CRISIL-Research CRISIL-Research - Ier-Report-Nrb Bearings Ltdier-Report-Nrb Bearings LTD 2015

RESEARCH
CRISIL IER Independent Equity Research
NRB Bearings Ltd
Detailed Report
Enhancing investment decisions
Explanation of CRISIL Fundamental and Valuation (CFV) matrix

The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process Analysis
of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental grade is assigned on a
five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The valuation grade is assigned on a fivepoint scale from grade 5 (indicating strong upside from the current market price (CMP)) to grade 1 (strong downside from the CMP).
CRISIL
Fundamental Grade
Assessment
CRISIL
Valuation Grade
Assessment
5/5
Excellent fundamentals
5/5
Strong upside (>25% from CMP)
4/5
Superior fundamentals
4/5
Upside (10-25% from CMP)
3/5
Good fundamentals
3/5
Align (+-10% from CMP)
2/5
Moderate fundamentals
2/5
Downside (negative 10-25% from CMP)
1/5
Poor fundamentals
1/5
Strong downside (<-25% from CMP)
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Last updated: August, 2014
Analyst Disclosure
Each member of the team involved in the preparation of the grading report, hereby affirms that there exists no conflict of interest that can bias
the grading recommendation of the company.
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NRB Bearings Ltd
RESEARCH
Finding its bearings

Fundamental Grade
4/5 (Superior fundamentals)
December 30, 2015
Valuation Grade
3/5 (CMP is aligned)
Industry
Auto Components
Fair Value
CMP
Margin correction in Q4FY15 and Q1FY16 is a blip expect recovery in H2FY16

NRBs high operating leverage, in conjunction with a fall in raw material prices, caused
EBITDA margin to expand 121 bps y-o-y to 18.9% in FY15. However, in Q4FY15 and
Q1FY16, EBITDA margin contracted primarily due to imposition of the safeguard duty
(explained on page 9). We expect margin to recover H2FY16 onwards, led by growth in
revenue and lower raw material cost. We estimate EBITDA margin at 18.1% in FY16 and
19% in FY17.
Risk: Dependence on domestic OEM segment
NRB is dependent on the domestic auto market (~63% of FY15 revenue), which is
susceptible to cyclicality. The company is focusing on exports to mitigate this risk.
Excellent
Fundamentals
5
4
3
2
1
Poor
Fundamentals
Valuation Grade
Strong
Upside
Strong
Dow nside
Integrated operations with an export focus to augur well

NRBs product portfolio of highly customised precision bearings, developed in conjunction
with OEMs, ensures client loyalty. This has enabled the company to grow along with OEMs,
as the auto sector sees a revival in demand, especially in passenger vehicles (PV) and
commercial vehicles (CV) segments. With demand for two-wheelers and tractors expected to
pick up in H2FY15, NRB is likely to benefit from the growth in the auto sector. New products,
coupled with strategic partnerships, are likely to result in significant value accretion over the
long run.
CFV MATRIX
Fundam ental Grade
NRB Bearings Ltd. (NRB) is the fourth largest organised bearings player in India with nearly
13% market share. The company has been focusing on increasing longevity of its business
by becoming a preferred supplier to domestic and global original equipment manufacturers
(OEMs). Its relationship with global OEMs will bear fruit once they expand operations in India.
With its technological capabilities and long-standing relationships in a niche segment, NRB is
a proxy play on the automobile sector, which is expected to pick up in H2FY16. We have
lowered our revenue and earnings estimates for FY16-17 to factor in the delay in demand
recovery. However, since the companys long-term growth prospects are intact, we maintain
the fundamental grade of 4/5.
127
138
KEY STOCK STATISTICS

