Spark - Bearings Sector Report

Initiating Coverage on
Bearings Sector
October 2011
Find Spark research on Bloomberg (SPAK <go>), Thomson First Call, Reuters Knowledge and Factset
Bearings Sector
Executive Summary
Initiating Coverage
Sector Outlook
Rolling on
Not high tech per se but We cannot call bearings a high tech product like fuel injection systems (Bosch) or anti-lock braking systems
(Wabco). However, SKFs and FAGs century long experience in bearing manufacturing gives them the ability to engage with OEMs
even from product development stages and add much more value than a commoditized component supplier. Likewise, NRBs mastery
in a niche product gives the company its technological edge. While we expect bearings for certain applications (like ceiling fans) to be
commoditized for a long time, we expect the organized players to dominate auto bearings.
Limited aftermarket demand but We like businesses with a high replacement/after-market exposure, as this would mitigate
cyclicality risk and provide a favourable pricing environment. However, bearing companies fill this void by having a substantial industrial
business. The industrial business is characterized by low volume demand for a wide variety of bearings. SKFs and FAGs import
business allows them to tap this demand and distribute bearings across a variety of industrial applications.
More reasons to like the sector: Low competitive intensity the top three companies are dominant in different types of bearings and
do not compete head on, or based on pricing. Lower customer concentration no single customer constitutes more than 10% of SKFs,
FAGs or NRBs revenues. Variablized cost structure (for SKF & FAG) both these companies have most of their RMs procured semifinished saving them capital investment and cushioning cyclical downturns.
SKF India (Add-Outperform; TP: Rs 727 (15x CY12E EPS)): SKFs diversified customer base, wider distribution network in the aftermarket augurs well for strong growth. However prevalence of counterfeit bearings restricts penetration in the after-market. Expect
topline CAGR of 19% for CY10-12E to Rs 29.6bn and expect margin to be at 13.5% by CY12 against 13.4% in CY10.
NRB Bearings: Given presence in a niche product (needle roller bearing which relatively has less application), we expect domestic
business to grow in-line with OEMs. However, for the next 2-3 years, expect exports to boost earnings. We believe the capital
requirement will continue to be high, given a relatively higher in-house processing.
FAG Bearings: Strong presence in after-market, auto OEM and industrial business with diversified customer base augurs well for
topline growth. The favourable product portfolio in the domestic market, coupled with growth in traded business is expected to aid
profitability.
Other coverage universe view: Among stocks in our auto component coverage universe, we continue to be positive WABCO India,
Exide Industries, Motherson Sumi and Bharat Forge, and negative on Amara Raja and Apollo Tyres. With respect to WABCO, we
believe that exports will be the key catalyst for growth along with stable after-market business growth. For Exide, we continue to be
believe that replacement market will be the key driver for growth and their ability to maintain leadership in the OEM segment. We like
Motherson Sumi for its dominance in PC wiring harness business and souring of inputs from Motherson Group and expect margin
expansion in SMR in ensuing quarters and Peguform from next fiscal.
Date
Oct 10, 2011
Market data
BSE SENSEX
16232
Nifty
4888
BSE Autos
8489
BSE Auto vs. Sensex

BSE Auto vs Sensex - Relative
0.20
Closing price
Among the auto-component businesses, we continue to like those that either have a technology barrier or have access to a
large replacement market. The bearings sector does not entirely posses either of these characteristics. However, there are
elements of both of these characteristics. While there is no technology barrier per se, there is a level of technology based
differentiation achieved by players like SKF and FAG making them preferred suppliers to OEMs. Similarly, while the
replacement market is relatively small in bearings, there is a healthy non auto exposure that delivers some of the benefits
derived from an exposure to the replacement market. We initiate coverage on SKF India with an Add-Outperform rating (TP of
Rs 727). We believe that SKF does not offer an absolute return given the run-up in the stock in the recent past. We however
believe that the stock will outperform its peers in this environment given the defensive nature of the business with less
vulnerability to externalities.
Positive
0.00
-0.20
-0.40
Oct-10
Jan-11
Apr-11
BSE Auto
Jul-11
Oct-11
Sensex
Performance (%)
1m
3m
12m
Sensex
-5%
-14%
-20%
BSE Auto
-4%
-7%
-13%
Vijay Sarthy T S
vijaysarthy@sparkcapital.in
+91 44 4344 0032
Narayanan Ravindranathan
narayanan@sparkcapital.in
+91 44 4344 0020
Bearings Sector
Initiating Coverage
Snapshot of Views on Stocks
Sector Outlook
Positive
Company
Business
analysis
outcome View
SKF India
Rank: 4
Growth to be driven by auto OEM demand and capital formation led industrial demand for the next two years
ADD
Variablized cost structure and diversified customer base to help withstand cyclical downturns
OUTPERFORM
Unorganized players and counterfeits to continue impacting after-market growth, but competitive position on supplies to OEMs is expected to TP: Rs 727
remain strong
Estimate topline CAGR of 19% from CY10-CY12E and PAT CAGR of 20% for the same period
NRB
Bearings
Rank: 8

Dominant market position to sustain in needle roller bearings

Domestic revenues to be inline with OEM growth
Export revenues to drive overall growth
Capital requirements to be high given the companys backward integration
Estimate topline CAGR of 16% from FY11-FY13E and PAT CAGR of 13% over the same period leading to a FY13E PAT of Rs. 669mn
NOT RATED
FAG
Bearings
Rank: 1

Growth to be driven by industrial capacity addition and automotive sector growth

High cost structure variablization similar to SKF
Substantial presence in roller bearings presents a lower threat from counterfeits relative to SKF, and stronger after-market growth
Strong free cash flow generation to enable the company to remain debt free
Estimate topline CAGR of 18.6% for CY10-12E and PAT CAGR of 20% over the same period leading to a CY12E PAT of Rs. 1.96bn
NOT RATED
Rating
Bearings Sector
Initiating Coverage
Valuation Matrix
Sector Outlook
Sales (Rs. mn)

