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NRB Bearings Ltd
Initiating Coverage
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Explanation of CRISIL Fundamental and Valuation (CFV) matrix
The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process – Analysis of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental grade is assigned on a five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The valuation grade is assigned on a five-
point scale from grade 5 (indicating strong upside from the current market price (CMP)) to grade 1 (strong downside from the CMP).
CRISIL Fundamental Grade Assessment
CRISIL Valuation Grade Assessment
5/5 Excellent fundamentals 5/5 Strong upside (>25% from CMP) 4/5 Superior fundamentals 4/5 Upside (10-25% from CMP) 3/5 Good fundamentals 3/5 Align (+-10% from CMP) 2/5 Moderate fundamentals 2/5 Downside (negative 10-25% from CMP) 1/5 Poor fundamentals 1/5 Strong downside (<-25% from CMP)
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Last updated: May, 2013 Analyst Disclosure Each member of the team involved in the preparation of the grading report, hereby affirms that there exists no conflict of interest that can bias the grading recommendation of the company. Disclaimer: This Company commissioned CRISIL IER report is based on data publicly available or from sources considered reliable. CRISIL Ltd. (CRISIL) does not represent that it is accurate or complete and hence, it should not be relied upon as such. The data / report is subject to change without any prior notice. Opinions expressed herein are our current opinions as on the date of this report. Nothing in this report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The subscriber / user assume the entire risk of any use made of this data / report. CRISIL especially states that, it has no financial liability whatsoever, to the subscribers / users of this report. This report is for the personal information only of the authorised recipient in India only. This report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person – especially outside India or published or copied in whole or in part, for any purpose.
NRB Bearings Ltd
Supplier of precision engineering bearings to leading OEMs
Fundamental Grade 4/5 (Superior fundamentals)
Valuation Grade 5/5 (CMP has strong upside)
Industry Auto Components
1
January 02, 2014
Fair Value ₹46 CMP ₹36
For detailed initiating coverage report please visit: www.ier.co.in CRISIL Independent Equity Research reports are also available on Bloomberg (CRI <go>) and Thomson Reuters.
NRB Bearings Ltd, the fourth largest organised bearings player in India, manufactures customised bearings for leading domestic and global auto companies. Its strong engineering capabilities and customised product offering have ensured a steady relationship with its clients. Being positioned in the niche customised bearings segment, the company faces less competition from global bearing manufacturers such as SKF (Sweden), Timken (the US), who largely produce off-the-shelf bearings. As needle roller bearings constitute 50% of NRB Bearings’ revenues, it faces competition from the Schaeffler Group as the latter also produces needle roller bearings. We assign NRB Bearings a fundamental grade of ‘4/5’, indicating its fundamentals are ‘superior’ relative to other listed securities in India.
Preferred supplier of customised bearings to leading OEMs Indigenous engineering capabilities and a proven track record of supplying customised bearings rank NRB Bearings as a preferred supplier to the domestic and global auto companies. Some of its key customers include Hero MotoCorp, Bajaj Auto, Maruti Suzuki, Renault Volvo, ZF Friedrichshafen AG, Getrag Transmissions Corporation and GKN Driveline. It works with many OEMs directly and indirectly from the conceptualisation stage to provide anti friction solutions. This helps it generate better EBITDA margin though it leads to lower asset turnover.
Tapping global OEMs NRB Bearings exports to global OEMs such as Renault Volvo and Daimler Trucks. Association with global OEMs helps the company enhance its engineering capabilities and benchmark its quality against global standards. The company’s exports constituted 21.7% of total revenues in FY13; exports grew at a CAGR of 66.3% during FY11-13. Strong focus on exports has enabled NRB Bearings to combat the current slowdown in the domestic automobile industry, which we expect to recover marginally in FY15.
Key risk: Dependence on domestic auto (OEM) industry NRB Bearings is dependent on the domestic auto market (64% of FY13 revenues) which is susceptible to cyclicality. However, its diversified presence across various sectors (such as two-wheelers, three wheelers, four-wheelers and commercial vehicles, etc.) within the domestic auto market partially mitigates this risk.
Revenues to increase at a CAGR of 10.3% over FY13-16 We expect revenues to increase at a CAGR of 10.3% to ₹7.9 bn during FY13-16 led by a likely recovery in the domestic auto market in FY15 coupled with growth in exports. We estimate EBITDA margin to improve in FY15 - after dropping in FY14 - following recovery in demand. We expect PAT CAGR of 11.9% as we expect operational efficiencies to kick in.
Valuations: CMP has strong upside CRISIL Research has used the discounted cash flow method to value NRB Bearings and arrived at a fair value of ₹46. At the current market price of ₹36, the valuation grade is 5/5.
KEY FORECAST (CONSOLIDATED)
(₹ mn) FY12 FY13 FY14E FY15E FY16E Operating income 5,600 5,912 6,211 7,017 7,942 EBITDA 1,156 1,071 1,084 1,274 1,466 Adj net income 500 449 374 508 629 Adj EPS (₹) 5.2 4.6 3.9 5.2 6.5 EPS growth (%) (13.0) (10.3) (16.7) 35.9 23.8 Dividend yield (%) 5.6 4.7 3.6 5.1 6.7 RoCE (%) 21.2 15.6 15.9 18.9 20.7 RoE (%) 22.7 20.7 17.7 21.4 23.2 PE (x) 7.0 7.8 9.3 6.9 5.5 P/BV (x) 1.5 1.7 1.6 1.4 1.2 EV/EBITDA (x) 4.8 5.8 5.4 4.4 3.9
NM: Not meaningful; CMP: Current market price
Source: Company, CRISIL Research estimates
CFV MATRIX
KEY STOCK STATISTICS NIFTY/SENSEX 6221/20888 NSE/BSE ticker NRB Face value (₹ per share) 2 Shares outstanding (mn) 96.9 Market cap (₹ mn)/(US$ mn) 3,488/57 Enterprise value (₹ mn)/(US$ mn) 6,180/102 52-week range (₹)/(H/L) 42/29 Beta 0.9 Free float (%) 37.2% Avg daily volumes (30-days) 25,252 Avg daily value (30-days) (₹ mn) 0.9
SHAREHOLDING PATTERN
PERFORMANCE VIS-À-VIS MARKET
Returns
1-m 3-m 6-m 12-mNRB Bearings 9% 22% 6% 10%CNX 500 1% 10% 7% 1%
ANALYTICAL CONTACT Mohit Modi (Director) [email protected] Elizabeth John [email protected] Vishal Rampuria [email protected]
Client servicing desk +91 22 3342 3561 [email protected]
1 2 3 4 5
1
2
3
4
5
Valuation Grade
Fund
amen
tal
Gra
de
Poor Fundamentals
ExcellentFundamentals
Stro
ngDo
wns
ide
Stro
ngU
psid
e
72.4% 72.4%62.8% 62.8%
7.9% 7.9%18.7% 19.0%
5.1% 5.0% 1.2% 1.2%
14.6% 14.8% 17.3% 17.1%
0%
20%
40%
60%
80%
100%
Dec-12 Mar-13 Jun-13 Sep-13
Promoter FII DII Others
CRISIL IERIndependentEquityResearch
2
Table 1: NRB Bearings - Business environment Domestic (OEM) Exports Aftermarket
(Replacement) Revenues contribution - FY13 64.4% 21.7% 13.9% Revenues contribution - FY16E 53.7% 32.4% 13.9% Sales (FY11-13) - two-year CAGR 4.1% 66.3% -2.8% Sales CAGR (FY13-16E) 4.1% 26.5% 10.6% Key products/ service offering ■ Big end bearings
■ Bush bearings ■ Crank pins ■ Cylindrical bearings ■ Specialised ball bearings ■ Steering column bearings ■ Tapered roller bearings
■ Needle and cylindrical bearings ■ Planetary shafts ■ Polyamide cages ■ Rings and sleeves ■ Specialised ball and tapered roller
bearings
■ Ball bearings ■ Big end bearings ■ Bush bearings ■ Crank pins
Key customers ■ Ashok Leyland Ltd ■ Bajaj Auto Ltd ■ Hero MotoCorp Ltd ■ Honda Motorcycle & Scooters
India Ltd ■ Mahindra and Mahindra Ltd
■ Tata Motors Ltd
■ Daimler Trucks ■ Getrag Transmissions Corporation
(World’s largest supplier of transmission systems to passenger /commercial vehicles)
■ GKN Driveline (European automotive and aerospace player)
■ Renault Volvo (European truck manufacturer)
■ ZF Friedrichshafen AG (Germany-based global leader providing driveline technology to auto OEMs )
■ Sold through dealers
Demand drivers ■ Growth in the domestic automobile market
■ Increased mining of existing clients through new product development
■ New client acquisition / entry in new segments
■ Increased mining of existing customers through new product development
■ New client acquisitions
■ Deeper penetration and wider range of specialised bearings
Key competitors ■ Unlisted player in India - INA Bearings ■ Listed players in India - SKF India, FAG Bearings and Timken India
Key risks
■ Cyclicality in the automobile industry ■ Foreign currency risk
Note: SKF India, FAG Bearings India and global peers such as Timken (the US) and SKF have financial year ending in December.
