Q2FY13, although sales fell 14.3% to Rs54.1 crore and net profit rose 19% to Rs7.5 crore. (YoY). OPM and NPM stood at 25.0% and 13.9% Vs 20.1% and 9.9% in Q2FY12. During H1FY13, net profit rose 77% to Rs17.7 crore on 6.1% higher sales of Rs119.6 crore. H1FY13 EPS stands at Rs6.5 Vs Rs3.7 in H1FY12.”
“The demand for FAL’s product is a derived demand and hence is dependent upon growth rate of its OEM customers. In the recent past the automobile industry has shown a positive growth rate, the tractor industry is also witnessing growth owing to a strong rural demand and liquidity. As the Indian economy is projected to grow it will drive greater demand for the FAL's products in the domestic market as well as exports globally. The outlook of FAL as regards to the new business proposed to be commenced in the field of engineering and consulting is encouraging and in the long could be a potential revenue earner for FAL. With that development the outlook for the company's business continues to be positive. With the growth of economy & various efforts and initiatives taken by the Government, sectors such as Infrastructure and power have picked up. With this, off-highway & construction vehicles sales also grew up by about 10% last year and are expected to maintain the momentum in coming years. Fairfield Atlas has clarified to BSE that the promoters had sought permission from the Exchange to reduce their holding to 75% of the paid up capital of the Company by sale in the secondary market so as to comply with the limit prescribed In Clause 40A of the Listing Agreement.”
“FAL is consistently strengthening its market position in existing and certain niche segments which offer good contribution and where competition is minimal. It is committed to deliver quality engineered products on time, fully satisfying its customer requirements through a process of continuous improvement. Fairfield Atlas is an ISO/TS-16949:2002 certified. At the CMP of Rs131, the share is trading at a P/E of 8.9x on FY13E & 7.7x on FY14E. We recommend BUY with a target price of Rs170 in the medium term,” says Sunidhi Securities research report.
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