Company
CY10/
FY11
CY11E/
FY12E
PAT (Rs. mn)
EBITDA (Rs. mn)
CY12E/
FY13E
CY10/
FY11
CY11E/
FY12E
CY12E/
FY13E
CY10/
FY11
CY11E/
FY12E
Positive
EPS (Rs.)
CY12E/
FY13E
CY10/
FY11
CY11E/
FY12E
EBITDA Margin
CY12E/
FY13E
CY10/
FY11
CY11E/
FY12E
CY12E/
FY13E
SKF India
20,932
25,781
29,644
2,794
3,451
4,015
1,770
2,190
2,556
33.6
41.5
48.5
13.3%
13.4%
13.5%
FAG Bearings
10,486
12,283
14,738
1,887
2,425
2,924
1,215
1,638
1,961
73.1
98.5
118.0
18.0%
19.7%
19.8%
NRB Bearings
4,724
5,379
6,384
1,044
1,159
1,377
525
564
669
5.4
5.8
6.9
22.1%
21.6%
21.6%
P/E
Company
CY10/
FY11
CY11E/
FY12E
EV/EBITDA
CY12E/
FY13E
CY10/
FY11
CY11E/
FY12E
EV/Sales
CY12E/
FY13E
CY10/
FY11
CY11E/
FY12E
Mkt Cap
CY12E/
FY13E
CMP (Rs)
(Rs. mn)
Target
P/E
Rating
Price
Absolute Relative
SKF India
20.0x
16.2x
13.8x
11.9x
9.3x
7.5x
1.6x
1.2x
1.0x
671
35,384
15x
727Add
OPF
FAG Bearings
16.0x
11.8x
9.9x
8.8x
6.3x
4.4x
1.6x
1.2x
0.9x
1,167
19,396
NA
NANR
NR
NRB Bearings
8.7x
8.1x
6.8x
5.3x
5.0x
4.3x
1.2x
1.1x
0.9x
47
4,555
NA
NANR
NR
Note: CY financial year end for FAG and SKF and March FY ended for NRB
Bearings Sector
Table of Contents
Section
Initiating Coverage
Sector Outlook
Positive
Page
Industry Scenario
Bearings Industry Overview
Business and Financial Analysis

Comparative Analysis of Auto Component Coverage Universe
Limited differentiation among bearing companies
11
SKF scores in non-auto exposure
13
FAG outperforms in cash flow generation
15
Wabco, SKF and FAG have the least leverage
17
SKF and FAG have variable cost structure but lower margins compared to NRB
20
Company Section
SKF India
24
NRB Bearings
26
FAG Bearings
28
Industry Scenario
Bearings Sector
Initiating Coverage
Bearing Industry Overview
Sector Outlook
Industry status
Indian bearing industry valued at Rs. 80bn out of which Rs. 65-70bn is
organized market and the rest is unorganized market. Nearly 60% of the
demand is derived from OEMs and the remaining from the after-market
Around 45% of sales is from automobile, 28% from general engineering,
21% from heavy industries and the rest from electrical equipments and
others
Nearly 30% of bearings (in value terms) are imported and the organized
domestic market constitutes 55%
The unorganized market, which constitutes 15% of the total market,
largely addresses the replacement market
The top 5 players in the organized bearing market constitute 79% of the
revenues
While part of 30% imports comes through official channels primarily for
Industrial applications, there are huge volumes of spurious imports
Positive
User Segments break-up

Heavy
Indsuatries (incl
Railw ays)
21%
Electrcal
equipment and
others
6%
General
Engineering
28%
Automobile
45%
Source: Spark Capital, Company
Domestic and imports break-up
Top five players market share
Timken
8%
NRB
8%
Imports
30%
Domestic Organised
55%
DomesticUnorganised
15%
SKF
30%
NEI
16%
FAG
18%
Bearings Sector
Initiating Coverage
Bearing Industry Overview
Sector Outlook
Types of bearings and market share
Positive
Types of bearings and its applications
Manufacturer
Types of bearings
produced
SKF India
Deep groove ball bearing
FAG India
Spherical and cylindrical

roller bearing
INA - (FAG's subsidiary) Needle Roller bearing

Timken
Taper Roller bearing
NRB Bearings
Needle Roller bearing
Market share
65-70%
45%
30%
40-50%
70%
Types of bearings
Applications
Deep groove ball bearing
Wide applications in two-wheelers, four-wheelers,

three-wheelers (Used in wheel, axles)
Spherical roller bearing
Car suspension, drive shaft, heavy machinery
Cylindrical roller bearing
Machine tools, transmissions, wheel-set bearings for

railway applications
Tapered roller bearing
Wide application in commercial vehicles
Needle roller bearing
Niche application in engine, gearbox. With less load

and thrust
Organised market size Product-wise
Bearing Market Rs. 65-70bn
Ball bearing
Rs 35-40bn
Spherical and
cylindrical roller
bearing: Rs 10-15bn
Needle roller bearing

Rs.5bn
The organized market is estimated to be between Rs 65-70bn with over

55% of the market dominated by ball bearing (primarily deep groove ball
bearing)
The competitive intensity among organized players is low given that

each player is dominant in one of the product segments
Large spurious and illegal import of bearing (esp. deep groove ball
bearing) is an evergreen threat to the industry
Competitive intensity to increase in the needle roller bearing market and

taper rolling bearing in the next 2-3 years with INA and Timken setting
up capacities respectively
Unorganized players will continue to impact the deep groove ball

bearing market
Tapered roller bearing

Rs. 10bn
Business & Financial Analysis
Bearings Sector
Initiating Coverage
Identifying Critical Success Factors (CSFs)
Sector Outlook
Positive
Our CSF matrix compares the nine auto-component companies with eight critical success factors and eight financial parameters.
Critical
success
factors
Parameters
Definition
OEMs dependence
Dependence of the OEM, for the components. The relative criticality of a component in the vehicle (for the OEM).
Technology/R&D/Patents
Technology, R&D barrier created by the company
Replacement Market/distribution network
Proportion of revenues from replacement market (aftermarket)
Risk of JV divorce
Dependency on JV partner
Customer concentration
Large share of revenue coming from few key customers
Non-Auto exposure
Proportion of revenue from non-automotive business (related diversification)
Competitive Landscape
Market share, competitive positioning in the industry segment
Impact of govt. policies/external factors
Favourable/un-favourable implication of changes in govt. policies/external factors
Revenue growth (CAGR FY11 - 13E)

PAT growth (CAGR FY12 - 13E)
EBITDA margin (%)
Financial
parameters
(FY12E)
Total assets turnover (x)

Working Capital turnover (x)
RoCE (%)
Debt/Equity (x)
OCF/Revenue (%)
Bearings Sector
Initiating Coverage
CSF & Financial Parameter Ranking
Sector Outlook
Positive
Scoring of coverage universe: Scale: 1 9 with 9 being the best

CRITICAL SUCCESS FACTOR
Amara Raja
Batt.
Apollo Tyres Bharat Forge
Exide Inds.
Motherson
Sumi
WABCO-TVS
SKF India
FAG BearingsNRB Bearings
OEM's dependence
Technology / R&D / Patents
Replacement/After - market
Risk of divorce of JV
Customer concentration
Non-Auto Business
Competitive Landscape
Impact of govt. policy / external factors
EBITDA margin (%)
Total assets turnover (x)
Working Capital turnover (x)
RoCE (%)
D/E (x)
OCF/Revenue (%)
FINAL RANK
Financials (FY13E/CY12E)
Revenue growth (CAGR CY10/FY11 CY12E/FY13E)
PAT growth (CAGR FY11 - 13E/ CY1012E)
FAG, WABCO and Exide are the top 3

companies ranked in that order. FAG
scores high on customer concentration,
non-auto exposure, revenue and earnings
growth, and working capital management
WABCO-TVS scores high

on EBITDA margin, RoCE.
And scores second
highest on asset turnover.
10
Bearings Sector
Initiating Coverage
#1 OEMs Dependence
#2 Technology, R&D, Patents
High
Component
criticality
OEMs
dependence
Score
WABCO-TVS
Bharat Forge
Motherson Sumi
Amara Raja
Apollo Tyres
Exide Industries
SKF India
FAG Bearings
NRB Bearings
High
technology,
R&D,
patents
Impeccable Functionality is a hygiene factor.