Source: Company, CRISIL Research
Needle roller bearings (constitute ~50% of NRB Bearings’ revenues)
Bearing is a machine element used to support load and reduce friction in moving parts. The bearings industry is classified into a) bimetal bearings
and b) antifriction bearings (which include ball bearings and roller bearings). The rolling element acts as a differentiator in a bearing. Roller bearings
are named after the rollers’ shape, such as cylindrical roller bearings, needle roller bearings, tapered roller bearings, spherical roller bearings and
thrust roller bearings. The choice of bearing primarily depends on revolutions per minute (RPM) and load. Needle roller bearings are typically
customised bearings as against ball bearings which are generally ‘off-the-shelf’ bearings.
■ Needle roller bearings are used in medium RPM, high-load requirements compared to ball bearings which are used in high RPM, medium-load
requirements.
■ For compact size applications, typically needle roller bearings are preferred. Two-wheeler machinery is more compact than four-wheeler
machinery; hence, needle roller bearings are largely used in two-wheelers.
NRB Bearings Ltd
3
Grading Rationale
Engineering capabilities rank it as a preferred supplier of customised bearings to leading OEMs NRB Bearings, the fourth largest (11% market share by sales) organised bearings player in
India, manufactures customised bearings for the mobility segment (automobiles, off-highway
vehicles such as construction equipment, tractors, etc.). Needle roller bearings constituted
~50% of its revenues in FY13. The company holds a dominant position in the domestic needle
roller bearings market with ~70% share (by sales). Figure 1: Has 11% share in organised bearings market... Figure 2: ...and around 70% share in needle roller bearings
*FAG Bearings and INA Bearings are part of Schaeffler Technologies Based on FY13 sales value
Source: Companies, CRISIL Research Source: Industry, CRISIL Research Figure 3: Needle roller bearings dominate NRB’s revenues
Others include crank pins, hub pins, etc. (as on 9MFY13)
Source: Company, CRISIL Research
The company’s Engineering and Design R&D Centre, set up in 2000, employs 40 dedicated
engineers (from reputed institutes such as Indian Institute of Technology, Birla Institute of
Technology and Science etc). As bearings are used in critical automobile applications (such
as gearbox/transmission system and steering systems), the company has laid down stringent
control over processes such as heat treatment, grinding, etc. to ensure quality of bearings. As
NRB’s bearings are largely used for critical applications, the quality standards are important.
Indian Bearing Industry(estimated at ₹90 bn. Out of this,40% is met through imports)
SKF India(41% share)
FAG Bearings*
(26% share)
Timken India (13% share)
NRB Bearings
(11% share)
INA Bearings*
(10% share)
Indian Bearing Industry₹90-95 bn
Ball Bearings(48% share)
Roller Bearings
(52% share)
Tapered roller bearing (42% share)
Cylindrical roller bearing (29% share)
Spherical roller bearing (17% share)
Needle roller bearing
(9% share)
Thrust roller bearing
(4% share)
Cylinder roller bearings
16%
Ball Bearings8%
Spherical roller bearings
1%
Taper roller bearings
3%
Needle bearings, bushes
, cages and rollers50%
Others22%
NRB holds a dominant position
in the domestic needle roller bearing market with ~70% share
(by sales)
CRISIL IERIndependentEquityResearch
4
Table 2: NRB Bearings’ product usage in critical applications
Products Critical automobile application Polyamide cages Gearbox Needle bushes Gearbox / steering Big end bearings Engine Crank pins Engine
Source: Company
Technology is a significant entry barrier: Precision is required to make customised
bearings; certain crank pins and needles require 2 micron grades and 2.499 micron grades of
size, respectively, in diameter. A small variation in size could lead to rejection. This leads to
significant entry barriers for new players. The bearings industry requires technology and
technical knowhow.
Engagement with the clients from the conceptualisation phase itself has ensured a steady
relationship with leading OEMs across the automobile industry – two/three-wheelers,
commercial vehicles, passenger cars, off-highway vehicles, etc. It strategically targets the
leading automobile OEMs. It is a tier I (direct supplier) supplier to leading domestic OEMs
such as Hero MotoCorp, Bajaj Auto, Tata Motors, Maruti Suzuki and Ashok Leyland; and tier
I/II (direct and indirect supplier) supplier to reputed global players such as Renault Volvo,
Daimler Trucks, ZF Group, and Getrag Group. Figure 4: Domestic automobile OEMs dominate sales Figure 5: Two-wheeler OEMs – 48% of domestic (OEM) sales
FY13 domestic sales break-up
Source: Company, CRISIL Research Source: Company, CRISIL Research
11.3% 15.6% 7.8% 9.6% 14.0% 21.7%
71.6% 65.5%72.9% 72.5% 70.6%
64.4%
17.1% 18.9% 19.3% 17.9% 15.3% 13.9%
0%10%20%30%40%50%60%70%80%90%
100%
FY08 FY09 FY10 FY11 FY12 FY13
Revenue mix
Exports Domestic (OEM) Replacement/ After market
Two-wheeler (2W)
47.4%
Commercial vehicles (CV)
27.0%
Passenger Car
14.2%
Farm equipment off
highway11.2%
Others - state transport
utilities and defence
0.2%
NRB Bearings Ltd
5
Reasons for high contribution from two-wheeler OEMs in domestic sales
■ In volume terms, the industry size of two-wheelers is 15.7 mn units whereas the size
of four-wheelers is 2.5 mn as of FY13. In value terms, the four-wheeler industry is
~₹1 trillion, almost double the ₹0.6 trillion two-wheeler industry. However, percentage
of needle bearings used in two-wheelers is higher than that used in four-wheelers.
