Fairfield Atlas Ltd.

Fairfield Atlas Ltd.BackgroundThe company was incorporated in 1990 as a private company and commenced commercial production in theyear 1993. In 2000, Company acquired Atlas Gear in India and added the capacity to manufacture completegear assemblies. The export oriented unit of the company commenced operations in the year 2003. Both the unitsare located in Kolhapur Dist. of Maharashtra. Most of the revenues are derived from sale of automotive transmissiongears. Fairfield is approved and preferred supplier of gears to the OEMs. It manufactures basically Spur & Helicalgears for Automotive and Non‐Automotive applications.Company manufactures loose gears for most of the customers, but have increased capacity and capabilitiesto assemble planetary gear boxes and planetary sub‐assemblies and input adaptors which find application inAgriculture, Mining and Construction equipments.Increased disposable incomes in rural areas and resultant higher tractor demand may benefit Fairfield asit is associated with some of the largest tractor manufacturers in the country. Company also supplies transmissiongears to business segments like on highway, agriculture, mining, energy, specialty industrial and construction.TH Licensing Inc. USA, a wholly owned subsidiary of Fairfield Manufacturing Co. Inc. USA (FMC), presentlyholds 83.91% stake in the Company. The Ultimate holding company is OC oerlikon Corporation A.G. pfaffikon,a global technology company. FMC Company is one of the world’s largest independent producers of customgears and gear products and power transmission components. Along with its custom gear work, the companybuilds a range of Torque -Hub branded products and accessories for wheel, shaft output, spindle and swing driveapplications. Major customers of FMC include John Deere, Case, Caterpillar, GE, Genie Industries, Ford, Dana,General Motors etc.In 2006 its parent was acquired by Saurer AG, world’s leading textile machinery manufacturer andFairfield joined the Graziano Trasmissioni group. The Company is a part of OC Oerlikon Corporation AG Pfaffikon,a global technology company. Fairfield, alongwith its fellow subsidiary in India viz. Graziano Transmissioni (India)Pvt. Ltd., forms part of the Oerlikon Drive Systems group within the country. The various synergies between thetwo units in the group can bring about a wide range of capabilities and drive solutions in the market, thus creatingpotential for new opportunities in the drive system business.The Company is in the process of expanding and upgrading its Heat Treatment facilities to cater to theanticipated future demand from its customers.Fairfield Atlas Ltd. is also available on www.balance-equity.co.in

Fairfield Atlas Ltd.ProductsThe company offers gear and drive solutions. In gears, it produces Spur & Helical gears and Hubs and Sleeves.Product range also includes Ring gears, Shafts and gear assemblies. It produces custom gears of most extensiverange from 1 inch to 60 inches. It also manufactures custom assemblies from 3000 Nm to over 4 million Nm ofoutput torque capability. It offers full line of brake products with real holding power. Torque Hub drives deliver thetorque output and long life performance.FinancialsFY ’12 saw substantial volume growth resulting in 53.6% increase in revenues to ` 253.3 Crs. from ` 164.9Crs. in the previous year. Domestic business grew by 26.5 % to ` 121.8 Crs. due to higher intake by existingcustomers and widening of customer base by the addition of new customers. Exports business revenues growthof 91% to ` 128.9 Crs. was driven primarily by higher business from Company’s Principals, Fairfield Mfg. Co. Inc.,and weakness of Rupee against Dollar.As a result of revenue growth of 53.6%, EBITDA went up by more than 100% to ` 54.2 Crs. and net profitwent up by 63.8% to ` 28.8 Crs. Company continues to focus on controlling input costs and improving processefficiencies, to maintain profit growth in current market conditions.Company has borrowed total amount of US $ 8 million (about ` 40 Crs.) from T‐H Licensing Inc., USA andFairfield Mfg. Co. Inc., USA. Both these loans were due in Feb./March ’11 and have been extended by five years,repayable in annual installments of US $ 5,00,000 each. Balance if any, will be paid in one single bullet payment atthe end of the term. Apart from this, Company has small borrowings of ` 2 Crs. from domestic sources in the formof Cash Credit, Bills Payables & Vehicle loans.Fairfield Atlas Ltd is also available on www.balance-equity.co.in

Fairfield Atlas Ltd.ConcernsIn domestic market, Company not only faces competition from other suppliers in the market, but also fromcaptive units set up by some of the customers. However, recovery of US economy can also present opportunitiesfor the Company to offset the shortfall if any, in the domestic business.The company uses LPG gas as raw material for its heat treatment furnaces. Hence, a rise in the price ofpetroleum products could reduce margins, thereby affecting profitability.commitments.Volatility of the dollar can affect the Company’s export competitiveness, import and loan repaymentBecause of interdependence between the monsoon and health of the agricultural economy, supplies ofcomponents to the tractor business, run the risk of a drop in demand, in case of significant variation in monsoon.CommentsuThe demand for the Company’s products is a derived demand, and hence is dependent upon growth rateof its OEM customers.u To fend off stiff competition, the Company is carving out niche areas for its products to drive growth,where competition is minimal.u Due to the focus of the parent, Orelikon, on the drive systems, it has approved a significant investment inthese facilities in India, a part of which can flow to Fairfield, to part finance its capex and product developmentfor supporting future growth prospects.u The growth in domestic and exports markets may be subdued due to lower growth in automotive sectorand domestic & US economy slowdown. However, good monsoon next year can prop up demand from tractormanufacturers in India.u In the last 3 years Fairfield stock has been moving mostly between 8 to 13 x historical earnings. Thestock is at present available at 12.4 x its historical earnings. We expect Company to post at least 20‐25% growthin profits in FY ’13. The valuations are expected to follow the profit growth.Fairfield Atlas Ltd. is also available on www.balance-equity.co.in

Fairfield Atlas Ltd.Financial ResultsPeriod Ended (` Crs. ) FY '10 FY '11 FY '10 June '12 Sept. '12Revenues 92.58 164.08 251.63 66.81 55.24(Inc.)/Dec in stocks ‐2.21 ‐1.92 ‐5.17 1.75 1.25Raw Materials 48.01 88.35 131.59 29.94 24.67Employee cost 11.98 16.98 19.26 5.41 5.11Other Expenditure 23.8 34.31 51.73 12.16 11.79Total Expenditure 81.58 137.72 197.41 49.26 42.82EBITDA 11.00 26.36 54.22 17.55 12.42EBITDA Margin (%) 11.9 16.1 21.5 26.3 22.5Depreciation 6.37 6.94 8.41 2.29 2Interest 0.71 0.8 1.54 0.34 0.33Tax -2.14 1.83 13.34 5.12 3.25Other Income 2.63 0.83 1.7 0.74 1.03Non Rec. Items ‐0.88 0.01 ‐3.79Net Profit 7.81 17.63 28.84 10.54 7.87Net Profit Margin (%) 8.4 10.7 11.5 15.8 14.2Equity Capital 27.32 27.32 27.32 27.32 27.32Equity Shares(in Crs.) 2.732 2.732 2.732 2.732 2.732Reserves 10.3 27.91 58.92EPS(`) 2.9 6.5 10.6 3.9 2.9Book Value (`) 13.8 20.2 31.6ROE (%) 20.8 31.9 33.4Fairfield Atlas Ltd. is also available on www.balance-equity.co.in

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