High impact on OEMs
reputation
High
barriers
to entry
Braking
systems
High
switching
costs for
OEMs
Sector Outlook
High
bargaining
power for
ACMs
Parent acquired 166

new patents in 2009
WABCO-TVS
Building Blocks
of the vehicle
Predominantly
addressing
functionality of
peripherals
Limited
differentiation
among
vendors
Forged parts
BHARAT FORGE
Wiring harness,
mirrors
MOTHERSON SUMI
Tyres, Battery, Bearings

NRB, SKF, FAG, APOLLO
TYRES / AMARA RAJA /
EXIDE INDUSTRIES
Positive
Owns process patents
Know-how in manufacturing key components

(Fuse, connectors etc.).
SMR owns 600 patents.
Technology
investment primarily
to survive and
differentiate
Technology,
R&D, Patents
Score
WABCO-TVS
Bharat Forge
Motherson Sumi
Amara Raja
Apollo Tyres
Exide Industries
SKF india
FAG Bearings
NRB Bearings
11
Bearings Sector
Initiating Coverage
#3 Replacement Market
#4 Customer Concentration Sector Outlook
Positive
Replacement market revenues as a % of total revenues

High
Low customer concentration
Apollo Tyres
> 70%
APOLLO TYRES
EXIDE INDUSTRIES
50 - 60%
Apollo Tyres
40 - 50%
30 - 40%
Score
9
Exide Industries
Exide Industries
Amara Raja
WABCO-TVS
Bharat Forge
FAG, SKF, NRB
After market exposure
Aftermarket
Amara Raja, FAG
AMARA RAJA,
WABCO-TVS
BHARAT FORGE
MOTHERSON SUMI
20 - 30%
Motherson Sumi
SKF India
High customer concentration

10 - 20%
< 10%
Low
WABCO-TVS, NRB,
SKF
FAG Bearings
NRB Bearings
Motherson Sumi,
Bharat Forge,
Aftermarket
exposure
Pricing
power
Volume
cyclicality
High after market

exposure
Customer
concentration
Score
High
Market share
Apollo
Tyres
9
High market
share
Low customer
concentration
Amara Mothers WABCO Bharat

Exide Inds. Raja on Sumi -TVS
Forge
7
SKF
India
8
FAG
NRB
Bearing Bearing
s
s
8
12
Bearings Sector
Initiating Coverage
#5 Non-auto Exposure
#6 Risk of JV Divorce
Non-auto revenues as a % of total revenues (related

diversification
COMPANY
Amara Raja
Batteries
30 - 40%
Amara Raja, SKF
Exide Industries,
FAG
Positive
Details of key JVs/technology partners
> 50%
40 - 50%
Sector Outlook
JV / TECHNOLOGY PARTNER
DETAILS
Equal equity stake of 26%, Technology provider for auto
batteries
Johnson Controls
Furukawa Batteries, Shin-Kobe
Electric Machinery
Exide Industries
Motherson Sumi
(MSSL)
Bharat Forge
Apollo Tyres
WABCO-TVS
SKF India
Sumitomo Wiring
NTPC, Alstom
-
Non-auto
exposure
Score
Amara Raja
Exide Industries
FAG Bearings
Bharat Forge
NRB Bearings
Motherson-Sumi
WABCO-TVS
Apollo Tyres
SKF india
FAG Bearings
NRB Bearings
Automotive and VRLA Lead Acid Storage Batteries

Sumitomo wiring has 25% equity stake (technology provider
for wiring harness business), MSSL has six other key JVs
For foray into power equipment business
Global SKF provides technology know-how
Schafeller group provides technological know-how
Inherited the technology from Nadella during its initial
tie-up and now are internally capable to manufacture
needle roller bearing
20 - 30%
10 - 20%
5 - 10%
< 5%
Bharat Forge
Motherson Sumi,
NRB
WABCO-TVS,
Apollo Tyres
Non-auto
exposure
Company
Impact of
divorce
Presence of JV

Amara Raja Batteries

Exide Industries
Motherson Sumi
Bharat Forge
Apollo Tyres
WABCO-TVS
SKF India
FAG Bearings
NRB Bearings
High
High
High
Low
-
Risk of JV
divorce
Score
Apollo Tyres
9
Risk in the
event of
divorce
WABCO- Bharat
TVS
Forge
9

-
High
High
High
Low
-
Dependence
on JV partner
Volume
cyclicality
Dependence Historical issues with

for technology
partner
Amara
Raja
Exide
Inds.
Motherso
n Sumi
SKF
India
FAG
NRB
Bearings Bearings
9
13
Bearings Sector
Initiating Coverage
#7 Competitive Landscape
Company
Market Share
Bharat Forge
90%
WABCO-TVS
80%
Exide Industries
~70%
Motherson Sumi
65%
Apollo Tyres
~30%
Amara Raja
~30%
SKF India
FAG Bearings
Sector Outlook
Competitive Scenario
Sole supplier to most CV OEMs
Duopoly (Knorr-Bremse second largest)
Duopoly (Amara Raja second largest)
Duopoly (Tata Yazaki second largest)
Highly competitive market (top 5 players account for ~90%)
Duopoly (Exide Industries is the largest)
65-70% market share in Deep groove ball bearing and 30% inv overall
65-70% / 30% organized bearing market
18-20%
NRB Bearings 70% / 12%
Second leading player in the overall organized market with strong

presence in the cylindrical and spherical ball bearings
Leader in the needle roller bearing market with 70% share and 12% share
in the overall organized market
Competitive landscape
Positive
Score
Bharat Forge
WABCO-TVS
Exide Inds.
Motherson Sumi
Amara Raja Batt.
Apollo Tyres
SKF india
FAG Bearings
NRB Bearings
#8 Impact of government policies/external factors