Typically, the mix between needle and ball bearings in two-wheelers is 60:40,
compared to four-wheelers where it could be 35:65.
■ Further, the two-wheeler industry is less cyclical than the four-wheeler industry and
this has helped the company during the current slowdown.
■ In value terms, NRB Bearings holds ~5% share in the bearing requirement of the two-
wheeler industry compared to ~3% in the four-wheeler industry. However, for needle/
roller bearings, the share is much higher.
The global bearings industry is dominated by large manufacturers such as SKF, Timken and
Schaeffler Technologies; it is an oligopolistic market as these three players together have
more than 60% share. However, NRB Bearings focuses on the niche customised bearings
segment which helps it to differentiate itself from the global bearing manufacturers who largely
focus on off-the-shelf bearings. As needle roller bearings constitute 50% of NRB Bearings’
revenues, it faces competition from the Schaeffler Group as the latter also produces needle
roller bearings.
Figure 6: Global bearings industry is an oligopolistic market
1 Euro = ₹85.2; 1 US$ = ₹61; 1 SEK =₹9.44
Source: Companies, Industry, CRISIL Research
Also, as NRB Bearings produces a wide range of customised bearings, it does not face any
threat from Chinese bearing players who play the volume game with off-the-shelf products.
Diversified client base minimises concentration risk NRB Bearings’ client portfolio is well diversified – no client has more than 10% share; its top
customer had 9% share in FY13. Though contribution of top 10 customers increased to 49%
in FY13 from 41% in FY11 – the constitution within top 10 clients has changed over the years.
Global Bearing Industry
(estimated at ₹3 trillion)
Automotive segment/ mobile
industries(₹0.9 trillion)
Industrial segment(₹ 1.3 trillion)
Af ter market segment
(₹0.9 trillion)
NRB Bearings’ domestic two-wheeler sales recorded a five-
year CAGR of 16% during FY08-
13, in line with the two-wheeler industry.
CRISIL IERIndependentEquityResearch
6
Figure 7: Diversified clientele (domestic + exports)
Source: Company, CRISIL Research Table 3: Key customers
Category Based Key Customers
Two-wheeler OEMs India Hero MotoCorp Ltd, Honda Motorcycle & Scooter India Pvt. Ltd, Bajaj Auto Ltd, TVS Motor Co Ltd
Passenger/commercial vehicle/utility vehicle OEMs India Tata Motors Ltd, Mahindra & Mahindra Ltd, Maruti Suzuki India Ltd, Ashok Leyland Ltd
Transmission systems for passenger vehicles/commercial vehicles Germany Getrag Group, ZF Group Automotive components British / USA GKN Driveline, Meritor Tractor/agriculture machinery USA John Deere
Source: Company
Tapping global OEMs NRB Bearings exports to global OEMs such as Renault Volvo and Daimler Trucks.
Association with global OEMS helps the company enhance its engineering capabilities and
benchmark its quality to global standards. Some of these global OEMs are potential entrants
into India going forward, while some are already established (e.g. Volvo). The company
exports to Europe, the US and Latin America. Its total exports increased at a healthy CAGR of
66.3% during FY11-13; the contribution of exports to total sales increased to 21.7% in FY13
from 9.6% in FY11.
8% 10% 9% 9% 9%
31%35% 33% 34% 31%
41% 44% 43%47% 49%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
FY09 FY10 FY11 FY12 FY13
Top customer Top 5 customers Top 10 customers
NRB Bearings Ltd
7
Figure 8: Exports – 66.3% CAGR in FY11-13
Source: Company, CRISIL Research
Exports help to reduce the impact of volatility in the domestic automobile market, which has
been going through a difficult phase with muted sales across categories. In FY13, although
domestic sales declined by 4% y-o-y (constituting 64.4% of total sales), the company’s total
revenues grew by 5.6% y-o-y because export sales increased by 63% during the same period.
Table 4: Automobile industry’s volume growth and outlook
FY13 FY14E Five-year CAGR (FY13-18) Two-wheeler 2.8% 4 to 6% 9 to 11% Commercial vehicles -2% -6 to-8% 10 to12% for MHCVs and 13 to16% for LCVs Passenger car and utility vehicles 2% -8 to -10% 10 to12% Tractors 1.7% 7 to 10% 7 to 9%
Source: CRISIL Research
CRISIL Research expects growth in the automobile industry to be subdued in the short term
on the back of weak consumer sentiments, high fuel prices and high interest rates.
Accordingly, we expect NRB Bearings’ domestic revenues to remain muted in FY14 and
recover marginally in FY15 with a 7% growth. We forecast its export revenues to increase at a
CAGR of 26.5% during FY13-16 driven by new products and clients. The company’s export
growth will help to combat the domestic slowdown in FY14.
Aftermarket segment offers opportunities to de-risk revenues The aftermarket segment constituted 13.9% of NRB Bearings’ total sales in FY13. Currently,
most of its aftermarket sales are largely to the two/three-wheeler industry through a 250-
strong dealer network. Bearings ideally should get replaced when the vehicle completes
10,000 kms.
NRB Bearings’ aftermarket revenues decreased by 3% CAGR to ₹791 mn during FY11-13 as
the company focussed largely on exports and domestic sales to OEMs. Since Q2FY14, the
company has been focussing on the aftermarket segment, especially on off highway segment.
It has launched various products in the aftermarket segment. We expect the company’s sales
in the aftermarket segment to increase at a CAGR of 10.6% during FY13-16.
450 271 446 759 1,234
24%
-40%
65% 70%63%
-60%
-40%
-20%
0%
20%
40%
60%
80%
0
200
400
600
800
1,000
1,200
1,400
FY09 FY10 FY11 FY12 FY13
(₹ mn)
Exports y-o-y growth (RHS)
Typically, whenever there is any noise in the machine, there could
be a need for bearing
replacement
In the long term, growth of the
automotive market largely hinges on the expected recovery
of the Indian economy and,
consequently, an improvement in consumer sentiments
CRISIL IERIndependentEquityResearch
8
Post demerger, NRB Bearings to cater to mobility segment The industrial bearings division of NRB Bearings was demerged into NRB Industrial Bearing
Ltd (NIBL) on October 1, 2012. NRB Bearings continues to be managed by Ms. Harshbeena
Zaveri and NIBL is managed by her brother, Mr. Devesh Sahney. The demerger agreement
mandates NRB Bearings to cater to mobility segment and NIBL to the process industry
segment. However, on expiry of the demerger agreement, there will be no such restriction for
either company.
