NRB Bearings1
Valuation recommendation and key investmentconsiderationsRecommendation: BUY Analysis from both intrinsic valuation and r...
Industry overview3 Indian organized ball bearings sector worth INR 45 billionand has seen healthy growtho The sector incr...
NRB70.0%Others30.0%Auto79.0%Industrial6.9%Exports14.1%OEM66.9%After-market19.0%Exports14.1%NRB Bearings - Company profile...
NRB Bearings - Company profile (cont’d)Industrial bearings NRB incorporated NIBL in February’ 2011 to manufacturebearings...
22.1%20.6%19.5% 19.3% 19.8%16.1% 15.6%17.2%16.0%14.3% 14.0% 14.7%11.1% 10.3%12.0%10.5%9.6%8.3% 9.0% 8.8%7.8%12/31/2010 03/...
NRB Bearings – Financial summary7(in INR millions except per share data)FYE 3/31 2011A 2012A 2013E 2014E 2015E 2016E 2017E...
NRB Bearings – Valuation summary852.3471.7074.9340.2451.8572.7784.1890.5454.5370.71DCF valuationEV / EBITDA 2012EEV / EBIT...
NRB Bearings – DCF valuation9Terminal growth67.62INR 3.0% 3.5% 4.0% 4.5% 5.0%5.0% 55.65 59.10 62.99 67.43 72.526.5% 55.74 ...
NRB Bearings – Comparable company analysis10(in INR millions, except per share data)Share Price % of Equity Enterprise EV ...
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NRB Bearings Ltd. - Company Valuation and Investment Recommendation

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NRB Bearings Ltd. - Company Valuation and Investment Recommendation

  1. 1. NRB Bearings1
  2. 2. Valuation recommendation and key investmentconsiderationsRecommendation: BUY Analysis from both intrinsic valuation and relative valuation highlight that at current levels NRB Bearings offers asignificant upsideKey investment highlights: #4 bearings manufacturer in the organized bearings market Market leader in needle roller bearings with ~70% market share Continued high investment to support organic growth Increasing focus on exports market (high margin business) and industrial components market (currently comprisesprimarily of imports) Attractive industry growth estimates (as per ACMA):o Auto Components industry growth CAGR 2011-21: 11.0%o Auto Components industry exports growth CAGR 2011-21: 18.8%Key investment concerns Rising raw material costs, which may put some pressure on the margins in the short-term Exposure to foreign currency risks Significant employee costs as compared to peers2
  3. 3. Industry overview3 Indian organized ball bearings sector worth INR 45 billionand has seen healthy growtho The sector increased by 13% for the year 2011-12 Domestic industry satisfies 75% of the demand, the balance25% is met through importso International manufacturers have established units inIndia through joint ventures or 100% ownershipIndustry overviewGrowth in key drivers of the sector Industry structureBearingsindustryUnorganized ImportedOrganized~37.5% ~37.5% ~25% Historically buoyant growth witnessed in the automotiveindustry, the largest consumer of quality bearings, across allsegmentso Indian government’s Automotive Mission Plan 2016 tofacilitate high growth for the sectoro Targets of doubling of the automotive industriescontribution to the Indian economy between 2006-2016 Infrastructure spending in the 12th Five Year Plan expectedto double to US$ 1 trillion Investments in roads, railways and power generation willresult in a multiplier effect across the core sectorsKey sector highlightsReplacementSpecial purposebearingOEMCAGR CAGR2008-12 2012-21Passenger vehicles growth 14.0% 13.0%Commercial vehicles 22.0% 11.0%Tractors NA 6.0%Two & three wheelers 16.0% 7.0%Construction vehicles NA 14.6%CAGR CAGR2007-11 2011-21Auto components 14.6% 11.0%Auto components - Exports 11.0% 18.8%
