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NRB Bearings Ltd

Initiating Coverage


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


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)


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)


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.


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


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


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)


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


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


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.


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


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


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


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


(₹ 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


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


(%)(₹ 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


(%)

RoE RoCE


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


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


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


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


(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%


Revenue mix


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


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


Three-year revenue CAGR of 10.3% during FY13-16 Return ratios to improve, after declining in FY14


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


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


(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


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


(%)(₹ 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


(%)

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


(%)(₹ 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


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