Currently, NRB Bearings focuses largely on auto OEMs and we expect this to continue in the
near to medium term. As highlighted earlier, we expect the automobile industry to post double-
digit growth in the long term following an expected recovery of the Indian economy and,
consequently, an improvement in the consumer sentiments. Highlights of demerger and its impact on NRB Bearings’ financials
Under the demerger scheme, NIBL shares were allotted to all equity shareholders of NRB
Bearings in the ratio 1:4. Post the demerger of its industrial bearings division into the wholly
owned subsidiary NIBL in October 2012, NRB Bearings’ consolidated FY13 revenues grew
6% y-o-y, while PAT declined 10% y-o-y. Table 5: Demerger of industrial bearings division had insignificant impact on NRB Bearings’ financials
FY12 (₹ mn) Industrial bearings division NRB Bearings consolidated Share of industrial bearings division Revenues 347 5,600 6% Profit before tax 57 733 8%
Source: Company
Owing to the demerger, NRB Bearings’ net worth has been reduced by ₹618 mn in FY13 –
which relates to the excess of assets over liabilities of the industrial bearings business. This
led to an expansion of NRB Bearings’ leverage to 1.4x in FY13 from 1.1x in FY12. NRB
Bearings’ leverage is higher than that of global bearing players.
Debt Equity Ratio FY11 FY12 FY13 SKF (Sweden) 0.6 0.6 0.7 Timken (US) 0.3 0.3 0.2 NRB Bearings 0.6 1.1 1.4
Source: Companies
Generates healthy EBITDA margin... NRB Bearings has better EBITDA margin than its peers because of the following:
■ Production of a wide range of high-margin, low-volume bearings (50% of which are
needle bearings): Margins of global bearing manufacturers such as SKF (Sweden) and
Timken (the US) are relatively lower than that of NRB Bearings because these global
players largely focus on off-the-shelf products. NRB Bearings’ EBITDA margin is not
comparable with that of domestic bearing players such as INA India, FAG India and
Timken India as these players also generate sales through trading operations which fetch
lower margins.
NRB Industrial Bearings was
demerged with effect from
October 2012
NRB Bearings Ltd
9
■ Integrated operations – NRB Bearings has integrated operations - from engineering and
design, needle / rollers in-house manufacturing, heat treatment, testing to final assembly
of bearings. Our channel checks indicate that other players such as INA Bearings import
rollers, while SKF India produces a limited quantity indigenously.
Due to better EBITDA margin but low asset turnover, the company has moderate RoCE of
15.6% (in line with that of peers). Figure 9: Better EBITDA margin... Figure 10: ... but low gross asset turnover...
Note: SKF India, Timken India and FAG Bearings India have trading sales
Source: Company, CRISIL Research Source: Company, CRISIL Research Figure 11: ... lead to moderate RoCE than peers Figure 12: High leverage leads to better RoE
Note: NRB Bearings leverage is 1.4x in FY13 compared to 0.7x and 0.2x for SKF (global peer) and Timken (the US)
Source: Company, CRISIL Research Source: Company, CRISIL Research
24.1
17.2
9.9 22
.1
18.0
13.2
15.4
6.6
20.6
16.1
16.0 21
.0
19.6
13.0
13.5
13.318
.1
14.0 18
.0
18.3
16.3
11.8
10.4
0.05.0
10.015.020.025.030.0
NR
B B
earin
gs
SK
F (S
wed
en)
Tim
ken
(the
US
)
Sch
aeff
ler
(Ger
man
y)
FAG
Bea
rings
Indi
a
SK
F In
dia
Tim
ken
Indi
a
INA
Bea
rings
(%)
FY11 FY12 FY13
1.2 1.7
1.2
3.1
2.5 2.7
2.3
1.2 1.
9
1.5
3.4
3.0
2.9 3.
7
1.2 1.9
1.4
3.3
2.7
2.5 2.8
0.0
1.0
2.0
3.0
4.0
NR
B B
earin
gs
SKF
(Sw
eden
)
Tim
ken
(the
US
)
Sch
aeff
ler
(Ger
man
y)
FAG
Bea
rings
Indi
a
SK
F In
dia
Tim
ken
Indi
a
(x)
FY11 FY12 FY13
31.2
19.3
10.5
0.5
32.4
30.9
17.1
15.0
21.2
21.6
16.8
6.9
35.8
30.1
27.6
4.7
15.6
15.6
18.1
6.7
25.5
20.4
17.1
0.0 10.0 20.0 30.0 40.0
NRB Bearings
SKF (Sweden)
Timken (the US)
Schaeffler (Germany)
FAG Bearings India
SKF India
Timken India
INA Bearings
(%)
FY13 FY12 FY11
30.1
28.3
15.7
2.2
23.9
22.4
14.2
31.5
22.7
30.0
23.0
36.4
26.8
22.2
22.8
2.5
20.7
22.1
23.3
47.7
19.1
16.7
13.5
0.0 20.0 40.0 60.0
NRB Bearings
SKF (Sweden)
Timken (the US)
Schaeffler (Germany)
FAG Bearings India
SKF India
Timken India
INA Bearings
(%)FY13 FY12 FY11
Most of the indigenously produced rollers are captively consumed
Loose needle rollers (000s) FY10 FY11 FY12 FY13Utilisation (%) 66% 53% 80% 70%Sales/production 33% 36% 28% 27%Captive utilisation 67% 64% 72% 73%
Source: Company
CRISIL IERIndependentEquityResearch
10
... but elongated working capital cycle NRB Bearings’ inventory days are relatively higher than that of other bearing manufacturers
such as FAG and SKF India on account of the following:
To provide an extensive range of products it is crucial for NRB Bearings to stock a significant
quantity of products. Our channel checks indicate that INA Bearings’ product range is limited
compared to that of NRB Bearings. Also, SKF India’s regular product range comprises 150-
160 types of bearings, whereas it NRB Bearings’ product range includes 500-600 types of
bearings. Figure 13: Inventory break-up Figure 14: Higher inventory than other manufacturers
As of FY13
Source: Company, CRISIL Research Source: Company, CRISIL Research
Raw material25%
Work in Progress
26%
Finished goods37%
Stores and spares12%
125
102
90 83
59 54
110
53
129
104
86 76 61 51
84
54
127
103
92
70
46 51
93
020406080
100120140
NR
B B
earin
gs
SK
F (S
wed
en)
Tim
ken
(the
US
)
Sch
aeff
ler (
Ger
man
y)
FAG
Bea
rings
Indi
a
SK
F In
dia
Tim
ken
Indi
a
INA
Bea
rings
(days)
FY11 FY12 FY13
NRB Bearings Ltd
11
Key Risks Dependence on domestic OEMs; cyclicality of the industry NRB Bearings is dependent on the domestic auto market. The company derives almost 64%
of its revenues from the domestic automotive industry which experiences cyclicality. However,
its diversified presence across various sectors (such as two-wheelers, three wheelers, four-
wheelers and commercial vehicles to name a few) within the domestic auto market mitigates
this risk.
Though we expect the automobile industry’s growth to marginally improve in FY15, higher-
than-expected delays may affect financials and, consequently, the valuations. NRB Bearings’
dependence on exports also provides a fillip to its revenues.
Foreign currency volatility In rupee terms, the foreign currency loan as on March 31, 2013 was ₹1.1 bn, representing
46% of total borrowings. The company exported ₹1.4 bn of products in FY13. The company
remains a net exporter, which provides a natural hedge to the foreign currency borrowings.
