NRB Bearings: Very Strong Q2-FY19, Re-Iterate Buy Inv Thesis

NRB Bearings – Ahead of Est. – Re-Iterate Buy Investment Thesis

NRB Bearings- Stellar Q3, Mkt. Leader in Needle Bearings (Auto Ind), Risk-Reward Favourable

Schaeffler India - Strong Q4, +ve Outlook, Healthy BS & High Qlty Mgt, Merger Syng to Offer Scale

Independent Research Analyst

Mamta Verma

DC India Research

DC India Research LLP (DCIR) is based out of Mumbai, India.

We specialize in providing customized, independent research across listed and unlisted companies in India across equities and credit including sectoral research. Our customers include India focussed PE funds, special situation funds, domestic AMCs, Wealth Advisory& PMS firms, Rating Agencies & Investment Advisors. 

The DCIR board consists of prominent names from the industry as well as CIO’s of Hedge funds.

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/19719" target="_blank" data-smartkarma-citation="entities:19719:1">Nrb Bearings (NRBBR IN)</a>NRB is in the ball and roller bearing business for the requirements of the mobility industry which has Original Equipment Manufacturers (OEMs – Domestic as well as Global) accounting for 65% -70% of the demand while the rest is supplied to the Aftermarket (12% -15%) and Exports (20% - 25%).NRB, being an important player in the automotive bearings space with a leadership position in needle roller bearings, is expected to be a key beneficiary of robust automobile growth, incremental revenue from the Defence, Marine and Railway segments, and a revival in exports. Considering all these factor, we expect NRB to report healthy performance in medium to long term. Going ahead, we expect company to deliver ~20%+ CaGR in earnings over next 3 years. The earnings trajectory is likely to be supported by strong client relationships in its category of bearings, volume growth in OEMs, revival in exports, incremental revenue from new segments like railways, defence and aerospace, customization led superior mix and benefit of operating leverage. Operating &amp; Financial Summary – <ol><li>
Business – NRB primarily operates in to single reportable segment of Ball and Roller bearings. Its product profile broadly includes Needle bearings, cylindrical roller bearings, Ball bearings, Taper roller bearings and all types of Thrust bearings. </li></ol><ol start="2"><li>
Earnings – Over the past three-year period (FY15-18), Consolidated Revenues, EBITDA and PAT have grown at 8.5%, 10.7% and 19.4% CaGR respectively. EBITDA margins have remained in the range of 16.5% to 19.7% over the same period with average margins of 17.5%. </li></ol><ol start="3"><li>
Balance Sheet – NRB has a healthy balance sheet with D/E ratio 0.2xs. Company has delivered ROCE of ~26% as on 31st Mar, 2018. </li></ol><ol start="4"><li>
Valuation – NRB is currently trading ~19xs its FY18 EPS of Rs. 9.36 and 16.8xs its FY19E EPS of Rs. 10.8. 
</li></ol><ol start="5"><li>
Management – NRB was jointly promoted by Mr. Trilochan Singh Sahney and French needle bearing manufacturer Nadella SA (known as Timken France SAS) in 1966, however in 2005 the Sahney family bought out the stake held by Timken. It has diversified presence across various segments (2W, 4W and CV) of the Automobile Industry. </li></ol><ol start="6"><li>
Valuation - Valuing the business at a P/E multiple range of 20-25xs over its FY20E, we arrive at a fair value of ~ Rs. 248- 311/-, which should deliver 37 - 71% price appreciation over 15-18 months over current levels.</li></ol>

Nrb Bearings (NRBBR IN)NRB is in the ball and roller bearing business for the requirements of the mobility industry which has Original Equipment Manufacturers (OEMs – Domestic as well as Global) accounting for 65% -70% of the demand while the rest is supplied to the Aftermarket (12% -15%) and Exports (20% - 25%).NRB, being an important player in the automotive bearings space with a leadership position in needle roller bearings, is expected to be a key beneficiary of robust automobile growth, incremental revenue from the Defence, Marine and Railway segments, and a revival in exports. Considering all these factor, we expect NRB to report healthy performance in medium to long term. Going ahead, we expect company to deliver ~20%+ CaGR in earnings over next 3 years. The earnings trajectory is likely to be supported by strong client relationships in its category of bearings, volume growth in OEMs, revival in exports, incremental revenue from new segments like railways, defence and aerospace, customization led superior mix and benefit of operating leverage. Operating &amp; Financial Summary – 
Business – NRB primarily operates in to single reportable segment of Ball and Roller bearings. Its product profile broadly includes Needle bearings, cylindrical roller bearings, Ball bearings, Taper roller bearings and all types of Thrust bearings. 
Earnings – Over the past three-year period (FY15-18), Consolidated Revenues, EBITDA and PAT have grown at 8.5%, 10.7% and 19.4% CaGR respectively. EBITDA margins have remained in the range of 16.5% to 19.7% over the same period with average margins of 17.5%. 
Balance Sheet – NRB has a healthy balance sheet with D/E ratio 0.2xs. Company has delivered ROCE of ~26% as on 31st Mar, 2018. 
Valuation – NRB is currently trading ~19xs its FY18 EPS of Rs. 9.36 and 16.8xs its FY19E EPS of Rs. 10.8. 

Management – NRB was jointly promoted by Mr. Trilochan Singh Sahney and French needle bearing manufacturer Nadella SA (known as Timken France SAS) in 1966, however in 2005 the Sahney family bought out the stake held by Timken. It has diversified presence across various segments (2W, 4W and CV) of the Automobile Industry. 
Valuation - Valuing the business at a P/E multiple range of 20-25xs over its FY20E, we arrive at a fair value of ~ Rs. 248- 311/-, which should deliver 37 - 71% price appreciation over 15-18 months over current levels.

NRB Bearings: Strong Q1-FY19, Maintain Buy