NIFTY/SENSEX
NSE/BSE ticker
Face value ( per share)
Shares outstanding (mn)
Market cap ( mn)/(US$ mn)
Enterprise value ( mn)/(US$ mn)
52-week range ()/(H/L)
Beta
Free float (%)
Avg daily volumes (30-days)
Avg daily value (30-days) ( mn)
7896/25970
NRBBEARING
2
96.9
13,375/201
16,129/243
173/95
1.0
42.9%
108,232
15.8
SHAREHOLDING PATTERN
Revenue and earnings estimates lowered; fair value maintained at 127
We maintain our discounted cash flow (DCF)-based fair value is maintained at 127. The fair
value implies P/E multiples of 21.5x FY16E and 16.5x FY17E EPS. At the current market
price of 138, the valuation grade is 3/5.
FY14
FY15
FY16E
FY17E
5,912
6,093
6,685
7,294
8,278
EBITDA
1,071
1,075
1,261
1,321
1,571
449
332
534
572
746
Adj EPS ()
EPS growth (%)
Dividend yield (%)
RoCE (%)
4.6
3.4
5.5
5.9
7.7
(10.3)
(26.0)
60.8
7.2
30.3
1.2
0.8
1.1
1.4
1.9
15.6
14.3
16.9
16.8
20.2
RoE (%)
20.7
15.8
22.3
20.8
23.7
PE (x)
29.8
40.3
25.0
23.4
17.9
6.7
6.0
5.2
4.6
4.0
15.0
15.3
13.0
12.2
10.2
P/BV (x)
EV/EBITDA (x)
80%
70%
60%
16.3%
15.9%
15.4%
14.7%
13.5%
14.2%
15.5%
16.3%
11.6%
11.7%
12.0%
11.8%
58.6%
58.2%
57.2%
57.2%
Mar-15
FII
Jun-15
DII
40%
FY13
Operating income
Adj net income
90%
50%
KEY FORECAST
( mn)
100%
30%
20%
10%
0%
Dec-14
Promoter
Sep-15
Others
PERFORMANCE VIS--VIS MARKET
NRB
NIFTY 500
1-m
-8%
0%
Returns
3-m
6-m
16%
30%
1%
-3%
12-m
10%
-1%
ANALYTICAL CONTACT
Bhaskar Bukrediwala
bhaskar.bukrediwala@crisil.com
CMP: Current market price
Hemali Dhame
hemali.dhame@crisil.com
Source: Company, CRISIL Research estimates
Sayan Das Sharma
sayan.sharma@crisil.com
Client servicing desk

+91 22 3342 3561
clientservicing@crisil.com
For detailed initiating coverage report please visit: www.ier.co.in

CRISIL Independent Equity Research reports are also available on Bloomberg (CRI <go>) and Thomson Reuters.
Table 1: NRB Bearings - business environment
Revenues contribution - FY15

Revenues contribution - FY16E
Sales CAGR (FY13-15)
Sales CAGR (FY13-16E)
Key products/ service offering
Key customers
Demand drivers
Domestic (OEM)
Exports
62.9%
62.5%
4.9%
12.4%
Big end bearings
24.1%
24.7%
12.4%
17.6%
Needle and cylindrical bearings
Aftermarket
(replacement)
13.0%
12.7%
2.8%
10.0%
Ball bearings
Bush bearings
Planetary shafts
Big end bearings
Crank pins
Polyamide cages
Bush bearings
Cylindrical bearings
Rings and sleeves
Crank pins
Specialised ball bearings
Steering column bearings
Specialised ball and tapered roller

bearings
Tapered roller bearings
Ashok Leyland Ltd
Daimler Trucks
Bajaj Auto Ltd
Sold through
dealers
Hero MotoCorp Ltd
Honda Motorcycle & Scooters

India Ltd
Getrag Transmissions Corporation

(Worlds largest supplier of
transmission systems to passenger
/commercial vehicles)
Mahindra and Mahindra Ltd
Tata Motors Ltd
GKN Driveline (European automotive

and aerospace player)
Renault Volvo (European truck

manufacturer)
ZF Friedrichshafen AG (Germanybased global leader providing

driveline technology to auto OEMs )
Increased mining of existing

customers through new product
development
Product launches
Deeper
penetration and
wider range of
specialised
bearings
Key competitors
Key risks
Expected demand revival in

domestic auto sector
Increased mining of existing clients
through product development
New client acquisitions
Client acquisition / entry in new

segments
Unlisted player in India - INA Bearings
Listed players in India - SKF India, FAG Bearings and Timken India
Cyclicality in the automobile industry
Foreign currency risk
Note: SKF India, FAG Bearings India and global peers such as Timken (the US) and SKF have financial year-ending in December.
Source: Company, CRISIL Research
Needle roller bearings (~47% of revenue)

Bearing is a machine element used to support load and reduce friction in moving parts. The bearings industry is classified under a) bimetal bearings and
b) anti-friction bearings (which include ball and roller bearings). The rolling element acts as a differentiator in a bearing. The choice of bearing primarily
depends on revolutions per minute (RPM) and load. Needle roller bearings are typically customised as against ball bearings, which are generally offthe-shelf.
Needle roller bearings are used in medium RPM, high-load requirements, while ball bearings are used in high RPM, medium-load requirements.
For compact size applications such as two-wheeler machinery, needle roller bearings are preferred.
NRB Bearings Ltd