  4. 4. NRB70.0%Others30.0%Auto79.0%Industrial6.9%Exports14.1%OEM66.9%After-market19.0%Exports14.1%NRB Bearings - Company profile NRB operates in the ball and roller bearing business Offers c.3,000 customized products to its diversified clientbase in the Auto OEM’s and after market segments Products find applications in Auto, tractors & farmequipments & Off highway vehicles Customers: Well-established relationships with some majorOEMs with top five customers including Tata Motors, HeroHonda, Ashok Leyland, M&M, and Bajaj Autoo Diversified client base with no single customeraccounting for >10% revenueso Global clientele includes Daimler, Volvo and VW4Company overview Sales breakdown (FY2011/12)Market positioning OrganizationNRB BearingsNRB IndustrialBearings(NIBL)NRB Bearings(Thailand)SNL Bearings73.5% 100% 100%NRB12.0%Others88.0%Mkt. share of organizedbearings industryMkt. share of needleroller bearings
  5. 5. NRB Bearings - Company profile (cont’d)Industrial bearings NRB incorporated NIBL in February’ 2011 to manufacturebearings for the industrial sector NIBL is expected to commence manufacturing industrialbearings from October, 2012 NRB to also transfer its industrial bearings operations toNIBL Company’s new plant in Aurangabad to cater its industrialsegment is expected to go on-stream and start contributingslowly from current fiscal NRB expects to increase its industrial bearings market sharein the next 2-3 years through new plantExports Company plans to focus more on the exports Revenue contribution from exports expected to increase to20% over the next 2-3 years5 Operates 8 manufacturing plants (7 domestic and 1 inThailand)Recent developments Manufacturing footprint and locationsLocation Year Products manufacturedThane 1966Textile bearing, Thrust bearing, steering bearing, Needlebushes, Needle cagesAurangabad 1978 Needle rollersJalna 1982Rocker arm bearings, Textile bearings, Taper rollerbearings, Ball bearings, Sperical and Cylinderical ballbearingsRanchi 1983Needle rollers, Needle cages, Full compliment shellbearingsWaluj 1991Big and small end bearings, Grease retained bushes, Fullcomplimented bushesHyderabad 1992 Thrust bearings, on rod kits, CagesPantnagar 2008Ball bearings, Needle roller bearings, Cylindrical rollerbearingsThailand 2007Spherical bearings, Tapered bearings, Cylindrical rollerbearings , Needle cages, Roller cages
