Buy NRB Bearings -The leader in needle roller bearings :: Anand Rathi

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NRB Bearings
The leader in needle roller bearings; initiate at Buy
We initiate coverage on NRB, the leading manufacturer of
needle bearings in India, with a Buy rating and a target of `68.
The huge rise in number of vehicles in India, NRB’s sharper
focus on exports and the replacement market, and its expansion
are likely to lead to a 29% earnings CAGR over FY11-13e.

 Market leader in needle bearings, with a ~10% share in the
organised bearings sector. The bearings sector is split equally
between organised and unorganised companies. NRB has a ~10%
market share in the organised sector; in needle bearings it has a
commanding 70% market share.
 Sharper focus on exports and replacement market. As exports
and replacement markets command higher margins, the company
is increasing its focus on these markets. In the next three years
exports would rise to 20% of sales.
 Adding capacities to satisfy stable auto demand. As most of
NRB’s revenue comes from the auto segment, robust demand for
automobiles would benefit it. To cater to this roaring demand,
NRB is investing `0.6bn to double its needle bearings capacity by
Jul ’11.
 Valuations and risks. At our target of `68, the stock would trade
at 11x 12-month-forward earnings and an EV/EBITDA of 5.7x.
Risks: fragmentation in the sector, spurious products in after-sales
market, threat of cheap imports from China, increase in prices of
raw materials.