Quarterly Result Update

Institutional Equity

BUY NRB Bearings Ltd February 8, 2006

Rs 482.2 Buoyant growth continues

Sensex: 10,045, Nifty: 3,009
Stock data
Bloomberg
Reuters
Shares outstanding (mn)
Market cap (Rs bn)
Market cap (US$ mn)
Three-month daily avg vols
NRB Bearings reported a top line growth of 18.2% to Rs647mn that is 7.5%
above our expectations. Further, the bottom line was 1.29% above our
expectation at Rs86.1mn. The company’s EBITDA margins have improved by
412bps on account of buoyant top line growth and decline in raw material costs
NRBBR IN on account of softening raw material prices. At the FY07E EPS of Rs43.7, the
NBEA.BO stock is trading at 10.2X FY07E earnings. Hence we maintain our ‘BUY’
recommendation.
10
4.7 ♦ NRB Bearings reported revenues and net profit of Rs647mn and
106 Rs86.1mn –an increase of 18.2% and 25.5% YoY, respectively. The
result was 7.48% and 1.29% above our expectations at the top line and
3,742
bottom line, respectively.

Share price performance ♦ The EBITDA margins have shown an improvement of 412 bps to 25.5%
52-week high/low (Rs) 499 / 201
YoY in Q3FY06 due to a buoyant top line growth coupled with decline in
raw material costs. The net margins have also registered an increase of
-1m -3m -12m
77bps to 13.3% in the period.
Abs (%) 20.5 49.5 128.3
Rel* (%) 16.6 28.3 81.3 ♦ The capacity utilization of NRB in FY05 was 93% for needle rollers and
*to Nifty
83% for ball and roller bearings. In order to meet the increased demand,
the company is expanding its capacity of needle rollers from 2.02 billion
Financial snapshot Rs mn units to 3.82bn units, and ball and roller bearings from 14.5 million units
Ye March FY05 FY06E FY07E to 21.5 million units in FY06E. Further, the company is expanding its
Net Sales 2,180.0 2,515.0 3,015.1 capacity for automobile components. The total capex for expansion is
% change - 15.4 19.9 Rs1, 000mn over the next two years to be funded 40% by debt and
Net Income 272.9 340.5 423.8
balance through internal accruals. The company has already taken a
% change - 24.8 24.5
EPS (Rs.) 28.2 35.1 43.7 loan of USD10mn at LIBOR+ 1% for capital expenditure. The expansion
% change - 24.8 24.5 is spread across three plants at Aurangabad, Waluj and Jalna.
P/E (x) 17.1 13.7 11.0
ROE (%) 25.2 26.6 27.3 ♦ The company’s exports as percentage of sales are expected to increase
ROCE (%) 31.6 30.2 30.8 to 20% in the next two-three years from 9% in FY05 as India benefits
from higher outsourcing of auto components. The company currently
caters to the truck division of Renault-Volvo, which is the second largest
customer of NRB Bearings. It supplies 16-18 bearings for Volvo-Renault-
MAC heavy vehicle. We believe growth in exports is expected to be at
22-24% CAGR in FY05- FY07E higher than domestic growth.
♦ As the Q3FY06 numbers are in above our expectations, we are
increasing the FY06E and FY07E EPS estimates by 1.7% and 4.7% to
Rs35.1 and Rs43.7, respectively. The company is trading at a PE
multiple of 10.2X FY07E. Given the expected robust top line growth with
increased focus on exports, and attractive valuations, we continue to rate
the company a 'BUY’.
Mihir Jhaveri
+91 22 55069933
mihir.jahveri@investsmartindia.com

Mihir Jhaveri 1 NRB Bearings, Auto Ancillary

+91 22 55069933
Quarterly Result Update
Institutional Equity

Quarterly result table Rs mn

Q3FY06 Q2 FY06 QOQ (%) Q3FY05 YOY (%)
Net Sales from operations 647.0 622.1 4.0 547.2 18.2
Total expenses 481.9 465.9 3.4 430.1 12.0
%Of net sales 74.5 74.9 78.6
(Increase)/Decrease in stock -15.9 -17.3 -8.1 -6.0 165.0
Raw material Consumed 240.8 229.7 4.8 216.9 11.0
%Of net sales 37.2 36.9 39.6
Staff cost 94.5 93.7 0.9 84.8 11.4
%of net sales 14.6 15.1 15.5
Other expenditure 162.5 159.8 1.7 134.4 20.9
%of net sales 25.1 25.7 24.6
EBITDA 165.1 156.2 5.7 117.1 41.0
%of net sales 25.5 25.1 21.4
Depreciation 34.6 30.2 14.6 25.5 35.7
EBIT 130.5 126.0 3.6 91.6 42.5
%of net sales 20.2 20.3 -0.4 16.7
Interest/(Interest income) 5.0 -8.9 -156.2 0.5 900.0
Other income 7.8 10.2 -23.5 19.0 -58.9
PBT 133.3 145.1 -8.1 110.1 21.1
Provision for tax(including -47.2 -48.8 -3.3 -41.5 13.7
deferred tax)
PAT 86.1 96.3 -10.6 68.6 25.5
NP margin % 13.3 15.5 12.5
Net profit 86.1 96.3 -10.6 68.6 25.5
Equity ( Face value 10) 96.9 96.9 96.9
EPS (Rs.) 8.9 9.9 7.1

Mihir Jhaveri 2 NRB Bearings, Auto Ancillary

+91 22 55069933
Quarterly Result Update
Institutional Equity

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Mihir Jhaveri 3 NRB Bearings, Auto Ancillary

+91 22 55069933