  6. 6. 22.1%20.6%19.5% 19.3% 19.8%16.1% 15.6%17.2%16.0%14.3% 14.0% 14.7%11.1% 10.3%12.0%10.5%9.6%8.3% 9.0% 8.8%7.8%12/31/2010 03/31/11 06/30/11 09/30/11 12/31/11 03/31/12 06/30/12EBITDAmargin EBITmargin Net incomemargin38.0% 36.1% 35.0% 40.5% 35.1% 38.3% 35.7%24.0% 26.6% 28.3% 23.8% 28.8%30.0% 32.5%16.0% 16.7% 17.2% 16.4% 16.3%15.6% 16.2%12/31/2010 03/31/11 06/30/11 09/30/11 12/31/11 03/31/12 06/30/12COGS as % ofsales SG&Aas % ofsales Employee expenses as % ofsalesNRB Bearings – Historical quarterly performance analysis6Note: Figures for NRB on a standalone basis.NRB revenue figures exclude other income (considered non-operational).Quarterly development of NRB expensesMargin development relative to peersQuarterly development of NRB marginsQuarterly expenses relative to peersas % of sales 12/31/10 3/31/11 6/30/11 9/30/11 12/31/11 3/31/12 6/30/12COGSNRB Bearings 38.0% 36.1% 35.0% 40.5% 35.1% 38.3% 35.7%SKF India 55.2% 56.0% 56.0% 57.6% 61.1% 61.1% 62.8%FAG Bearings 64.3% 63.7% 100.8% 64.3% 65.2% 65.5% 64.3%ABC Bearings 49.1% 50.7% 47.5% 44.4% 51.0% 47.6% 39.3%SG&ANRB Bearings 24.0% 26.6% 28.3% 23.8% 28.8% 30.0% 32.5%SKF India 16.8% 16.2% 15.9% 15.0% 13.0% 13.9% 13.1%FAG Bearings 16.7% 15.4% 16.5% 16.2% 16.7% 13.3% 17.6%ABC Bearings 20.0% 16.6% 24.7% 26.7% 22.9% 25.0% 30.1%Employee expenseNRB Bearings 16.0% 16.7% 17.2% 16.4% 16.3% 15.6% 16.2%SKF India 8.3% 7.4% 8.2% 7.5% 7.8% 7.4% 7.3%FAG Bearings 7.5% 6.4% 6.5% 6.4% 7.8% 6.6% 7.8%ABC Bearings 8.5% 6.5% 9.6% 10.2% 8.7% 13.1% 14.0%% margins 12/31/10 3/31/11 6/30/11 9/30/11 12/31/11 3/31/12 6/30/12EBITDANRB Bearings 22.1% 20.6% 19.5% 19.3% 19.8% 16.1% 15.6%SKF India 19.6% 20.5% 20.0% 19.8% 18.1% 17.5% 16.8%FAG Bearings 11.5% 14.5% (23.8%) 13.1% 10.3% 14.5% 10.4%ABC Bearings 22.4% 26.2% 18.2% 18.7% 17.4% 14.3% 16.6%EBITNRB Bearings 17.2% 16.0% 14.3% 14.0% 14.7% 11.1% 10.3%SKF India 17.7% 18.7% 18.4% 18.1% 16.3% 15.8% 15.1%FAG Bearings 9.9% 13.1% (25.4%) 11.5% 8.7% 12.8% 8.5%ABC Bearings 20.2% 24.5% 14.8% 14.6% 13.7% 10.9% 11.8%Net incomeNRB Bearings 12.0% 10.5% 9.6% 8.3% 9.0% 8.8% 7.8%SKF India 12.7% 13.8% 14.1% 13.6% 12.3% 12.7% 12.2%FAG Bearings 8.1% 9.6% 8.6% 9.2% 6.7% 11.3% 8.1%ABC Bearings 13.8% 16.0% 9.6% 10.6% 9.4% 5.6% 7.2%
  7. 7. NRB Bearings – Financial summary7(in INR millions except per share data)FYE 3/31 2011A 2012A 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021ENet revenues 4,796 5,600 6,605 8,131 10,085 11,351 12,787 14,415 16,265 18,367 20,760% growth 34.6% 16.8% 18.0% 23.1% 24.0% 12.6% 12.6% 12.7% 12.8% 12.9% 13.0%Cost of goods sold 1,545 1,894 2,333 2,847 3,501 3,907 4,363 4,875 5,501 6,212 7,021Gross income 3,251 3,706 4,272 5,283 6,583 7,444 8,424 9,540 10,764 12,156 13,739% margin 67.8% 66.2% 64.7% 65.0% 65.3% 65.6% 65.9% 66.2% 66.2% 66.2% 66.2%SG&A expenses 1,311 1,627 1,874 2,307 2,861 3,221 3,628 4,090 4,615 5,211 5,890Employee expenses 853 941 1,189 1,463 1,815 2,043 2,301 2,594 2,927 3,306 3,736EBITDA 1,087 1,138 1,209 1,513 1,907 2,181 2,495 2,856 3,222 3,639 4,113% margin 22.7% 20.3% 18.3% 18.6% 18.9% 19.2% 19.5% 19.8% 19.8% 19.8% 19.8%Depreciation & amortization 240 293 353 434 539 607 683 770 869 981 1,109EBIT 846 845 856 1,079 1,368 1,574 1,812 2,086 2,353 2,657 3,003% margin 17.6% 15.1% 13.0% 13.3% 13.6% 13.9% 14.2% 14.5% 14.5% 14.5% 14.5%Interest expense 65 148 200 210 228 219 187 163 155 149 143Other (income) / expenses (35) (36) (18) (22) (28) (31) (35) (40) (45) (50) (57)Profit before tax 816 734 675 891 1,168 1,387 1,659 1,962 2,243 2,559 2,917% margin 17.0% 13.1% 10.2% 11.0% 11.6% 12.2% 13.0% 