Buy NRB Bearings Ltd For Target Rs.175 - ICICI Direct
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Margins expand; positive surprise…
NRB's Q4 performance was a beat on our estimates on all parameters. The company posted strong topline growth as well as improvement in margin spreads despite the recent commodity inflation. Revenue for the quarter came in at | 257.2 crore, up 37.2% YoY, 5.1% QoQ (vs. I-direct estimate of | 230.1 crore). With this, the company exited FY21 with a decline of merely 1.7% in revenues despite a washout H1. The key surprise to us was gross margins, which improved 380 bps YoY, 86 bps QoQ. Employee cost increased 13.7% YoY whereas other expenses increased 24.3% YoY. Q4 EBIDTA margins were at 18.2% vs. 8.2% YoY, 17.6% QoQ (I-direct estimate at 15%). Absolute EBIDTA came in at | 46.8 crore, up 203% YoY, 8% QoQ (vs. I-direct estimate at | 34.5 crore). Ensuing PAT came in at | 34.6 crore vs. | 4.2 crore in Q4FY20 (I-direct estimate | 17.3 crore). Tax rate for the quarter was at 11.9%.
Price hikes, sustained volumes to negate higher input cost
NRB took a price hike in the range of 5-7% in January. Going ahead, another hike of 4-5% is expected in order to pass on higher input costs. We believe a strong H2 and overall better FY22 volume should aid NRB to achieve 16% & 16.5% EBIDTA margins in FY22E & FY23E, respectively
Higher exports, new products to aid growth in FY22E…
While the second wave impacted the domestic business to an extent in May, export continued to do well with higher wallet share from clients and entry into newer product categories. The management has guided for a quarterly run rate of ~| 60 crore for exports. Furthermore, NRB’s earlier effort in BSVI is now paying off with better volumes in the category. On the whole, we expect NRB to post meaningful growth of 22% in FY22, which should be on the back of a stronger H2.
Valuation & Outlook
NRB’s performance is largely correlated with the domestic auto segment as ~70% of the topline comes from domestic OEMs. Hence, demand sustenance in the auto segment in the near term will be a key monitorable. The company has reduced its debt by | 97.8 crore in FY21. Going ahead, we expect positive operating leverage and price hikes to improve margins from 13.6% in FY21 to 16% & 16.5% by FY22E & FY23E, respectively. We build in revenue, EBIDTA, PAT CAGR of 17.2%, 29%, 32.2%, respectively, in FY21-23E. We estimate an EPS of | 9.8/share for FY23E, implying earnings yield of 7.5% at the CMP. We value NRB at 18x FY23EPS. We maintain our BUY rating on the stock with a revised target price of | 175/share (earlier | 150).
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