Company
Impact of govt. policies / external factors Details
Impact of govt. policy
Apollo Tyres
NEGATIVE
Policy on import of tyres and rubber, movement to radials
WABCO
Amara Raja
POSITIVE
Policy on disposal of used batteries, movement to VRLA

batteries
Apollo Tyres
3
7
POSITIVE
Policy on disposal of used batteries, movement to VRLA

batteries
Amara Raja Batt.
Exide Industries
Bharat Forge
WABCO-TVS
POSITIVE
Policy on mandatory ABS in certain CVs
Exide Inds.
Motherson Sumi NEUTRAL
Motherson Sumi
Bharat Forge
NEUTRAL
SKF india
SKF India
NEGATIVE
Policy on spurious bearings and import duty
FAG Bearings
FAG Bearings
NEGATIVE
Policy on import duty
NRB Bearings
NEGATIVE
Policy on import duty
NRB Bearings
Score
14
Bearings Sector
Initiating Coverage
#9 Capital Efficiency
#10 Cash Flow
RoE - WABCO scores highest while Apollo scores the lowest
Sector Outlook
Positive
OCF/sales FAG scores highest while Amara scores the lowest
50%
20%
APTY
BHFC
EIL
MSSL
WTVS
SKF
FAG
NRB
40%
15%
30%
20%
10%
10%
5%
0%
ARBL
APTY
BHFC
EIL
MSSL
WTVS
SKF
FAG
NRB
0%
ARBL
FY11
FY12E
FY13E
FY11
FY12E
FY13E
Source: Spark Capital, Company. Note: CY for FAG and SKF and FY for NRB
RoACE WABCO scores the highest while Apollo scores the lowest
FCF/sales FAG scores the highest and Amara scores the lowest
40%
15%
EIL
MSSL
WTVS
SKF
FAG
NRB
10%
30%
5%
20%
0%
10%
-5%
-10%
0%
ARBL
APTY
BHFC
EIL
MSSL
FY11
FY12E
WTVS
SKF
FAG
NRB
FY13E
Source: Spark Capital, Company. . Note: CY for FAG and SKF and FY for NRB
ARBL
APTY
BHFC
FY11
FY12E
FY13E
Note: ARBL Amara Raja Batteries, APTY. Apollo Tyres, BHFC Bharat Forge, EIL Exide Industries, MSSL-Motherson Sumi, WTVS-WABCO TVS
15
Bearings Sector
Initiating Coverage
#11 Profitability Ratios
#12 Growth Ratios
EBITDA margin WABCO scores highest on margin and Apollo the

lowest
25%
Sector Outlook
Positive
Revenue CAGR (FY11/CY10 FY13/CY12) - Amara Raja scores high while

Exide scores lowest
30%
EIL
MSS
SKF
FAG
25%
20%
20%
15%
15%
10%
10%
5%
5%
0%
ARBL
0%
ARBL
APTY
BHFC
EIL
MSSL
FY11
FY12E
WTVS
SKF
FAG
APTY
BHFC
WTVS
NRB
NRB
Revenue CAGR (FY10 - FY12E)
FY13E
PAT margin WABCO scores highest while Apollo scores the lowest
PAT CAGR (FY11/CY10 FY13)/CY12) - Motherson Sumi scores highest

while NRB scores the lowest
20%
40%
35
ARBL
APTY
BHFC
EIL
MSS
WTVS
SKF
FAG
NRB
35%
16%
30%
12%
25%
20%
8%
15%
10%
4%
5%
0%
0%
ARBL
APTY
BHFC
EIL
MSSL
FY11
FY12E
WTVS
SKF
FAG
FY13E
NRB
PAT CAGR
16
Bearings Sector
Initiating Coverage
#13 Turnover Ratios
#14 Leverage Ratios
Total asset turnover (x) NRB scores the highest while FAG scores the
lowest
2.5
Positive
Debt / Equity WTVS, SKF and FAG scores the highest, while Apollo the
lowest
1.5x
Sector Outlook
SKF
FAG
NRB
2.0
1.0x
1.5
1.0
0.5x
0.5
0.0x
0.0
ARBL
APTY
BHFC
EIL
MSSL
FY11
FY12E
WTVS
SKF
FAG
BHFC
EIL
MSSL WTVS
FY11
Working capital/sales - APTY scores the highest, while ARBL the

lowest
35.0%
APTY
FY13E
40.0%
ARBL
NRB
FY12E
FY13E
Debt / Total assets WTVS,SKF, FAG scores the highest, while Apollo the
lowest
60%
BHFC
EIL
MSSL
FY11
FY12E
FAG
NRB
50%
30.0%
25.0%
40%
20.0%
30%
15.0%
10.0%
20%
5.0%
10%
0.0%
ARBL
APTY
BHFC
EIL
MSSL
FY11
FY12E
WTVS
SKF
FAG
NRB
FY13E
0%
ARBL
APTY
WTVS
SKF
FY13E
17
Comparative analysis of bearing companies
18
Bearings Sector
Initiating Coverage
Revenue Profile
Sector Outlook
SKF India
Positive
FAG Bearings
Revenue (CY10- Rs. 20.6bn)
Auto 45%
Industrial 47%
Revenue (CY10 - Rs. 10.4 bn)
Exports 8%
After-market
30%
OEM 70%
Auto 49%
OEM 40%
Industrial 42%
Exports 9%
After-market
60%
Source: Company, Spark Capital
NRB Bearings
Revenue contribution from top two kinds of bearings (CY10/FY11)
Revenue (FY11- Rs. 4.66bn)

SKF India
Auto 82%
Industrial 8%
NRB Bearings
Exports 10%
Deep groove Taper roller Needle roller
ball bearing
bearing
bearing
35%
18%
58%
OEM 78%
FAG Bearings
Cylindrical
bearing
16%
Cylindrical
bearing
35%
Spherical
bearing
25%
After-market
22%
19
Bearings Sector
Initiating Coverage
Cost structure comparison
Sector Outlook
Positive
SKF and FAGs cost structure are more variable than NRB. NRB is
completely backward integrated and lower material content (35%)
compared to SKF and FAG (42-45%) and thus lower RM/Sales.
However, FAGs overall RM/sales is lower compared to SKF as its
traded businesss RM/sales is much lower.
FY11/CY10
Figures in Rs. mn
FY10/CY09
FY09/CY08
FAG
SKF
NRB
FAG
SKF
NRB
FAG
SKF
NRB
Revenues
10,486
20,932
4,724
8,187
15,841
3,500
7,601
16,304
2,961
RM/sales
58.4%
64.5%
33.9%
61.8%
65.9%
37.0%
53.6%
63.5%
32.9%
Emp cost/ sales
7.6%
7.0%
17.0%
7.8%
9.2%
17.7%
8.8%
7.8%
18.6%
Other exp / sales
16.1%
15.1%
13.2%
15.6%
14.8%
13.4%
16.0%
15.9%
19.4%
Fixed asset turnover ratio (x)
2.5
2.6
1.2
2.0
2.2
1.0
1.9
2.4
0.9
Debtor days
50
78
53
48
89
46
47
82
49
Inventory days
76
65
240
73
64
227
115
79
335
Creditor days
106
84
175
88
100
128
96
57
123
RoCE (%)
21.6%
20.9%
17.9%
15.6%
13.8%
8.6%
25.8%
19.6%
2.7%
ROE (%)
23.5%
22.6%
25.8%
15.1%
13.9%
13.5%
26.5%
21.4%
2.4%
With lower asset base SKF and FAG shows