RESEARCH
Grading Rationale
Growth moderated towards tail-end of FY15, to recover in FY16
As a well-established manufacturer of customised bearings for the mobility segment, NRBs
performance is inextricably linked to growth in demand for automobiles, tractors and off-the-
Figure 1: Revenue mix FY15

After
market,
13%
highway vehicles. In that context, FY15 was a mixed bag robust H1FY15 and a relatively
Export,
24%
weaker H2FY15, reflecting ups and downs of the domestic auto sector.
Domestic
(OEM63%)
The company derives ~48% of its domestic OEM revenue from two-wheelers, a segment that
has slowed down considerably largely due to weak rural demand. Further, export revenue
was adversely impacted by a sharp depreciation in the euro in Q4FY15. Total revenue in
FY15 grew 9.7% y-o-y to 6.7 bn, driven by revenue growth of 10% in the domestic OEM
Two-wheelers account for ~48% of
segment, 14% in exports and 6% in growth in the aftermarket segment (all in y-o-y terms).
domestic OEM revenues
In line with trends seen at the tail-end of FY15, revenue in Q1FY16 grew merely 2.1% y-o-y to
1.6 bn in Q1FY16. However, we expect demand to revive in H2FY16, due to a pick-up in
domestic sales (led by the festive season) and NRBs continuous focus on exports (foray into
newer platforms). We estimate NRBs revenue to post a CAGR of 11.3% y-o-y over FY1517E to 8.3 bn.
Figure 2: NRBs revenue growth linked with auto sector growth

(%)
18.0
16.4
16.0
14.0
12.0
14.2
9.8
10.0
8.0
5.3
6.0
8.0
4.6
4.0
0.9
2.0
3.0
FY12
FY13
Auto Production
FY14
FY15
NRB's Revenues y-o-y
Source: CRISIL Research
Table 2: Moderate production growth of auto segment

y-o-y growth (%) in production
FY13
FY14
FY15
Q1FY16
2.1
7.2
9.6
0.2
wheelers
-4.5
-1.1
14.3
9.0
Passenger cars
-4.5
-4.2
4.0
7.6
Utility vehicles
32.6
-5.5
5.1
5.1
M&HCV (sales)
-23.7
-22.2
17.4
23.1
11.6
-17.0
-9.9
-3.2
-10.5
0.9
22.3
4.6
-13.4
8.0
-13.8
1.1
Two wheelers
Thre
LCV (sales)
Tractors
Total
Demand from domestic OEMs to revive in H2FY16

Rural demand for two-wheelers is expected to remain muted in H1FY16 due to poor
monsoons. Though the festive season is likely to revive demand temporarily, we expect
tangible recovery only in FY17. Similarly, tractor demand is also likely to be impacted by a
weak rural economy and infrastructure activity. In contrast, PVs and CVs are likely to remain
on their growth trajectory, backed by new launches and recovery in economic activity,
respectively. We estimate NRBs domestic OEM revenue to record a CAGR of 11.3% over
FY15-FY17E to 5 bn.
Figure 3: Trend in domestic OEM revenue growth

( mn)
4,100
(%)
35.1
4,000
34.0
3,900
27.0
3,800
20.0
14.4
3,700
9.9
3,600
3,500
(6.3)
3,300
3,200
6.0
0.2
3,400
(1.0)
3,421
3,915
3,670
3,677
4,042
FY11
FY12
FY13
FY14
FY15
3,100
Domestic OEM revenues
13.0
(8.0)
(15.0)
y-o-y growth
Strategic focus on exports to further benefit the company

As the domestic auto industry has been through a correction over last few years, NRBs
decision to focus on exports has been fruitful. The company caters to global OEMs, namely,
Renault Volvo and Daimler Trucks in Europe, the US and Latin American countries.
Association with global OEMs helps the company enhance its engineering capabilities and
benchmark its quality to global standards. Some of these global OEMs are first-time entrants
into India and this relationship should encourage domestic sales. Further, NRB is working with
a luxury car manufacturer and this platform is likely to boost revenue and improve margin.
NRBs total exports posted a healthy CAGR of 39.8% during FY11-15. The contribution of
exports to total sales increased to 24% in FY15 from 9% in FY11.
Export revenues grew 14% y-o-y in

