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Recovery to sustain!!!

• 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

• Domestic markets contribute ~75% of total revenues while exports contribute the balance ~25%. In domestic markets, company cater to auto industry including 2W, PV, CV

• Company exports its products to approx. 45 countries worldwide including France, Italy, the US, Mexico, Brazil, Thailand, Bangladesh etc

Key Investment Thesis:

• Domestic and Exports to drive growth: We believe with strong traction with export clients, we expect markets to deliver 15% YoY growth in FY24 whereas domestic markets are expected to grow by 10% YoY led by recovery in 2-Wheeler and CV segment. Hence, we expect revenues to grow at a CAGR of 11% over FY23-FY25E to |1308 crore.

• Margins improvement to boost PAT CAGR at 24% over FY23-FY25E: FY23 was a tale of two half wherein H1FY23 saw margins falling to 10% given sharp rise in prices of key input i.e., steel and the lag at which the same was passed on to OEM’s. However, in Q4FY23, the price hikes got fully implemeted the same reflected in significant improvement in margins which rose to 20.5% in the same period. Going ahead, with no major volatility expected in steel prices, double digit growth in export markets we expect margins to improve to 16.7% and 17.6% in FY24E and FY25E respectively. Double digit topline growth coupled with margin expansion and controlled finance costs will lead to PAT CAGR of 24% over FY23-FY25E

Rating and Target Price

• We believe with a visibility of 24% PAT CAGR over FY23-25E and a controlled leverage, NRB is highly undervalued across the bearings space (other players quoting at 40x-50x on 2 year forward EPS). Even discounting the fact that it has one segment exposure unlike other bearings companies still the stock remains undervalued and we expect a rerating to set in.

• We value NRB at | 270 per share (based on 18x FY25 P/E)

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