higher Fixed asset turnover ratio than NRB.
Even the core fixed asset turnover ratio
(excluding the traded revenues) for FAG and
SKF are higher than NRB.
RoCE of FAG and SKF is higher

than NRB. However, NRB has
higher ROE due to higher margin
and higher equity multiplier.
With variable cost structure, both
SKF and FAG is lower working
capital cycle.
Credit period for NRB is high due to its higher

auto OEM sales vis--vis SKF and FAG The
industrial bearings is typically cash and carry
as it is sold through a distribution network
20
Bearings Sector
Initiating Coverage
FAG scores high on free cash flow generation

FAG (Rs. mn)
Operating Cash Flow
FY10/CY09 FY11/CY10
Sector Outlook
FY12E/CY11E FY13E/CY12E
1,634
1,320
1,684
1,980
(78)
(197)
(225)
(275)
1,556
1,123
1,459
1,705
OCF yield (%)
8.45%
6.83%
8.71%
10.24%
FCF yield (%)
8.04%
5.81%
7.54%
8.81%
Capex
Free Cash Flow
D/E (x)
SKF (Rs. mn)
FY10/CY09 FY11/CY10
2,275
1,147
2,121
2,634
Capex
(629)
(1160)
(1000)
(500)
Free Cash Flow
1,646
-13
1,121
2,134
OCF yield (%)
6.80%
3.40%
6.08%
7.54%
FCF yield (%)
4.90%
0.00%
3.21%
6.11%
NRB (Rs. mn)

Operating Cash Flow
FY10/CY09 FY11/CY10
755
351
675
791
(122)
(391)
(650)
(350)
620
23
25
441
OCF yield (%)
17.10%
8.00%
14.80%
17.36%
FCF yield (%)
14.00%
0.50%
0.54%
9.68%
0.44
0.44
0.5
0.47
Capex
Free Cash Flow
D/E (x)
FAG historically has demonstrated higher

growth, better working capital management
which is expected to lead to higher FCF
generation.
Operating Cash Flow
D/E (x)
Positive
Strong growth in operating cash flow and

reduction in capex to lead to improvement
in free cash flow yield by CY12E.
Better working capital management to be the

key driver for NRBs improvement in
operating cash flow and therefore leading to
higher yield. The company will continue to
have debt, however we believe the existing
financial leverage will be maintained.
21
Bearings Sector
Initiating Coverage
Trading History
Sector Outlook
FAG Bearings
1,000
900
800
700
600
500
400
300
200
100
0
2,500
10x
7x
4x
1,000
500
Source: Bloomberg, Spark Capital
NRB Bearings
Forward P/E buckets and Frequency
120
CMP (Rs.)
Jul-11
Apr-11
Oct-10
Jan-11
Jul-10
Apr-10
Oct-09
Jan-10
12M fwd P/E
19x
100
Jul-09
Apr-09
Oct-08
12M fwd P/E
Jan-09
Jul-08
Apr-08
Oct-07
Jan-08
Oct-06
Jul-07
0
Apr-07
7x
4x
19x
16x
13x
1,500
Jan-07
10x
2,000
CMP (Rs.)
19x
16x
13x
Nov-06
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
Sep-11
CMP (Rs.)
SKF India
Positive
P/E Multiple Range
SKF
FAG
NRB
Under 8
24%
28%
16%
8 - 10x
4%
26%
22%
10 - 12x
12%
34%
23%
12 - 14x
16%
11%
6%
14 - 16x
31%
1%
8%
16 - 18x
7%
0%
7%
16x
80
13x
60
10x
40
7x
20
4x
Sep-06
Nov-06
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
TTM P/E
Source: Company, Spark Capital; TTM PE for NRB
22
Company Section
23
SKF Bearings
CMP
Rs. 671
Absolute
Add
Frictionless growth
Target
Rs. 727
Relative
Outperform
We believe SKF's wide network would enable effective distribution of products sourced from its parent
company. The sourcing model coupled with wide distribution network would enable it to be nimble and
straddle across product segments. With domestic capacities substantially catering to two wheeler and
passenger car demand, SKF has a relatively de-risked revenue profile both on the industrial as well as the
automobile segment.
Growth to be driven by automotive demand and capital formation: We expect growth in the automotive bearings
segment (~45% of Revenue) to be in-line with industry growth at a CY10-12E CAGR of 18.2%. We estimate the
volume CAGR during the same period to be 13.5%. On the industrial bearing segment, we expect strong volume
traction (CY10-12E CAGR of 30%), but expect average realisation to decline 14% from CY10-12E.
Variablized cost structure and diversified customer base to help in cyclical downturns: SKFs key raw materials
are semi-finished components, and the company does the finishing process at its facility. As a result, the business
model is asset light and the cost structure is substantially variable. The revenue profile is also highly diversified with no
customer accounting for more than 10% of SKFs revenues.
Unorganized players and counterfeit bearings would continue to impact the after-market: Deep groove ball
bearings are one of the most widely counterfeited products. We expect this situation to continue, despite companys
efforts, and impact the companys growth in the after market.
Leadership to sustain in OEM business: We expect SKF to sustain its market share in the OEM segment and
maintain its leadership in deep groove ball bearings (60-70%). With its established presence, we expect the
competitive threat to be low from FAG and NEI Bearings in the medium term.
Estimates and Valuation: We estimate topline CAGR of 19% for CY10 CY12E to Rs. 29.6bn and EBITDA margin to
be 13.5% in CY12, an expansion of 20bps. We expect PAT CAGR of 20.2% to Rs. 2.55bn in CY13. We value the
company at 15x CY12E (in-line with 2-year historical average) EPS of Rs 48.5 arriving at a TP of Rs 727, with an Add
Outperform rating on the stock.
Key risks: 1) Slowdown in two wheeler sales momentum over and above the current slowdown in CVs and cars 2)
Higher than expected raw material cost inflation.
Financial summary
Year
Revenues (Rs. mn) EBITDA (Rs. mn) Adj. PAT (Rs. mn)
Adj. EPS (Rs.)
P/E(x)
EV/EBITDA(x)
CY10
20,932
2,794
1,770
33.6
19.7
11.7
CY11E
25,781
3,451
2,190
41.5
15.9
9.1
CY12E
29,644
4,015
2,556
48.5
13.7
7.4
Initiating coverage
Date
Oct 10, 2011
Market Data
SENSEX
16232
Nifty
4888
Bloomberg
SKF IN
Shares o/s
53 mn
Market Cap
Rs. 34.91 bn
52-wk High-Low
Rs 695 492
3m Avg. Daily Vol
Rs 20.5 mn
Index member
BSE 500
Promoters
53.6
Institutions
31.0
Public
15.4
Stock performance (%)