Volatility in raw material prices There could be a challenge to pass through the significant increase in raw material costs,
which is an industry-wide phenomenon. For instance, one of the factors for low profitability in
FY09 was the company’s inability to pass on the sharp increase in raw material costs (steel
and oil) entirely to its customers.
CRISIL IERIndependentEquityResearch
12
Financial Outlook Revenues to rise at CAGR of 10.3% to ₹7.9 bn during FY13-16 We estimate consolidated revenues to increase at a three-year CAGR of 10.3% to ₹7.9 bn in
FY16 driven by exports and a likely recovery in the domestic automobile market. We forecast
exports to increase at a CAGR of 26.5% during FY13-16 fuelled by client additions and by
mining the existing client base. We expect revenues of the domestic automobile segment to
increase over FY13-16E to ₹4.1 bn at 4.1% CAGR following improvement in demand scenario
from FY15 onwards. As domestic sales constitute a major portion of total sales, the growth of
the domestic automobile industry would be a key determinant of the company’s performance. Figure 15: Three-year revenue CAGR of 10.3% over FY13-16 Figure 16: Contribution of exports to sales to increase
Source: Company, CRISIL Research Source: Company, CRISIL Research
EBITDA margin estimated to be 18.5% in FY16 CRISIL Research expects the company’s EBITDA margin to be 18.5% in FY16, following
improvement in demand scenario. Figure 17: Trend in EBITDA margin
Source: Company, CRISIL Research
4,817 5,600 5,912 6,211 7,017 7,942
34.7
16.3
5.6 5.1
13.0 13.2
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
FY11 FY12 FY13 FY14E FY15E FY16E
(%)(₹ mn)
Revenues % growth y-o-y (RHS)
10% 14%22% 26% 26% 30% 33%
72% 71%64% 61% 59% 56% 54%
18% 15% 14% 13% 14% 15% 13%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
FY11 FY12 FY13 H1FY14 FY14E FY15E FY16E
Exports Domestic (OEM) Replacement/ After market
1,162 1,156 1,071 1,084 1,274 1,466
24.1%
20.6%18.1% 17.5% 18.2% 18.5%
0%
5%
10%
15%
20%
25%
30%
-
200
400
600
800
1,000
1,200
1,400
1,600
FY11 FY12 FY13 FY14E FY15E FY16E
(₹ mn)
EBITDA EBITDA margins (RHS)
Revenues: CAGR of 10.3%
during FY13-16
NRB Bearings Ltd
13
PAT to increase at 11.9% CAGR during FY13-16 We expect PAT to decline to ₹374 mn in FY14 compared to ₹449 mn in FY13 as we have
raised the tax rate to 27% from FY14 onwards compared to 20% in FY13. This is largely due
to the 30% tax exemption at the company’s Pantnagar plant compared to 100% earlier. We
expect profitability to improve in FY15 and further in FY16 following a) a likely recovery in the
domestic automobile market, b) EBITDA margin improvement and c) operating leverage
starts. Figure 18: PAT margin of 7.9% expected in FY16 Figure 19: Return ratios to improve, after declining in FY14
Source: Company, CRISIL Research Source: Company, CRISIL Research
575 500 449 374 508 629
164
-13 -10 -17
36 24
-100
-50
0
50
100
150
200
0
100
200
300
400
500
600
700
FY11 FY12 FY13 FY14E FY15E FY16E
(%)(₹ mn)
Adjusted PAT Adjusted PAT margins (RHS)
30.122.7
20.7
17.7
21.423.2
31.2
21.2
15.6 15.9
18.920.7
10.0
15.0
20.0
25.0
30.0
35.0
FY11 FY12 FY13 FY14E FY15E FY16E
(%)
RoE RoCE
CRISIL IERIndependentEquityResearch
14
Management Overview CRISIL’s fundamental grading methodology includes a broad assessment of management
quality, apart from other key factors such as industry and business prospects, and financial
performance.
Experienced management Mr. Trilochan Singh Sahney, Executive Chairman, is the founder promoter of NRB Bearings.
He has handed over the operational management to his daughter - Ms. Harshbeena Zaveri -
currently the Managing Director and President of the company. She has almost 26 years of
experience in the bearings industry. Under her leadership, the company set up the R&D
centre and increased export sales by tapping leading global automobile OEMs. She is also the
chairman of the board of SNL Bearings (subsidiary).
Strong focus on in-house R&D NRB Bearings set up an in-house Research and Development Centre in India in 2000. The
R&D initiative has enabled the company to position itself as a customised bearings supplier
for high-end /critical applications offering a wide and diversified product range.
Strong second line of management NRB Bearings’ management has a professional approach towards managing the company. It
has inducted various professionals from the industry at the senior and mid-management levels
who have significant experience in the bearings industry.
■ Dr. S T Salunke, MBA in Engineering Management from US and UK, is the Vice
President of the Engineering Centre, Thane. He has been associated with the company
for over 13 years. He has previously worked with FAG Bearings in the R&D, product and
process development department.
■ Mr Hemant Jog is Vice President, Manufacturing and heads the Waluj plant in
Aurangabad. He holds a Bachelor’s degree in Mechanical Engineering and Post
Graduate Diploma in Materials Management. He has 28 years of experience in the
bearings industry.
■ Mr Sumit Mitra, MBA from IIM Calcutta, heads the international business and supply
chain. He has 16 years of experience in bearings, precision auto component and other
industries. He has previously worked at Honeywell Automation, SRF Group, Dalmia
Cement, etc.
■ Ms. Tanushree Bagrodia has recently joined the company as CFO. She is an INSEAD
MBA graduate and has substantial experience in the investment banking industry.
Senior leadership’s involvement in business is high The managing director (MD) is deeply involved in decision-making on key issues. As
mentioned above, the company also has a strong second line of professional management
team that supports decision-making and subsequent execution. Even though the MD is not
near retirement age, succession planning is a monitorable as her kin are not inducted into the
business.
Managing Director and President Harshbeena Zaveri featured in
Fortune India’s “The Most
Powerful Women in Business” in November 2012
NRB Bearings Ltd
15
Corporate Governance CRISIL’s fundamental grading methodology includes a broad assessment of corporate
governance and management quality, apart from other key factors such as industry and
business prospects, and financial performance. In this context, CRISIL Research analyses the
shareholding structure, board composition, typical board processes, disclosure standards and
related-party transactions. Any qualifications by regulators or auditors also serve as useful
inputs while assessing a company’s corporate governance.
Corporate governance at NRB Bearings is good. It is supported by strong board and efficient
board practices. Further, it adheres to all regulatory requirements.
Board composition currently complying with the listing norms ■ Currently, the board of NRB Bearings consists of eight members, of whom one is an
executive chairman and four are independent directors, thus meeting the requirements
under Clause 49 of SEBI’s listing guidelines.
During October 2012 to May 2013, the board composition did not comply with SEBI’s
listing norms - Independent directors constituted 43% of the board instead of at least 50% as
per SEBI’s requirement. This was because Mr. S.C. Rangani was appointed as an executive
director in October 2012 which reduced the number of independent directors.
In May 2013, Mr. Tashwinder Singh was appointed as an independent director and now 50%
of the board constitutes of independent directors. ■ Mr. S.C. Rangani was appointed as the executive director and company secretary on the
board in October 2012. He has worked for more than two decades with NRB Bearings
across various departments – finance, IT, legal and secretarial. He has four decades of
experience in the manufacturing industry. He has been a key member of the top
management team.