FY15, despite euro correction in
Q4FY15
NRB Bearings Ltd

RESEARCH
Figure 4: Exports have picked up smartly 39.8% CAGR over FY11-15

( mn)
(%)
1,800
30.0
1,600
1,400
24.1
23.3
21.5
25.0
1,200
20.0
1,000
13.0
800
15.0
8.7
600
10.0
400
5.0
200
406
705
1,225
1,359
1,548
FY11
FY12
FY13
FY14
FY15
Export revenues
% of total revenues (RHS)

While export revenue grew 14% y-o-y in FY15, appreciation of rupee against the Euro (from
76.6/ in December 2014 to 67.7/ in March 2015) played spoilsport in Q4FY15. The fall
continued in Q2FY16, with rates stabilising lower than last year. Going forward, we expect
further growth in volume, thanks to initiatives taken by the company. We estimate NRBs
export revenue to post a CAGR of 16.4% over FY15-FY17E to 2.1 bn.
Figure 5: Euro - southward bound

(INR/Euro)
90.0
85.0
80.0
75.0
70.0
65.0
Dec-15
Oct-15
Nov-15
Sep-15
Jul-15
Aug-15
Jun-15
Apr-15
May-15
Jan-15
Feb-15
Mar-15
Dec-14
Oct-14
Nov-14
Sep-14
Jul-14
Aug-14
Jun-14
Apr-14
May-14
60.0
Aftermarket segment to grow steadily

NRBs aftermarket segment witnessed weakness in FY12 and FY13, but recouped with
product launches in H2FY14. While FY14 revenue was flat, FY15 revenue grew 6% y-o-y to
Bearings in a vehicle should ideally
835 mn. With the company expanding presence in the domestic OEM and export markets,
get replaced on completing 10,000
overall contribution to revenue has stagnated at 13%.
km
The aftermarket is crowded by several unorganised players, in addition to the threat of

cheaper imports, mainly from China. Further, NRB caters largely to the two and three-wheeler
industries, which are price-sensitive. However, the companys current focus on the off-thehighway segment should boost growth. We expect the aftermarket segment to grow
moderately by 10% over FY15-17E to 1 bn.
Foray into new segments to yield long-term benefits

The company has made inroads in the defence segment, with a small order from the Defence
Research and Development Organisation (DRDO) for an under-development project. With the
governments Make in India focus, especially in the defense space, this should augur well in
the long run. In addition, the company has developed a working relationship with Indian
Railways, but this is yet to take off. It is also working on identifying opportunities in urban
transportation and aerospace. Some of these initiatives are likely to create a new segment for
the company and help de-risk business.
Engineering prowess will continue to yield results

NRBs focus on products that are well-engineered and involve client engagement right from
the conceptualisation phase has ensured steady relationships with leading OEMs, across the
automobile industry. To fortify its prowess, it has invested and developed technology that is
used to manufacture critical components such as transmission and engine systems, where
quality standards are important. Given its expertise and involvement, there is a high level of
customer loyalty, which acts as a natural entry barrier to new players. The company is a tier I
(direct supplier) supplier to leading domestic OEMs such as Hero MotoCorp, Bajaj Auto, Tata
Motors, Maruti Suzuki and Ashok Leyland. It is a tier I/II (direct and indirect supplier) supplier
to reputed global players such as Renault Volvo, Daimler Trucks, ZF Group and Getrag
Group. As a testament to its engineering prowess and products, NRB has managed to
improve its market share in the organised bearings sector from 11% in FY13 to 13% in FY15.
Table 3: Product usage in critical applications

Products
Critical automobile application
Polyamide cages
Gearbox
Needle brushes
Gearbox / steering
Nib end bearings

Crank pins
Engine
Engine
Recent margin correction is a blip, expect recovery in H2FY16

NRBs cost structure incorporates a high degree of operating leverage that allows changes in
revenue to magnify margin. In line with this, the companys EBITDA margin expanded 121 bps
y-o-y to 18.9% in FY15, mainly on account of higher operating leverage combined with a fall in
raw material prices. However, EBITDA margin was impacted in Q4FY15, due to several
reasons, including (a) negative operating leverage due to reduced volume, (b) provisioning for
slow moving finished goods inventory, in line with the companys policy, (c) higher provisioning
for gratuity and pension liabilities, and (d) impact of safeguard duty on imported steel tubes.
NRB Bearings Ltd