13.6% 13.8% 13.9% 14.1%Tax 268 225 204 269 353 419 502 593 678 773 882Profit after tax 547 509 471 622 815 967 1,158 1,369 1,565 1,785 2,035% margin 11.4% 9.1% 7.1% 7.6% 8.1% 8.5% 9.1% 9.5% 9.6% 9.7% 9.8%Parent company’s share 535 499 462 609 798 948 1,135 1,341 1,534 1,750 1,995Minority 12 10 9 12 16 19 23 27 31 36 41EPS 5.52 5.15 4.76 6.29 8.24 9.78 11.71 13.84 15.82 18.05 20.58Dividends paid 194 194 194 194 194 194 194 194 194 194 194Dividend payout ratio 36.2% 38.8% 42.0% 31.8% 24.3% 20.4% 17.1% 14.5% 12.6% 11.1% 9.7%Return analysis:RoE 27.9% 22.6% 18.7% 21.7% 24.0% 23.7% 23.4% 22.8% 21.5% 20.4% 19.4%RoIC 17.3% 12.0% 11.8% 12.9% 14.6% 15.7% 17.0% 17.2% 16.9% 16.5% 16.2%Credit metrics:Cash 91 558 26 (0) (0) (0) (0) 499 1,176 1,989 2,954Total debt 1,140 2,575 2,451 2,834 2,913 2,594 2,125 1,988 1,915 1,841 1,767Shareholders equity 2,071 2,338 2,605 3,021 3,625 4,380 5,321 6,468 7,808 9,364 11,164Total capitalization 3,210 4,913 5,056 5,855 6,538 6,973 7,445 8,456 9,723 11,205 12,932Total debt / Total cap. 35.5% 52.4% 48.5% 48.4% 44.5% 37.2% 28.5% 23.5% 19.7% 16.4% 13.7%Total debt / EBITDA 1.0x 2.3x 2.0x 1.9x 1.5x 1.2x 0.9x 0.7x 0.6x 0.5x 0.4xNet debt / EBITDA 1.0x 1.8x 2.0x 1.9x 1.5x 1.2x 0.9x 0.5x 0.2x (0.0x) (0.3x)EBITDA / Interest expense 16.6x 7.7x 6.1x 7.2x 8.4x 10.0x 13.3x 17.5x 20.8x 24.4x 28.7x
  8. 8. NRB Bearings – Valuation summary852.3471.7074.9340.2451.8572.7784.1890.5454.5370.71DCF valuationEV / EBITDA 2012EEV / EBITDA 2013EP / E 2012EP / E 2013EValuation rangeCurrent share price:INR 37.801. P / E 2013E valuation based on range of +/- 1.5x the average multiple of 9.7x for the peer group.2. P / E 2012E valuation based on range of +/- 1.5x the average multiple of 10.0x for the peer group.3. EV / EBITDA 2013E valuation based on range of +/- 0.5x the average multiple of 6.6x for the peer group.4. EV / EBITDA 2012E valuation based on range of +/- 1.5x the average multiple of 7.9x for the peer group.5. DCF valuation low price based on WACC of 12.0% and terminal growth rate of 3.0%; high price based on industrial growth rate of 8.0% andterminal growth rate of 5.0%.
  9. 9. NRB Bearings – DCF valuation9Terminal growth67.62INR 3.0% 3.5% 4.0% 4.5% 5.0%5.0% 55.65 59.10 62.99 67.43 72.526.5% 55.74 59.20 63.11 67.56 72.678.0% 55.78 59.25 63.17 67.64 72.779.5% 55.78 59.26 63.19 67.66 72.8011.0% 55.72 59.21 63.14 67.62 72.77IndutrialgrowthTerminal growth67.62INR 3.0% 3.5% 4.0% 4.5% 5.0%11.0% 64.76 69.12 74.10 79.85 86.5511.5% 58.17 61.87 66.08 70.88 76.4212.0% 52.34 55.52 59.10 63.15 67.7912.5% 47.15 49.90 52.97 56.42 60.3413.0% 42.52 44.91 47.56 50.52 53.85WACC(in INR millions except per share data)FYE 3/31 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021EKey driversTerminal growth rate: 4.5%Automotive growth rate: 11.0%Exports growth rate: 18.8%Industrial growth rate: 11.0%WACC: 11.7%EBIT 1,021 1,311 1,701 1,940 2,202 2,503 2,788 3,100 3,506(-) Tax 309 396 514 587 666 757 843 937 1,060NOPAT 712 915 1,187 1,354 1,536 1,746 1,945 2,163 2,446(+) D&A 188 202 206 240 293 353 434 539 607(-) Capex (750) (750) (572) (626) (686) (752) (848) (958) (1,083)(+) Changes in W.C. (278) (511) (654) (420) (476) (539) (620) (705) (802)FCF from operations (127) (145) 167 547 667 809 911 1,039 1,168Discount factor 0.90 0.80 0.72 0.64 0.58 0.51 0.46 0.41 0.37Discounted FCF (114) (116) 120 352 384 416 420 429 431Total FCF 2,322Terminal value 6,259Total Enterprise value 8,580(-) Total debt 2,575(-) Minority interest 8(+) Cash 558Equity value 6,554# of share outstanding 96.923Equity val. / share 67.62INR% upside to current 78.9%