■ The independent directors are highly qualified, have strong industry experience and have
been on the board for more than three years. Mr. Tashwinder Singh, Director at KKR, a
private equity firm, was inducted as an independent director in May 2013. Prior to joining
KKR, he worked with Citigroup for 18 years across various divisions.
■ There was almost full attendance in all the board meetings held in FY13.
Board processes The company has audit and shareholders’ grievance committees in place to support corporate
governance practices. Both these committees are chaired by an independent director - Dr.
(Ms.) Kala Pant, who has been on the board for over a decade. Dr. Pant has conducted post
graduate doctoral research in banking and transport. Currently, she is on the board of I.F.B.
Agro as a nominee director on behalf of UTI. In the past, she has served as nominee director
on the board of various public limited companies.
Corporate governance at NRB
Bearings is good
CRISIL IERIndependentEquityResearch
16
Valuation Grade: 5/5 CRISIL Research has used the discounted cash flow method (DCF) to value NRB Bearings
and arrived at a fair value of ₹46 per share. The fair value implies P/E multiples of 8.8x and
7.1x in FY15E and FY16E EPS, respectively. At the current market price of ₹36, the valuation
grade is 5/5.
Key DCF assumptions We have considered the discounted value of the firm’s estimated free cash flows from FY14 to
FY23. We have assumed a terminal growth rate of 3% beyond the explicit forecast period until
FY23. WACC computation
FY14-23 Terminal value Cost of equity 18.6% 18.6% Cost of debt (post tax) 8.7% 8.7% WACC 15.1% 15.1% Terminal growth rate 3%
Terminal growth rate
Term
inal
WA
CC
1.0% 2.0% 3.0% 4.0% 5.0%
13.6% 49 50 53 55 58
14.6% 46 47 49 51 54
15.6% 44 45 46 48 50
16.6% 42 43 44 45 47
17.6% 40 41 42 43 44
One-year forward P/E band One-year forward EV/EBITDA band
Source: NSE, CRISIL Research Source: NSE, CRISIL Research
0102030405060708090
Apr-
08
Aug
-08
Dec
-08
A pr-
09
Aug
-09
Dec
-09
Apr-
10
Aug
-10
Dec
-10
Apr-
11
Aug
-11
Dec
-11
Apr-
12
Aug
-12
Dec
-12
Apr-
13
Au g
-13
Dec
-13
(₹)
NRB 6x 8x9x 12x 15x
0
2,000
4,000
6,000
8,000
10,000
12,000
Apr
-08
Aug
-08
Dec
-08
Apr
-09
Aug
-09
Dec
-09
Apr
-10
Aug
-10
Dec
-10
Apr
-11
Aug
-11
Dec
-11
Apr
-12
Aug
-12
Dec
-12
Apr
-13
Aug
-13
Dec
-13
(₹ mn)
EV 3x 4x 5x 8x
NRB Bearings Ltd
17
P/E – premium / discount to CNX 500 P/E movement
Source: NSE, CRISIL Research Source: NSE, CRISIL Research
Peer valuation comparison Company Currency
Market cap
P/E P/B EV/EBITDA ROE FY13 FY14 FY15 FY13 FY14 FY15 FY13 FY14 FY15 FY13 FY14 FY15
NRB Bearings Ltd* ₹ bn 5 7.8 9.3 6.9 1.7 1.6 1.4 5.8 5.4 4.4 20.7 17.7 21.4 Bearings Manufacturers Domestic
Fag Bearings India Ltd ₹ bn 26 12.7 20.1 15.8 1.9 2.7 2.3 10.9 12.9 12.9 19.8 14.4 17.4 SKF India Ltd ₹ bn 35 13.7 19.6 16.5 2.7 2.8 2.5 12.3 13.3 13.3 17.5 14.2 15.4 Timken India Ltd ₹ bn 12 24.9 NA NA 2.5 NA NA 15.1 NA NA 13.5 NA NA Average 17.1 19.8 16.2 2.4 2.7 2.4 12.8 13.1 13.1 16.9 14.3 16.4 Median 13.7 19.8 16.2 2.5 2.7 2.4 12.3 13.1 13.1 17.5 14.3 16.4
Global Timken US$ bn 5 17.2 18.3 14.9 2.0 NA NA 7.9 8.1 7.2 14.1 14.1 21.4 SKF US$ bn 12 19.5 17.0 13.3 3.4 3.0 3.4 10.8 9.2 7.6 23.3 20.1 23.8
Source: CRISIL Research estimates*, Industry sources Auto Component sector valuation comparison
Company Currency
Market cap
P/E P/B EV/EBITDA ROE FY13 FY14 FY15 FY13 FY14 FY15 FY13 FY14 FY15 FY13 FY14 FY15
Auto Component Manufacturers Domestic Motherson Sumi Systems Ltd ₹ bn 170 38.3 19.8 14.7 5.9 4.5 5.9 13.0 8.2 6.5 21.4 32.6 33.7 Mahindra Forgings Ltd ₹ bn 6 NA NA 12.0 0.8 0.7 0.8 27.1 7.6 5.6 -14.0 43.1 58.4 Setco Automotive Ltd ₹ bn 2 7.7 7.8 5.1 1.0 0.9 1.0 6.6 7.3 4.7 16.6 13.2 18.3 Sundram Fasteners Ltd ₹ bn 10 10.2 8.1 7.1 1.4 1.2 1.1 6.8 6.3 6.3 18.9 16.6 16.1 Munjal Showa Ltd ₹ bn 3 4.6 4.1 3.7 0.9 0.8 0.7 2.4 2.3 2.3 29.2 20.2 18.7 Automotive Axles Ltd ₹ bn 4 29.4 22.3 9.6 1.3 NA NA 7.7 NA NA 17.5 6.2 13.8 Average 18.1 12.4 8.7 1.9 1.6 1.9 10.6 6.4 5.1 14.9 22.0 26.5 Median 10.2 8.1 8.3 1.2 0.9 1.0 7.3 7.3 5.6 18.2 18.4 18.5
Global Delphi Automotive PLC US$ bn 19 13.0 14.1 12.4 6.2 4.4 6.2 8.2 8.7 7.9 49.3 48.2 43.7 Denso Corp JPY bn 4,907 24.5 16.1 15.4 1.8 1.6 1.8 10.0 7.6 7.1 8.4 11.1 10.9 Valeo SA Eur bn 6 11.8 14.9 12.4 2.6 2.2 2.6 4.4 5.4 4.8 17.7 18.0 18.9 Average 16.4 15.0 13.4 3.5 2.8 3.5 7.5 7.2 6.6 25.2 25.8 24.5 Median 13.0 14.9 12.4 2.6 2.2 2.6 8.2 7.6 7.1 17.7 18.0 18.9
Source: Industry sources
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
Apr
-09
Jul-0
9O
ct-0
9Ja
n-10
Apr
-10
Jul-1
0O
ct-1
0Ja
n-11
Apr
-11
Jul-1
1O
ct-1
1Ja
n-12
Apr
-12
Jul-1
2O
ct-1
2Ja
n-13
Apr
-13
Jul-1
3O
ct-1
3Ja
n-14
Premium/Discount to CNX 500Median premium/discount to CNX 500
-5
0
5
10
15
20
25
Apr-
09
Jul-0
9
Oct
-09
Jan-
10
Apr-
10
Jul-1
0
Oct
-10
Jan-
11
Apr-
11
Jul-1
1
Oct
-11
Jan-
12
Apr-
12
Jul-1
2
Oct
-12
Jan-
13
Apr-
13
Jul-1
3
Oct
-13
Jan-
14
(Times)
1yr Fwd PE (x) Median PE
+1 std dev
-1 std dev
CRISIL IERIndependentEquityResearch
18
Company Overview The company was incorporated in 1965 as Needle Roller Bearing Company Ltd. It was set up
as a joint venture (30% stake) with French needle bearings manufacturer Nadella SA (which
was later on acquired by Timken France) which gave technological support. In 2005, NRB
promoters bought the stake held by Timken.