RESEARCH
Safeguard duty to counter the benefits of falling raw material costs for NRB
Based on inputs from the steel industry, the government concluded that the increased
imports of seamless pipes and tubes into India hurt domestic producers severely,
necessitating imposition of safeguard duty. This duty, imposed for three years, is
staggered as follows:
a)
20% ad valorem when imported between August 13, 2014 and August 12, 2015
(both days inclusive).
b)
10% ad valorem when imported between August 13, 2015 and August 12, 2016
(both days inclusive).
c)
5% ad valorem when imported between August 13, 2016 and February 12, 2017.
While weak demand and the safeguard duty will continue to strain revenue and margin in
H1FY16, we expect recovery from H2FY16. This will be led in part by a recovery in volume
that brings in operating leverage benefits, and the rest via reduction in safeguard duty. Going
forward, we expect EBITDA to post a CAGR of 11.6% over FY15-17E, with EBITDA margin at
18.1% in FY16 and 19% FY17.
Figure 6: EBITDA margin movement in line with revenue growth

(%)
18.8
20.0
15.0
18.7
18.6
19.1
17.1 17.3
14.3
10.0
9.0
5.0
-
18.3
18.3
3.3
10.3
4.7
14.5
13.8
(0.9)
(5.0)
2.1
(4.6)
Revenue growth y-o-y
Q2FY16
Q1FY16
Q4FY15
Q3FY15
Q2FY15
Q1FY15
Q4FY14
Q3FY14
Q2FY14
(10.0)
20.0
19.0
18.0
17.0
16.0
15.0
14.0
13.0
12.0
11.0
10.0
EBITDA margin (LHS)
NRB has better EBITDA margin than its peers

NRBs product portfolio generates high margin as: (a) low-volume customised precision
bearings command a higher premium than the off-the-shelf bearings, that its competitors
specialise in; and (b) integrated operations, of engineering and design, in-house
manufacturing of needle/rollers, heat treatment, testing and final assembly of bearings,
enables to control cost.
Figure 7: NRBs margin (FY15) continue to outstrip its peers

(%)
20.0
18.0
16.0
14.0
12.0
10.0
18.9
8.0
14.9
14.9
13.2
6.0
12.1
4.0
2.0
NRB
Bearings
FAG Bearings Timken India ABC Bearings SKF India
but an elongated working capital cycle

Given its nature of operations, i.e. highly customised offerings, NRB needs to stock an
extensive product range. In comparison, INA Bearings has a relatively limited product range,
as revealed by channel checks. While NRB offers 500-600 types of bearings, SKF Indias
regular product range comprises 150-160 types of bearings. This increases both inventory
levels and debtor days, causing a stretched working capital cycle vis--vis its peers.
Figure 8: Inventory break-up
Figure 9: Inventory days higher than peers

(Days)
140
Finished
goods, 33%
Raw
materials,
31%
120
100
80
60
128
40
20
54
55
FAG Bearings
SKF India
NRB Bearings
Work in
progress,
21%
Stores &
spares, 15%
NRB Bearings Ltd

RESEARCH
Key Risks
Dependence on domestic OEMs; cyclicality of industry
NRB derives 63% of revenue from the domestic auto industry, which is cyclical in nature.
However, its presence across various sub-sectors (such as two-wheelers, three-wheelers, four
wheelers and commercial vehicles, etc.) mitigates this risk. Though we expect growth in the
auto industry to pick-up in H2FY16, a delay could have a negative impact.
Foreign currency volatility

The company is exposed to foreign currency volatility through foreign currency loans and
exports (upto 24% of revenue). Although exports provide a natural hedge to its foreign
currency borrowings, the risk associated with volatile currency movements persists.
Volatility in raw material prices

