NRB Bearings
Tough domestic market, export-led growth; Buy
Key takeaways
Domestic sales continue to slow down, exports expected to grow. We
expect NRB Bearings’ sales to have risen 6% yoy, to `1.5bn, despite a decline
in offtake in the domestic auto segment (OEM clients). Exports would have
grown yoy at a healthy pace on account of the company’s export-focused
strategy. Sluggish growth in the domestic auto sector, its mainstay, would
have kept the yoy margin slightly down.
Margin set to decline 129bps. The EBITDA margin is expected to decline
129bps yoy, chiefly due to lower fixed-cost absorption. Ahead, with an
expected rise in volumes of high-margin exports, the margin is expected to
have expanded to over 17%. The costs involved in exports a present are high.
The decline in the domestic business was somewhat counter-balanced by
more exports. The long-term focus is now on increasing export revenue. In
FY14 exports are anticipated to have clocked `2bn (FY13: `1.5bn). From
3QFY13 NRB Industrial Bearings has been hived off into a separate
company.
Short-term outlook weak; exports, the silver lining. While revenue and
EBITDA growth continues in 3QFY14, higher revenue from fresh export
clients should pick up, and the domestic business, which has bottomed out,
start to inch up. Economic growth is expected to improve in the next few
quarters, auguring well for the company. Besides, its exports business
continues to gain size. This could improve margins and reduce working
capital required. For 3QFY14 we expect PAT to decline 16.5% yoy, to
`123m.
Our take. With brightening prospects for the economy and NRB too
expected to look up, we maintain a Buy. The stock trades at 7x one-yearforward EPS. Our revised target is based on 9x FY15e EPS. Risks: Keener
competition, higher input costs
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Tough domestic market, export-led growth; Buy
Key takeaways
Domestic sales continue to slow down, exports expected to grow. We
expect NRB Bearings’ sales to have risen 6% yoy, to `1.5bn, despite a decline
in offtake in the domestic auto segment (OEM clients). Exports would have
grown yoy at a healthy pace on account of the company’s export-focused
strategy. Sluggish growth in the domestic auto sector, its mainstay, would
have kept the yoy margin slightly down.
Margin set to decline 129bps. The EBITDA margin is expected to decline
129bps yoy, chiefly due to lower fixed-cost absorption. Ahead, with an
expected rise in volumes of high-margin exports, the margin is expected to
have expanded to over 17%. The costs involved in exports a present are high.
The decline in the domestic business was somewhat counter-balanced by
more exports. The long-term focus is now on increasing export revenue. In
FY14 exports are anticipated to have clocked `2bn (FY13: `1.5bn). From
3QFY13 NRB Industrial Bearings has been hived off into a separate
company.
Short-term outlook weak; exports, the silver lining. While revenue and
EBITDA growth continues in 3QFY14, higher revenue from fresh export
clients should pick up, and the domestic business, which has bottomed out,
start to inch up. Economic growth is expected to improve in the next few
quarters, auguring well for the company. Besides, its exports business
continues to gain size. This could improve margins and reduce working
capital required. For 3QFY14 we expect PAT to decline 16.5% yoy, to
`123m.
Our take. With brightening prospects for the economy and NRB too
expected to look up, we maintain a Buy. The stock trades at 7x one-yearforward EPS. Our revised target is based on 9x FY15e EPS. Risks: Keener
competition, higher input costs
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