Manufacturing facilities NRB Bearings has eight manufacturing plants – one each in Waluj, Jalna, Chikalthana
(Aurangabad) and Thane (Maharashtra), Pantnagar (Uttarakhand), Hyderabad (Andhra
Pradesh), Ranchi (Jharkhand) and Rayong (Thailand). NRB Bearings has total capacity to
produce 144 mn pieces as of FY13. Waluj and Jalna plants constitute more than 80% of the
company’s bearings production.
Bearings capacity and utilisation Domestic sales dominates revenue mix
Includes needle roller bushes, cages, ball and roller bearings Excludes subsidiaries capacity and production
Based on standalone revenues
Source: Company, CRISIL Research Source: Company, CRISIL Research
It has also set up four marketing offices in Pune, Delhi, Bengaluru and Kolkata with 11
warehouses in India.
Subsidiaries and demerged entity
NRB Bearings has two subsidiaries, SNL Bearings (73.7% stake) and NRB Bearings Thailand
(wholly-owned). In October 2012, NRB Bearings demerged its industrial bearings division into
a wholly owned subsidiary - NRB Industrial Bearings Ltd.
Company structure
NRB Industrial Bearings got listed in April 2013 Source: Company, CRISIL Research
81
86
99
127
144
144
65
59
75
103
112
118
80%
68%
76%
81%
77%
82%
60%
65%
70%
75%
80%
85%
-
20
40
60
80
100
120
140
160
FY08 FY09 FY10 FY11 FY12 FY13
(mn)
Capacity Production Blended utilisation (RHS)
11.3% 15.6% 7.8% 9.6% 14.0% 21.7%
71.6% 65.5%72.9% 72.5% 70.6%
64.4%
17.1% 18.9% 19.3% 17.9% 15.3% 13.9%
0%10%20%30%40%50%60%70%80%90%
100%
FY08 FY09 FY10 FY11 FY12 FY13
Revenue mix
Exports Domestic (OEM) Replacement/ After market
NRB Industrial Bearings [Demerged from NRB
Bearing effective Oct 2012](M Cap ₹180 mn)
NRB Bearings(M Cap ₹3,550 mn)
SNL Bearings(M Cap ₹70 mn)
NRB Bearings - Thailand(Unlisted)
73.7% holding 100% holding
Top fourth largest bearing company in India (organised), in
terms of sales
It has a product range of over 3,000 different sizes of bearings
Subsidiaries’ contribution is
miniscule in consolidated financials
NRB Bearings Ltd
19
Table 6: Subsidiaries’ contribution is miniscule in consolidated entity
Subsidiaries SNL
Bearings NRB Bearings
Thailand Total Consolidated
PAT Contribution of subsidiaries
to consolidated entity
FY13 PAT (₹ mn) 42 -25 17 449 3.8%
Source: Company SNL Bearings
In 2000, NRB Bearings acquired 45% stake in the DCM Shriram group-promoted Shriram
Needle Bearings (known as SNL Bearings). SNL Bearings manufactures various types of
needle roller bearings such as needle bushes, needle roller, etc. The purpose to acquire SNL
was to get its technical and machine capabilities. NRB turned around SNL Bearings which
now is a profit making company with a PAT of ₹39 mn in FY13. Milestones
1965 ■ Incorporated in Mumbai as Needle Roller Bearing Company; an Indo-French joint venture with Nadella – France (Timken)
1966 ■ Set up first plant in Thane, Mumbai to produce needle roller bearings
1980 ■ New plant set up in Chikalthana, Aurangabad for needle rollers
1982 ■ New plant set up in Jalna, Aurangabad to produce cylindrical roller bearings, ball bearings, spherical roller bearings, tapered roller bearings
1990 ■ Name changed to NRB Bearings
1991 ■ New plant set up in Waluj, Aurangabad
1995 ■ NRB Bearings got listed on the BSE
2000 ■ NRB Bearings got listed on the NSE
■ Acquired Shriram Needle Bearings Industries Ltd (SNL)
■ Set up R&D centre in Thane plant
2005 ■ Promoters of NRB Bearings bought out the stake held by Timken
2008 ■ NRB established a wholly-owned subsidiary NRB Bearings Thailand Ltd
■ New plant in Pantnagar, Uttarakhand
2012 ■ Demerged NRB Industrial Bearings as a part of family settlement
Table 7: List of institutional investors holding >1% stake (September 2013)
Name of Shareholder % holding Nalanda India Equity Fund 9.99 ICICI Prudential Life Insurance Company 5.59 Acacia Partners 3.59 Acacia Institutional Partners 2.21 Catamaran Management Services Pvt. Ltd 1.39 Acacia Banyan Partners 1.14 HDFC Trustee Company 1.02 Total 24.94
Source: NSE
CRISIL IERIndependentEquityResearch
20
Annexure: Financials (Consolidated)
Financials have been classified as per CRISIL standards
Source: CRISIL Research
Income statement Balance Sheet(₹ mn) FY12 FY13 FY14E FY15E FY16E (₹ mn) FY12 FY13 FY14E FY15E FY16EOperating income 5,600 5,912 6,211 7,017 7,942 LiabilitiesEBITDA 1,156 1,071 1,084 1,274 1,466 Equity share capital 194 194 194 194 194 EBITDA margin 20.6% 18.1% 17.5% 18.2% 18.5% Reserves 2,144 1,787 2,009 2,303 2,649 Depreciation 293 321 337 366 394 Minorities 9 17 26 34 43 EBIT 863 751 747 908 1,072 Net worth 2,346 1,998 2,228 2,532 2,886 Interest 154 206 225 205 212 Convertible debt - - - Operating PBT 710 544 522 703 860 Other debt 2,575 2,723 2,445 2,415 2,515 Other income 24 35 2 5 14 Total debt 2,575 2,723 2,445 2,415 2,515 Exceptional inc/(exp) (1) 23 - - - Deferred tax liability (net) 119 102 102 102 102 PBT 733 603 524 708 874 Total liabilities 5,040 4,822 4,775 5,048 5,503 Tax provision 224 122 142 191 236 AssetsMinority interest 10 9 9 9 9 Net f ixed assets 2,303 2,174 2,386 2,346 2,501 PAT (Reported) 499 472 374 508 629 Capital WIP 456 349 74 24 24 Less: Exceptionals (1) 23 - - - Total fixed assets 2,758 2,522 2,460 2,369 2,525 Adjusted PAT 500 449 374 508 629 Investments 2 2 2 2 2
