Recommendation from Bearings Sector

This section gives a recommendation of a stock having stock price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon. 

 NRB BEARINGS LTD. : ON A SMOOTH RIDE

HERE IS WHY
✓Good financial improvement
✓Good growth prospects
✓Focus on cost reduction

NRB Bearings has been a pioneer in the manufacturing of needle roller bearings in India since 1965. More than 90 per cent of the vehicles running on Indian roads use bearings manufactured by this company. It is engaged in the business of manufacturing ball and roller bearings with applications in the automotive sector as well as across all mobility applications. Almost 65-70 per cent of the domestic demand from OEMs and Tier I customers is met by NRB Bearings while the rest 12-15 per cent is supplied to after-markets. Exports account for almost 20-25 per cent. However no single OEM or Tier I customer accounts for more than 10-12 per cent of the total revenues, thereby de-risking client concentration.

The company reported net sales of Rs 762.40 crore in FY21. It had reported net sales of Rs 775.95 crore in FY20, posting a decrease of 1.75 per cent. The company reported PBIDT of Rs 103.88 crore in FY21, an increase of 21.04 per cent. It had reported PBIDT of Rs 85.82 crore in FY20. The company reported profit of Rs 55.70 crore in FY21. It had reported PAT of Rs 33.19 crore in FY20, an increase of 67.82 per cent. The company has reported cash from operating activities of Rs 102.08 crore in FY20 as against Rs 70.68 crore it reported in FY20. Festive uptick and pent-up demand augured well for the company given the increased production levels at domestic OEMs.

The net sales were at Rs 257.24 crore in March 2021, up by 37.18 per cent from Rs 187.52 crore in March 2020. Strong momentum continued in the automotive sector in Q4FY21, which led to better volumes. Its PBIDT was Rs 46.76 crore in March 2021, up 203.05 per cent from Rs 15.43 crore in March 2020. Higher revenue and better margins led to PBIDT growth. The quarterly net profit was at Rs 35.29 crore in March 2021 as against net profit of Rs 4.41 crore in March 2020, an increase of 700.23 per cent. The company posted strong top-line growth as well as improvement in margin spreads despite the recent commodity inflation.

Gross margins improved 380 bps YoY and 86 bps QoQ. Strong client relationship, promoters’ in-depth and long-standing experience along with in-house research and development facilities have resulted in NRB Bearings commanding 70 per cent market share in the needle bearing industry in India. The company took a price hike in the range of 5-7 per cent in January. Going ahead, another hike of 4-5 per cent is expected in order to pass on higher input costs. The management has guided for a quarterly run rate of Rs 60 crore for exports.

Furthermore, NRB Bearing’s earlier effort in BS-VI is now paying off with better volumes in the category. The company’s performance is largely correlated with the domestic automotive segment as 70 per cent of the top-line comes from this category. Hence, demand sustenance in the automotive segment in the near term will be a key monitoring factor. The company has reduced its debt by 97.8 crore in FY21. Going ahead, we expect positive operating leverage and price hikes to improve the margins. The total debt to equity ratio is 1.15. By virtue of these factors, we recommend our readerinvestors to BUY this stock.