1m
3m
12m
SKF
2.9
2.1
13.7
Sensex
-4.9
-13.9
-19.9
BSE Auto
-3.5
-6.7
-12.5
Vijay Sarthy T S
+91 44 4344 0032
+91 44 4344 0020
24
SKF Bearings
CMP
Rs. 671
Absolute
Add
Financial Summary
Target
Rs. 727
Relative
Outperform
Abridged Financial Statem ents

Rs. m n
Key m etrics
CY09
CY10
CY11E
CY12E
CY09
Profit & Loss

Revenues
15,841
20,932
25,781
29,644
Revenues
Manufacturing & Other Expenses
14,244
18,137
22,330
25,629
1,597
2,794
3,451
4,015
290
333
405
456
EBIT
1,307
2,461
3,045
3,559
EBITDA
Net Interest Exp / (inc)
(124)
(200)
(246)
(283)
EBIT
Profit Before Tax
1,431
2,661
3,291
3,842
PAT
EBITDA
Depreciation
23.2%
15.0%
EBITDA
-23.2%
75.0%
23.5%
16.4%
PAT
-26.2%
87.8%
23.7%
16.7%
10.1%
13.35%
13.38%
13.54%
8.3%
11.8%
11.8%
12.0%
5.9%
8.5%
8.5%
8.6%
0.0
0.0
0.0
0.0
Margins
489
891
1,102
1,286
Leverage & WC ratios
942
1,770
2,190
2,556
Debt to equity (x)
7,147
8,487
10,144
12,079
Balance Sheet (Rs. m n)
Sources of funds
7,148
8,517
10,174
12,109
Net block
2,017
2,834
3,429
3,473
551
359
359
359
8,236
9,586
11,457
13,995
Investments
Capital WIP
Current assets, loans & advances
Current ratio (x)
2.7
2.9
2.9
3.1
Debtor days (Sales)
50
47
47
47
Inventory days (COGS)

Creditor Days (COGS)
20.9%
21.7%
21.3%
22.6%
23.5%
23.0%
Total asset turnover (x)
1.0
1.2
1.3
1.3
2.3
2.7
3.0
3.2
3,302
4,008
4,567
Fixed asset turnover (x)
7,449
9,428
Valuation m etrics
Application of funds
7,148
8,517
10,174
12,109
Current price (Rs.)
2,275
1,147
2,121
2,634
Shares outstanding (mn)
Cash flow s from investm ents

Cash flow s from financing
Cash generated during the year
53
53
53
35384
35384
35384
35384
Enterprise value (Rs. mn)
31003
32492
33295
32604
1,121
2,134
EV/EBIDTA (x)
20.3
11.9
9.4
7.7
(1,037)
(1,652)
(1,000)
(500)
Adj. Per-share earnings (Rs.)
17.9
33.6
41.5
48.5
(255)
2,119
(430)
2,810
500
53
Market capitalisation (Rs. mn)
-13
(272)
1,000
671
1,646
2,879
1,160
84
13.9%
6,284
629
84
65
13.8%
3,026
Free Cash Flow
84
65
RoACE
5,210
Capex
100
65
RoAE
Net Current Assets

Cash Flow s (Rs. m n)
64
Perform ance & turnover ratios
Current liabilities & provisions
Cash flow s from operations
CY12E
32.1%
Adj. Net Profit
Loan funds
CY11E
-2.8%
Tax
Shareholders Equity
CY10
Grow th ratios
(533)
4,411
Price-earnings m ultiple (x)

Dividend yield (%)
37.5
20.0
16.2
13.8
0.60%
1.04%
1.29%
1.51%
25
NRB Bearings
CMP
Needle Champion
Target
Rs. 47
Absolute
Not Rated
N.A.
Relative
Not Rated
NRB is the dominant player in a niche product needle roller bearings. Given the specialized application of
needle bearings and small market size, the competitive intensity is likely to remain subdued. While domestic
revenue growth is expected to be in-line with OEM growth, we expect exports to be the key growth driver.
Dominant market position to sustain in Needle Roller Bearings: NRB Bearings has a dominant position in the
needle bearing market with ~70% market and INA (a Schaeffler Group company) being the only competitor. Given its
small size, the competitive intensity is low. Nadella, Torrington and INA are the only manufacturers who make needle
roller bearings globally.
Domestic revenues to be inline with OEM growth: Given that nearly 70% of the OEM revenues is derived from twowheeler, three-wheeler and CVs, we expect NRBs OEM segment to post 15% CAGR for FY11-13E to Rs. 3.89bn.
The aftermarket business (17.8% of FY11 sales), which has no threat from the spurious/unorganised players, is
expect to grow at a CAGR of 13% for FY11-13E.
Export revenues to be the key growth driver: We estimate export revenues to grow at a CAGR of 39% FY11-13E.
The customer additions which NRB had in the past two years are likely to add meaningfully to the topline as
customers like Getrag, Volvo, Ingersoll Rand etc. step up sourcing from NRB Bearings. We expect the contribution of
exports to total sales to move from 10% in FY11 to 14% in FY13E to Rs 894mn.
Capital requirement to continue to be high: NRBs higher in-house processing in its manufacturing process would
mean higher capital requirements for funding growth and thus expect D/E to remain stable at 0.5x. We expect the
company to incur a capex of Rs. 650mn in FY12.
Estimates and valuation: We expect NRB to post 16% CAGR in revenues for FY11-13E to Rs. 6.38 bn driven by
exports and OEM growth. We expect margin to be 21.6% by FY13, a decline of 50bps from FY11 and expect 13%
CAGR in PAT for the same period due to higher depreciation. The stock trades at 6.8xFY13E (~30% and 22%
discount to 5yr and 1yr average multiple). High dividend yield of 4.5% provides further comfort on valuations.
Key risks: 1) Lower than expected auto demand growth 2) Slowdown in export momentum due to adverse macro
economic conditions.
Standalone Financial summary
Year
Revenues (Rs. mn) EBITDA (Rs. mn) Adj .PAT (Rs. mn)
Adj EPS (Rs.)
P/E(x)
EV/EBITDA(x)
FY11
4,724
1,044
525
5.4
8.7
5.3
FY12E
5,379
1,159
564
5.8
8.1
5.0
FY13E
6,384
1,377
669
6.9
6.8
4.3
Visit Note
Date
Oct 10, 2011
SENSEX
16232
Nifty
4888
Bloomberg
NRBBR IN
Shares o/s
97 mn
Market Cap
4.56 bn
52-wk High-Low
Rs 65-40
3m Avg. Daily Vol
Rs 1.86 mn
Index member
Nil
Latest shareholding (%)

