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Strong deal momentum to drive revenues…

About the stock: NRB 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

* It exports its products to many countries such as France, Italy, the US, Mexico, Brazil, Thailand and Bangladesh. It has a revenue break-up of 78% from domestic sales and 22% from exports

Rationale:

* NRB is planning to invest heavily in R&D as the bearings industry is seeing new opportunities from EV segments

* The company will not only focus on products, which are EV based but also expand to newer areas of business development that includes products for steering systems, hybrid and electrical transmission and other applications for EV and hybrid vehicles

* NRB has also been chosen as the exclusive supplier for Ola’s two-wheeler segment and has been working on customised needle bearings it requires. The company is also focusing on new products with adoption of BS-6 norms

What should investors do? NRB has been making strides towards innovation and R&D. Going ahead, boost in e-vehicle sales will help the company to grow

* We remain positive on the stock and maintain BUY rating

Target Price and Valuation: We roll over valuations to FY24E and value NRB at | 220 i.e. 18x P/E on FY24E EPS

Key triggers for future price performance: 

* The company recently announced a capex of | 200 crore, focusing on R&D of new products related to EV and also bagged a deal with Ola to exclusively supply needle bearings

* Upcoming e-markets and the company’s strategy to have overseas business with organisations having a strong presence in the EV segment

Alternate Stock Idea: Apart from NRB, in our capital goods coverage we also like Action Construction Equipment

* It offers a play on construction equipment, material handling and agri equipment

* BUY with a target price of | 320 per share i.e. 15x EV/EBITDA(FY23E).

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