NRB Bearings (NRB) is the leader in the needle roller bearings segment in India with ~70% market share. With customised offerings and a pure play on the mobility segment, NRB enjoys a sticky clientele across all leading OEMs coupled with a strong exports segment (forming ~23% of FY14 topline) that has grown at 25.7% CAGR in FY09-14. With automotive volumes showing early signs of recovery coupled with a strong launch pipeline and product refreshes ahead, we expect the consolidated topline and earnings to grow at 17.4% and 39.3% CAGR, respectively, in FY14-17E. We are initiating coverage on the stock with a BUY recommendation and an SoTP target price of Rs 165/share.
Leader in needle bearing segment NRB is the leader in the needle bearing segment in India with ~70% market share. Needle roller bearings constituted ~55% of NRB’s topline in FY14. A needle roller bearing, as a customised product, requires NRB to work with OEMs from the conceptualisation stage. This enables it to build sticky clientele relationships with almost all major OEM players.
Apart from needle bearings, cylindrical bearings are the other key product with needle and cylindrical bearings together forming ~68% of the topline. Early signs of auto revival + strong launch pipeline augur well for NRB For YTDFY15, auto volumes have recovered with 11.6% growth (mainly driven by two-wheeler segment growth, which was up 13.7% YoY). With the auto industry finally showing signs of a recovery after nearly two years of a demand slump coupled with a strong launch pipeline and product refreshes, we expect bearings demand from the OEM segment to pick up significantly. Therefore, net revenues from the OEM segment are expected to grow at 15% CAGR during FY14-17E to Rs 560 crore. De-risked geographical presence through strong exports…
To expand its geographical footprints and foray into newer platforms, NRB has forayed into exports wherein it caters to global players such as Daimler, Renault, Volvo and Getrag. NRB’s exports, which grew at 25.7% CAGR over FY09-14, have also provided a natural hedge for its import of raw materials. Exports, which formed ~7.6% of the topline in FY10, now constitute ~23.3% of revenues in FY14. We expect NRB’s export revenues to grow at 23.3% CAGR in FY14-17E to Rs 260 crore in FY17E. Strong earnings growth to boost valuations… "Given NRB’s leadership position in the needle roller bearings space with a pure play in the mobility segment recovery and strong consolidated earnings growth at 39.3% CAGR in FY14-17E, we initiate coverage on NRB with a BUY rating. We ascribe a multiple of 18x (at ~30% discount to SKF) on the FY17E earnings to arrive at a valuation of Rs 165/share", says ICICIdirect.com research report.
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