Promoters
73.1
Institutions
12.7
Public
14.2

1m
3m
12m
NRB
5.7
-8.1
-11.6
Sensex
-4.9
-13.9
-19.9
BSE Auto
-3.5
-6.7
-12.5
Vijay Sarthy T S
+91 44 4344 0032
+91 44 4344 0020
26
NRB Bearings
CMP
Standalone Financial Summary
Target

Rs. m n
FY11
FY12E
FY13E
3,500
4,724
5,379
6,384
466
616
703
833
EBITDA
590
1,044
1,159
1,377
Depreciation
195
229
266
309
EBIT
395
815
894
1,068
77
50
88
108
Profit Before Tax
371
782
827
Tax
127
257
263
Adj. Net Profit
244
525
1,876
2,190
Loan funds
N.A.
Relative
Not Rated
FY10
FY11
FY12E
FY13E
Revenues
7.9%
35.0%
13.9%
18.7%
EBITDA
PAT
58.1%
76.9%
11.1%
18.7%
472.5%
115.0%
7.5%
18.5%
Margins
EBITDA
16.9%
22.1%
21.6%
21.6%
EBIT
11.3%
17.3%
16.6%
16.7%
980
PAT
7.0%
11.1%
10.5%
10.5%
312
564
669
Debt to equity (x)
0.4
0.4
0.5
0.5
Current ratio (x)
0.3
0.3
0.2
0.2
2,496
2,875
Debtor days (Sales)
78
82
82
82

Shareholders Equity
Not Rated
Grow th ratios
Absolute
Key m etrics
FY10
Profit & Loss

Revenues
Rs. 47
827
971
1,252
1,352
227
240
240
240
Sources of funds
2,831
3,277
3,864
4,343
128
175
175
175
Net block
1,525
1,687
2,071
2,112
Investments
179
166
166
166
RoACE
Capital WIP
13
140
140
140
RoAE
8.6%
17.9%
17.1%
17.7%
13.5%
25.8%
24.1%
24.9%
244
317
317
317
0.9
1.1
1.1
1.3
727
1,209
1,448
1,678
1.0
1.3
1.3
1.3
Net Current Assets
1,114
1,285
1,487
1,925
Valuation m etrics
2,831
3,277
3,864
4,343
97
97
Current price (Rs.)
47
97
97
4,560
4,560
4,560
4,560
5,328
5,531
5,812
5,912
9.0
5.3
5.0
4.3
Capex
Free Cash Flow
755
122
351
391
675
650
620
23
(108)
(310)
(650)
(350)
2.52
5.41
5.82
6.90
(642)
(29)
(32)
(252)
18.68
8.69
8.08
6.82
12
(7)
189
Dividend yield (%)
2.1%
4.3%
4.6%
5.4%
25
791
350
441
EV/EBIDTA (x)
27
FAG Bearings
CMP
Rs. 1,167
Absolute
Not Rated
Geared for growth
Target
N.A.
Relative
Not Rated
FAG, a Schaeffler group company, is the second largest player in the organized bearings sector. With strong
support from the parent, FAG is well positioned to capitalize on the growing and diverse auto and industrial
demand. We like their dominance in cylindrical, spherical bearings and higher replacement market exposure
in the auto business.
Automotive demand growth, industrial capital expenditure to drive topline growth: We expect FAG to post a
topline CAGR of 18.6% CY10-12E driven by growth in automotive and industrial demand. We estimate OEM sales
growth to outpace industry growth at a CAGR of 23% CY10-12E and expect the company to grow faster than industry
through new customer additions.
Limited unorganized players in the roller bearings space augurs well for aftermarket: FAG is substantially
involved in the manufacture of roller bearings, which faces little lesser counterfeiting than deep groove ball bearings.
This would enable FAG to enjoy better margins in roller bearings in the aftermarket relative to other products. We
estimate revenues in the auto after-market to grow at a CAGR of 21% CY10-12E.
Variablised cost structure similar to SKF: FAG Bearings raw materials are semi-finished and the company
undertakes the finishing operation in-house. Consequently, the business model is asset light and the cost structure is
substantially variable similar to SKF.
Free cash-flow generation to remain robust: Given the variablized cost structure and capital requirement being
more than met by internal cash generation we expect the strong free cash flow generation to continue. We estimate
the free cash flows to grow form INR 1.1bn in CY10 to 1.7bn in CY12E.
Estimates and valuation: We expect the revenue CAGR at 19% for CY10-12E, CY12E revenues at Rs. 14.7bn and
expect margins at 19.8% by CY12 against 20.6% in 1HCY11 (18% in CY10). With nominal increase in depreciation,
we expect PAT to grow at 27% CAGR to Rs. 1.96bn for the same period. The stock trades at 9.8xCY12E EPS of 118.
Key risks: 1) Slowdown in two wheeler sales momentum over and above the current slowdown in CVs and cars 2)
Higher than expected raw material cost inflation.
Financial summary
Year
Revenues (Rs. mn) EBITDA (Rs. mn) Adj .PAT (Rs. mn)
Adj EPS (Rs.)
P/E(x)
EV/EBITDA(x)
CY10
10,486
1,887
1,215
73.1
16.0
9.4
CY11E
12,283
2,425
1,638
98.5
11.8
6.8
CY12E
14,738
2,924
1,961
118.0
9.8
5.2
Visit Note
Date
Oct 10, 2011
SENSEX
16232
Nifty
4888
Bloomberg
FAG IN
Shares o/s
17 mn
Market Cap
Rs 19.40 bn
52-wk High-Low
Rs 1435-752
3m Avg. Daily Vol
Rs 33.3 mn
Index member
BSE 500
Latest shareholding (%)

Promoters
51.3
Institutions
26.4
Public
22.3

1m
3m
12m
FAG
-4.4
-1.7
35.7
Sensex
-4.9
-13.9
-19.9
BSE Auto
-3.5
-6.7
-12.5
Vijay Sarthy T S
+91 44 4344 0032
+91 44 4344 0020
28
FAG Bearings
CMP
Rs. 1,167
Absolute
Not Rated
Financial Summary
Target
N.A.
Relative
Not Rated