  10. 10. NRB Bearings – Comparable company analysis10(in INR millions, except per share data)Share Price % of Equity Enterprise EV / Sales EV / EBITDA EV / EBIT P / E P / BCompany name 20-Aug-12 52-w high Value Value 2011A 2012E 2013E 2011A 2012E 2013E 2011A 2012E 2013E 2011A 2012E 2013ENRB Bearings Ltd. 37.80 74.1% 3,664 5,690 1.02x 0.93x 0.82x 5.0x 4.9x 4.2x 6.7x 6.5x 5.2x 7.2x 6.7x 5.2x 1.6xSKF India 617.00 84.8% 32,536 29,893 1.24x 1.19x 1.06x 10.1x 9.4x 8.2x 11.6x 10.8x 9.3x 15.6x 14.5x 12.6x 2.9xFAG Bearings India 1,613.50 90.0% 26,812 24,966 1.92x 1.68x 1.44x 10.2x 9.4x 7.6x 11.2x 10.5x 8.4x 15.2x 14.1x 11.4x 3.3xABC Bearings 87.00 75.7% 1,005 1,500 0.85x 0.73x n.m. 5.1x n.m. n.m. 6.6x n.m. n.m. 6.5x 4.5x n.m. 0.8xMean 1.26x 1.13x 1.11x 7.6x 7.9x 6.6x 9.0x 9.3x 7.6x 11.1x 10.0x 9.7x 2.2xMedian 1.13x 1.06x 1.06x 7.6x 9.4x 7.6x 9.0x 10.5x 8.4x 11.2x 10.4x 11.4x 2.2xHigh 1.92x 1.68x 1.44x 10.2x 9.4x 8.2x 11.6x 10.8x 9.3x 15.6x 14.5x 12.6x 3.3xLow 0.85x 0.73x 0.82x 5.0x 4.9x 4.2x 6.6x 6.5x 5.2x 6.5x 4.5x 5.2x 0.8xMultiples (based on financials from model)NRB Bearings Ltd. 37.80 74.1% 3,664 5,690 1.02x 0.86x 0.70x 5.0x 4.7x 3.8x 6.7x 6.6x 5.3x 7.2x 7.8x 5.9x 1.6xNote: Estimates for NRB, SKF and FAG from Batlivala and Karami research; estimates from Bloomberg for ABC Bearings.Estimates on standalone basis for NRB.For NRB and ABC, 2012E and 2013E indicates multiples for FYE March 31, 2013 and March 31, 2014, respectively; Multiples for calendar year for SKF and FAG.Sales growth EBITDA margin EBIT margin Net income margin ROECompany name 2011A 2012E 2013E 2011A 2012E 2013E 2011A 2012E 2013E 2011A 2012E 2013E 2011A 2012E 2013ENRB Bearings Ltd. 16.8% 9.2% 13.0% 20.3% 19.0% 19.8% 15.1% 14.4% 15.7% 9.1% 9.0% 10.1% 21.8% 19.7% 21.4%SKF India 16.8% 3.5% 12.4% 12.3% 12.7% 13.0% 10.7% 11.0% 11.5% 8.6% 9.0% 9.2% 20.6% 18.9% 18.5%FAG Bearings India 24.9% 14.3% 16.6% 18.9% 17.8% 19.0% 17.1% 15.9% 17.2% 13.5% 12.8% 13.6% 24.1% 20.9% 20.9%ABC Bearings (13.0%) 16.4% n.a. 16.5% n.a. n.a. 12.9% n.a. n.a. 8.7% 10.8% n.a. 12.8% n.m. n.m.Mean 11.4% 10.9% 14.0% 17.0% 16.5% 17.3% 13.9% 13.8% 14.8% 10.0% 10.4% 11.0% 19.8% 19.8% 20.3%Median 16.8% 11.7% 13.0% 17.7% 17.8% 19.0% 14.0% 14.4% 15.7% 8.9% 9.9% 10.1% 21.2% 19.7% 20.9%High 24.9% 16.4% 16.6% 20.3% 19.0% 19.8% 17.1% 15.9% 17.2% 13.5% 12.8% 13.6% 24.1% 20.9% 21.4%Low (13.0%) 3.5% 12.4% 12.3% 12.7% 13.0% 10.7% 11.0% 11.5% 8.6% 9.0% 9.2% 12.8% 18.9% 18.5%Operational performance (based on financials from model)NRB Bearings Ltd. 16.8% 18.0% 23.1% 20.3% 18.3% 18.6% 15.1% 13.0% 13.3% 9.1% 7.1% 7.6% 17.7% 20.2% 22.0%Note: For NRB and ABC, 2012E and 2013E indicates multiples for FYE March 31, 2013 and March 31, 2014, respectively; Multiples for calendar year for SKF and FAG.
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