Current assetsRatios Inventory 1,378 1,475 1,565 1,730 1,915
FY12 FY13 FY14E FY15E FY16E Sundry debtors 1,256 1,515 1,446 1,538 1,741 Grow th Loans and advances 344 414 435 492 572 Operating income (%) 16.3 5.6 5.1 13.0 13.2 Cash & bank balance 556 31 79 278 293 EBITDA (%) (0.5) (7.3) 1.2 17.5 15.1 Marketable securities 1 1 1 1 1 Adj PAT (%) (13.0) (10.3) (16.7) 35.9 23.8 Total current assets 3,534 3,436 3,527 4,038 4,522 Adj EPS (%) (13.0) (10.3) (16.7) 35.9 23.8 Total current liabilities 1,266 1,150 1,226 1,373 1,558
Net current assets 2,268 2,286 2,300 2,665 2,963 Profitability Intangibles/Misc. expenditu 12 13 13 13 13 EBITDA margin (%) 20.6 18.1 17.5 18.2 18.5 Total assets 5,040 4,822 4,775 5,048 5,503 Adj PAT Margin (%) 8.9 7.6 6.0 7.2 7.9 RoE (%) 22.7 20.7 17.7 21.4 23.2 Cash flowRoCE (%) 21.2 15.6 15.9 18.9 20.7 (₹ mn) FY12 FY13 FY14E FY15E FY16ERoIC (%) 18.4 15.4 13.1 15.7 17.7 Pre-tax prof it 734 580 524 708 874
Total tax paid (221) (140) (142) (191) (236) Valuations Depreciation 293 321 337 366 394 Price-earnings (x) 7.0 7.8 9.3 6.9 5.5 Working capital changes (482) (542) 33 (166) (284) Price-book (x) 1.5 1.7 1.6 1.4 1.2 Net cash from operations 325 219 753 717 748 EV/EBITDA (x) 4.8 5.8 5.4 4.4 3.9 Cash from investmentsEV/Sales (x) 1.0 1.1 0.9 0.8 0.7 Capital expenditure (1,061) (86) (275) (275) (550) Dividend payout ratio (%) 38.8 34.9 33.7 34.9 37.4 Investments and others (2) (0) - - - Dividend yield (%) 5.6 4.7 3.6 5.1 6.7 Net cash from investments (1,062) (86) (275) (275) (550)
Cash from financingB/S ratios Equity raised/(repaid) 60 - - - - Inventory days 129 127 127 125 123 Debt raised/(repaid) 1,436 148 (278) (30) 100 Creditors days 74 64 65 65 65 Dividend (incl. tax) (224) (192) (152) (213) (283) Debtor days 77 87 85 80 80 Others (incl extraordinaries) (69) (614) (0) - 0 Working capital days 104 130 130 124 123 Net cash from financing 1,202 (658) (430) (243) (183) Gross asset turnover (x) 1.2 1.2 1.2 1.2 1.3 Change in cash position 465 (525) 48 198 15 Net asset turnover (x) 2.7 2.6 2.7 3.0 3.3 Closing cash 556 31 79 278 293 Sales/operating assets (x 2.4 2.2 2.5 2.9 3.2 Current ratio (x) 2.8 3.0 2.9 2.9 2.9 Debt-equity (x) 1.1 1.4 1.1 1.0 0.9 (₹ mn) Q3FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14Net debt/equity (x) 0.9 1.3 1.1 0.8 0.8 Net Sales 1,492 1,442 1,445 1,319 1,541 Interest coverage 5.6 3.6 3.3 4.4 5.1 Change (q-o-q) 8% -3% 0% -9% 17%
EBITDA 239 249 200 195 263Per share Change (q-o-q) -13% 4% -19% -2% 35%
FY12 FY13 FY14E FY15E FY16E EBITDA margin 16.0% 17.2% 13.8% 14.8% 17.1%Adj EPS (₹) 5.2 4.6 3.9 5.2 6.5 PAT 114 147 101 69 105 CEPS (₹) 8.2 7.9 7.3 9.0 10.6 Adj PAT 114 147 101 69 105 Book value (₹) 24.2 20.6 23.0 26.1 29.8 Change (q-o-q) -8% 29% -31% -32% 51%Dividend (₹) 2.0 1.7 1.3 1.8 2.4 Adj PAT margin 7.6% 10.2% 7.0% 5.3% 6.8%Actual o/s shares (mn) 96.9 96.9 96.9 96.9 96.9 Adj EPS 1.2 1.5 1.0 0.7 1.1
Quarterly financials (Standalone)
NRB Bearings Ltd
21
Focus Charts Bearings capacity and utilisation Domestic OEMs dominate revenues
Source: Company, CRISIL Research Source: Company, CRISIL Research
Three-year revenue CAGR of 10.3% during FY13-16 Return ratios to improve, after declining in FY14
Source: Company, CRISIL Research Source: Company, CRISIL Research
Movement in PAT margins Share price movement
-Indexed to 100; Note: We have taken closing price of NRB Bearings adjusting for split and de-merger
Source: Company, CRISIL Research Source: Company, CRISIL Research
81
86
99
127
144
144
65
59
75
103
112
118
80%
68%
76%
81%
77%
82%
60%
65%
70%
75%
80%
85%
-
20
40
60
80
100
120
140
160
FY08 FY09 FY10 FY11 FY12 FY13
(mn)
Capacity Production Blended utilisation (RHS)
10% 14%22% 26% 26% 30% 33%
72% 71%64% 61% 59% 56% 54%
18% 15% 14% 13% 14% 15% 13%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
FY11 FY12 FY13 H1FY14 FY14E FY15E FY16E
Exports Domestic (OEM) Replacement/ After market
4,817 5,600 5,912 6,211 7,017 7,942
34.7
16.3
5.6 5.1
13.0 13.2
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
FY11 FY12 FY13 FY14E FY15E FY16E
(%)(₹ mn)
Revenues % growth y-o-y (RHS)
30.122.7
20.7
17.7
21.423.2
31.2
21.2
15.6 15.9
18.920.7
10.0
15.0
20.0
25.0
30.0
35.0
FY11 FY12 FY13 FY14E FY15E FY16E
(%)
RoE RoCE
575 500 449 374 508 629
164
-13 -10 -17
36 24
-100
-50
0
50
100
150
200
0
100
200
300
400
500
600
700
FY11 FY12 FY13 FY14E FY15E FY16E
(%)(₹ mn)
Adjusted PAT Adjusted PAT margins (RHS)
-
50
100
150
200
250
Jan-
06
Jul-0
6
Jan-
07
Aug
-07
Feb-
08
Aug
-08
Mar
-09
Sep
-09
Apr-1
0
Oct
-10
Apr-1
1
Nov
-11
May
-12
Nov
-12
Jun-
13
Dec
-13
NRB Bearings CNX 500
CRISIL IERIndependentEquityResearch
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CRISIL IERIndependentEquityResearch
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Mukesh Agarwal CRISIL Research +91 22 3342 3035 [email protected]
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