Menon Bearings LtdQ1 FY23Auto Components

Menon Bearings Ltd

Q1 FY23 Earnings Call Analysis

Management growth scorecard

Revenue

Category 2

Margin

Category 3

Fundraise

Order

Yes

Capex

Yes

2 of 5 growth signals are positive.

Full analysis

Revenue guidance

Category 2

→Expecting 20% year-on-year growth consolidated across bi-metal, Alkop, and brake segments for the current year.
→Strong pipeline with over INR100 crores of RFQs in both segments and an 80%-85% conversion ratio supports growth visibility.
→Export demand expected to ease from Q2 FY24, contributing to revenue growth resumption.
→Aftermarket expansion underway with 50+ distributors across India, targeting increased OEM and transport sectors.
→Capex investments: INR8 crores in brakes segment aiming for INR25 crores revenue with ~18%-19% EBITDA margins; additional capex in bi-metal and Alkop divisions planned to support increased capacity and volumes.
→Target to reach INR100 crores business in BRIC markets within 3 years.
→Long-term vision aims for INR500 crores revenue, focusing on margin quality alongside growth.
→Tractor segment remains key with 30% share, confident despite monsoon concerns due to existing strong order pipeline.

Margin guidance

Category 3

→Targeting 20% year-on-year growth in both bi-metal and Alkop segments, supported by over INR100 crore RFQs with an 80% conversion ratio.
→Confident in achieving 20% consolidated growth including brakes, despite monsoon uncertainties and tractor demand fluctuations.
→Expects brake segment to contribute around INR25 crore revenue this year, with 18%-19% EBITDA margins, adding positively to overall profitability.
→Export business margins estimated to be 3%-4% higher than domestic. Export slowdown expected to ease from Q2 FY24, aiding growth.
→EBITDA margins sustained around 24%-25%, driven by higher customization, value-added products, exports, product mix and operational efficiencies.
→Long-term target of reaching INR100 crore revenue in BRIC markets within three years, with expansion into aftermarket and OEM clients.
→Focus on margin-accretive new product lines and prudent capex aligned with confirmed business pipelines to maintain robust PAT margins (~15%).

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Fundraise plans

- Menon Bearings Limited plans to fund its upcoming capex of around INR 30 crores mainly through internal accruals. - There may be marginal debt funding, but the company intends to remain largely debt-free. - As of now, debts and cash balances are almost equal, indicating a low net debt position. - No mention of any equity fundraising was made during the call. - The company prefers to avoid significant debt and relies on internal resources for expansion. - Any future marginal debt would be nominal and carefully managed. Overall, the company is not planning a major fundraising through debt or equity in the near term, focusing instead on internal accruals with minimal debt.

Order book

Yes

→Menon Bearings has over INR 100 crores worth of Request for Proposals (RFPs) and RFQs (Request for Quotes) in the pipeline.
→Conversion ratio of RFQs to confirmed orders is high, around 80% to 85%.
→Samples for many orders have already been manufactured and sent for inspection and trials.
→The company is confident about achieving 20% growth in both bi-metal and Alkop segments based on strong order visibility.
→Once vendors are approved after audits, supply schedules commence continuously, minimizing delays.
→Export market potential is estimated around INR 6,000 crores, with ongoing expansion into various countries.
→Capacity expansions are aligned with confirmed business to ensure no idle capacity.
→Overall, a robust order book underpins the planned growth and confidence in order conversion.

Capex plans

Yes

→Menon Bearings Limited has planned a total capex of approximately INR 30 crores over the next three years, mainly funded through internal accruals with nominal bank funding.
→INR 8 crores of capex was already done recently in the brakes segment, enabling a peak revenue potential of around INR 25 crores with an asset turnover ratio of about 3.
→The planned INR 30 crores capex will focus primarily on the aluminum (Alkop) division (about 60%) including building new infrastructure covering around 65,000 sq ft, and also expanding the bimetal segment with about 40,000 sq ft of added capacity.
→This expansion aims to increase capacity utilization with a target revenue of INR 400 crores by FY25-'26 based on full capacity utilization.
→The company will continue adding production lines as needed for OEM business, with incremental capex of around INR 1.5-2 crores per line.
→There's a focus on margin-accretive opportunities and expanding into non-auto sectors in the coming years.

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