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ICICI Direct Report
Key Investment Thesis:
Domestic and exports to drive growth:
We believe with strong traction with export clients, we expect markets to deliver 15% YoY growth in FY24 whereas domestic markets are expected to grow by 10% YoY led by recovery in two-wheeler and commercial vehicle segment. Hence, we expect revenues to grow at a compound annual growth rate of 11% over FY23-FY25E to Rs 1308 crore.
Margins improvement to boost profit after tax compound annual growth rate at 24% over FY23-FY25E:
FY23 was a tale of two half wherein H1 FY23 saw margins falling to 10% given sharp rise in prices of key input i.e., steel and the lag at which the same was passed on to orignal equipment manufacturer's. However, in Q4 FY23, the price hikes got fully implemeted the same reflected in significant improvement in margins which rose to 20.5% in the same period.
Going ahead, with no major volatility expected in steel prices, double digit growth in export markets we expect margins to improve to 16.7% and 17.6% in FY24E and FY25E respectively.
Double digit topline growth coupled with margin expansion and controlled finance costs will lead to profit after tax CAGR of 24% over FY23-FY25E.
Rating and Target Price
We believe with a visibility of 24% profit after tax CAGR over FY23-25E and a controlled leverage, NRB Bearings is highly undervalued across the bearings space (other players quoting at 40 times-50 times on two year forward earnings per share).
Even discounting the fact that it has one segment exposure unlike other bearings companies still the stock remains undervalued and we expect a rerating to set in.
We value NRB Bearings at Rs 270 per share (based on 18 times FY25 price/earnings)
About the stock:
NRB Bearings was incorporated in 1965 as an Indo-French venture and pioneered the production of needle and roller bearings in India.
NRB is India's largest needle and cylindrical roller bearings producer. Today 90% of vehicles on Indian roads run on NRB parts.
Domestic markets contribute ~75% of total revenues while exports contribute the balance ~25%. In domestic markets, company cater to auto industry including two-wheeler, passenger vehicle, commercial vehicle.
Company exports its products to ~45 countries worldwide including France, Italy, the U.S., Mexico, Brazil, Thailand, Bangladesh etc.
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