NRB Bearings

We recommend ‘BUY’ on NRB BEARINGS LTD for a target of INR 200 – valuing the company at P/E 27x of FY19E Earning.

CMP:                 INR 164

Target Price:     INR 200

Investment Rationale:

  • India’s premier bearing manufacturer.
  • Strong operational performance in domestic markets.
  • Manufacture some of the highest precision products in the world.
  • Product range spans over 3000 different designs, providing high-quality, custom designed parts for all mobility applications.
  • Exports, after-market business poised for healthy growth.
  • Built on world-class engineering and manufacturing infrastructure in India.
  • Presence across major OEM players, new segments to open up opportunities.
  • NRB is recognized globally as the most trusted name in the design and production of customized friction solutions.
  • Exports Along with Domestic Demand to Aid Revenue.
  • Strong client relations to drive growth.
  • Automotive segment recovery to boost demand.NRB Bearings

Valuations And View:

NRB is the global benchmark for quality and innovative design in high-precision friction solutions. NRB Bearings is a recognized leader in needle roller bearings, conventional cylindrical roller bearings and has developed a new generation of lightweight drawn cup bearings. We value the business at 27x FY19E EPS and recommend a BUY rating on the stock with a target price of INR 200 per share.

Risk & Concerns

  • Industry: Relates to the inherent characteristics of industry including competitive structure, nature of market and regulatory environment.
  • Resources: Risks arising from sub-optimal utilization of key organization resources such as capital and infrastructure. eg. risks further broken up into equipment risk and people risk.
  • Operations: Risks inherent to business operations includes service & delivery to customers, business support activities like NPD, TPM, Quality management, IT, Legal, Taxation eg. plants having detailed plant maintenance and tool manufacturing programs, dedicated teams for managing risks.
  • Regulations and compliance: Risks due to inadequate compliance to regulations and contractual obligations violations leading to litigation and loss of reputation.
  • Counterparty: Risks arising from its association with entities for conducting business. These include customers, vendors and their respective industries.

Company Background

NRB Bearings Ltd Founded in 1965, was the first company to manufacture needle roller bearings in India. For over 40 years NRB has pioneered the leading edge of bearing technology, and today over 90% of vehicles on Indian roads run on NRB parts. Since its inception, NRB has grown beyond its signature product to offer a wide range of high-precision friction solutions not only in the automotive sector, but across all mobility applications.

NRB is the global benchmark for quality and innovative design in high-precision friction solutions. NRB Bearings is a recognised leader in needle roller bearings, conventional cylindrical roller bearings and has developed a new generation of lightweight drawn cup bearings.

NRB has been a key player in the domestic bearings industry considering its leadership position in needle roller bearings. NRB enjoys ~70% market share in this segment. A needle roller bearing, as a customised product, requires NRB to work with OEMs from the conceptualisation stage. Apart from needle bearings, the other key product that the company manufactures is ball & roller bearings, together contributing ~78% to the topline of the company. Being an automotive centric supplier with customised product offerings, the company also enjoys a sticky client relationship like its MNC peers such as SKF, FAG and Timken. It has a presence across all leading OEM players in India.

Industry Overview

The Indian engineering sector is divided into two major segments – heavy engineering and light engineering. The capital turnover in India is estimated at US$ 70 billion in 2017 and is expected to grow to US$ 115.17 billion by 2025. Likewise, electrical equipment market size is expected to reach US$ 100 billion by FY 2021-22. Comparative advantage vis-à-vis peers in terms of manufacturing costs, market knowledge, technology and creativity has been a driving force for engineering exports from India. Engineering exports from India grew 16.81 per cent to US$ 76,204.38 million in FY18 from US$ 65,239.19 million in FY17. Engineering exports during Apr-May 2018 stood at US$ 13.92 billion.

Construction equipment industry recorded sales of 78,109 and 66,613 units of construction equipment in 2017 and 2016 respectively. This is further expected to grow to around 100,000 units by 2022. Construction equipment market is projected to reach US$ 5 billion by FY20 from around US$ 4.3 billion in FY18. Capacity creation in sectors like infrastructure, power, mining, oil & gas, refinery, steel, automotive, and consumer durables has been driving demand in the engineering sector.