Rs. m n
Key m etrics
CY09
CY10
CY11E
CY12E
CY09
Profit & Loss

8,187
10,486
12,283
14,738
Revenues
7,146
8,800
10,063
12,027
EBITDA
1,242
1,887
2,425
2,924
201
201
206
213
1,041
1,686
2,220
2,711
12
Profit Before Tax
996
1,819
Tax
340
Adj. Net Profit
655
EBIT
28.1%
17.1%
20.0%
EBITDA
-25.6%
52.0%
28.5%
20.6%
PAT
-31.5%
85.4%
34.8%
19.7%
EBITDA
15.16%
17.99%
19.75%
19.8%
13
EBIT
12.71%
16.08%
18.07%
18.39%
2,434
2,936
PAT
8.0%
11.6%
13.3%
13.3%
604
796
975
1,215
1,638
1,961
4,617
5,735
7,238
9,044
Sources of funds
4,663
5,764
7,268
Net block
1,416
1,410
1,429
Loan funds
Investments
Capital WIP
CY12E
7.7%

Shareholders Equity
CY11E
Grow th ratios
Revenues
Depreciation
CY10
Margins

Debt to equity (x)
Current ratio (x)
3.2
3.1
3.5
3.8
Debtor days (Sales)
49
46
46
46
73
76
76
76
9,073
88
106
106
106
1,496

RoACE
15.6%
21.6%
22.8%
22.2%
RoAE
68
86
86
86
15.1%
23.5%
25.2%
24.1%
4,609
6,276
8,030
10,196
1.0
1.1
1.1
1.1
1,435
2,012
2,281
2,708
2.0
2.5
2.9
3.2
Net Current Assets
3,175
4,265
5,749
7,488
Valuation m etrics
4,663
5,764
7,268
9,073
Current price (Rs.)

17
17
17
17
1,634
1,320
1,684
1,980
19,396
19,396
19,396
19,396
(78)
(197)
(225)
(275)
18,760
17,665
16,515
15,153
Free Cash Flow
1,556
1,123
1,459
1,705
EV/EBIDTA (x)
15.1
9.4
6.8
5.2
(444)
(74)
(225)
(275)
39.4
73.1
98.5
118.0
(94)
(96)
(97)
(134)
29.6
16.0
11.8
9.9
0.4%
0.4%
0.6%
0.7%

Capex

1,096
1,150
1,362
1,571
Dividend yield (%)
1,167
29
Absolute Rating Interpretation

BUY
Stock expected to provide positive returns of > 15% over a 1-year

horizon
ADD
Stock expected to provide positive returns of <=15% over a 1-year

horizon
REDUCE
Stock expected to fall <=15% over a 1-year horizon
SELL
Stock expected to fall >15% over a 1-year horizon
Relative Rating Interpretation

OUTPERFORM
Stock expected to outperform sector index /sector peers in our coverage
UNDERPERFORM
Stock expected to underperform sector index/ sector peers in our

coverage
Analyst Certification
The Research Analyst(s) who prepared the research report hereby certify that the views expressed in this research report accurately reflect the analyst(s) personal views about the subject
companies and their securities. The Research Analyst(s) also certify that the Analyst(s) have not been, are not, and will not be receiving direct or indirect compensation for expressing the
specific recommendation(s) or view(s) in this report.
Spark Disclaimer
This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Nothing in this document should be
construed as investment or financial advice, and nothing in this document should be construed as an advice to buy or sell or solicitation to buy or sell the securities of companies referred
to in this document. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of
companies referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. This
document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in
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This document does not constitute or form part of any offer for sale or subscription or incitation of any offer to buy or subscribe to any securities. This material should not be construed as
an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. Spark Capital Advisors (India) Private Limited makes
no representation or warranty, express or implied, as to the accuracy, completeness or fairness of the information and opinions contained in this document. Spark Capital Advisors (India)
Private Limited, its affiliates, and the employees of Spark Capital Advisors (India) Private Limited and its affiliates may, from time to time, effect or have effected an own account
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Copyright in this document vests exclusively with Spark Capital Advisors (India) Private Limited.
30

Spark - Bearings Sector Report

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Spark - Bearings Sector Report

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Initiating Coverage on

Oct 10, 2011

BSE Auto vs. Sensex

Snapshot of Views on Stocks

Dominant market position to sustain in needle roller bearings

Growth to be driven by industrial capacity addition and automotive sector growth

Sales (Rs. mn)

PAT (Rs. mn)

EBITDA (Rs. mn)

Business and Financial Analysis

Limited differentiation among bearing companies

SKF scores in non-auto exposure

FAG outperforms in cash flow generation

Wabco, SKF and FAG have the least leverage

Bearing Industry Overview

User Segments break-up

Source: Spark Capital, Company

Domestic and imports break-up

Top five players market share

Source: Spark Capital, Company

Source: Spark Capital, Company

Bearing Industry Overview

Types of bearings and market share

Types of bearings and its applications

Deep groove ball bearing

Spherical and cylindrical

INA - (FAG's subsidiary) Needle Roller bearing

Taper Roller bearing

Needle Roller bearing

Source: Spark Capital, Company

Deep groove ball bearing

Wide applications in two-wheelers, four-wheelers,

Spherical roller bearing

Car suspension, drive shaft, heavy machinery

Cylindrical roller bearing

Machine tools, transmissions, wheel-set bearings for

Tapered roller bearing

Wide application in commercial vehicles

Needle roller bearing

Niche application in engine, gearbox. With less load

Source: Spark Capital, Company

Organised market size Product-wise

Bearing Market Rs. 65-70bn

Needle roller bearing

The organized market is estimated to be between Rs 65-70bn with over

The competitive intensity among organized players is low given that

Competitive intensity to increase in the needle roller bearing market and

Unorganized players will continue to impact the deep groove ball

Tapered roller bearing

Source: Spark Capital, Company

Business & Financial Analysis

Identifying Critical Success Factors (CSFs)

Technology, R&D barrier created by the company

Replacement Market/distribution network

Proportion of revenues from replacement market (aftermarket)

Large share of revenue coming from few key customers

Proportion of revenue from non-automotive business (related diversification)

Market share, competitive positioning in the industry segment

Impact of govt. policies/external factors

Favourable/un-favourable implication of changes in govt. policies/external factors

Revenue growth (CAGR FY11 - 13E)

Total assets turnover (x)

CSF & Financial Parameter Ranking

Scoring of coverage universe: Scale: 1 9 with 9 being the best