Passing on the rise in raw material costs - an industry-wide phenomenon - to customers is a
challenge. For instance, the companys inability to pass on the sharp increase in raw material
costs (steel and oil) entirely to its customers led to low profitability in FY09.
Financial Outlook
Revenue to record 11.3% CAGR to 8.3 bn during FY15-17E
We have lowered our revenue estimates for FY16 and FY17 to factor in weak domestic
Revenues: CAGR of 11.3%
demand and impact of a weaker euro on export revenue (also evident in H2FY15 and
during FY15-17E
Q1FY16). Over FY15-17, we estimate 11.3% growth in consolidated revenue to 8.3 bn and
16.4% growth in exports (both CAGR terms), fuelled by client additions and by mining the
existing client base. Domestic OEM revenue is expected to grow 11.3% CAGR, as demand
improves post H2FY16. As domestic sales constitute a major portion of total sales, growth of
the domestic auto industry would be a key determinant of the companys performance.
Figure 10: Revenue CAGR of 11.3% over FY15-17E
Figure 11: Revenue mix trend
( mn)
(%)
9,000
16.0
13.5
8,000
9.7
6,000
90%
9.1
5.6
3,000
3.1
5,912
70%
10.0
60%
8.0
50%
6.0
40%
30%
4.0
2,000
6,093
6,685
7,294
8,278
FY14
FY15
Revenues
FY16E
23.3
24.1
24.4
25.8
13.9
13.5
13.0
12.9
12.5
64.5
63.2
62.9
62.7
61.7
FY13
FY14
FY15
FY16E
20%
2.0
10%
FY13
21.5
80%
12.0
5,000
1,000
100%
14.0
7,000
4,000
(%)
0%
FY17E
y-o-y growth (RHS)
Domestic (OEM)
EBITDA margin estimated to contract 18.1% in FY16

We have lowered our FY16 and FY17 EBITDA margin estimates to 18.1% and 19%,
respectively, to factor in the impact of lower utilisation and higher raw material cost.
Figure 12: Trend in EBITDA margin

( mn)
(%)
1,800
19.5
1,600
19.0
18.9
19.0
1,400
1,200
18.1
18.5
18.1
1,000
18.0
17.7
800
600
17.5
400
200
17.0
1,071
1,075
1,261
1,321
1,571
FY13
FY14
FY15
FY16E
FY17E
16.5
EBITDA
10
Aftermarket
EBITDA margin (RHS)
FY17E
Exports
NRB Bearings Ltd

RESEARCH
PAT to record CAGR of 18.2% over FY15-17E

As we have revised our revenue and EBITDA margin estimates, we have lowered our PAT
estimates for FY16 and FY17. We expect adjusted PAT to post a CAGR of 18.2% over FY1517E to 746 mn.
Figure 13: PAT margin to rise over FY16-17E
Figure 14: Return ratios to improve going ahead
( mn)
(%)
800
9.0
700
8.0
7.6
(%)
25.0
10.0
9.0
7.8
15.8
7.0
5.5
500
6.0
400
5.0
300
4.0
23.7
20.8
20.0
8.0
600
22.3
20.7
15.0
15.6
20.2
16.9
16.8
FY15
FY16E
14.3
10.0
3.0
200
2.0
100
449
332
534
572
746
FY13
FY14
FY15
FY16E
FY17E
5.0
1.0
-
Adj, PAT
FY13
Adj. PAT margin (RHS)
FY14
RoE
FY17E
RoCE
Table 4: Change in estimates

FY16E
mn
FY17E
Old
New
Change
Old
New
Change
Revenues
8,657
7,294
-15.7
10,281
8,278
-19.5
EBITDA
1,685
1,321
-21.6
2,001
1,571
-21.5
EBITDA margin
19.5
18.1
-136bps
19.5
19.0
-49bps
Adjusted PAT
807
572
-29.1
936
746
-20.3
PAT margin
EPS ()
9.3
8.3
7.8
5.9
-148bps
-29.1
9.1
9.7
9.0
7.7
-9bps
-20.3
Table 5: Reasons for changes in estimates

Line item
FY16E
FY17E
Revenues
Lowered to factor in weak demand in domestic
Lowered in line with the revision in FY16 estimates
market and impact of euro correction

EBITDA
Reduced to factor in impact of lower utilisation and
margins
higher raw material cost (in line with Q1FY16)
PAT margins
Largely in line with the fall in EBITDA
Lowered to factor in slower-than-expected recovery

Largely in line with the fall in EBITDA
11
Management Overview
CRISIL's fundamental grading methodology includes a broad assessment of management
quality, apart from other key factors such as industry and business prospects, and financial
performance. The board is broad-based; its members have multi-disciplinary experience,
which aids decision-making.
Experienced management
Trilochan Singh Sahney, Executive Chairman, is the founder promoter of NRB. He has
handed over the operational management to his daughter Harshbeena Zaveri - currently the
Fortune Magazine has ranked Ms.
Managing Director and President. She has almost 26 years of experience in the bearings
Harshbeena Zaveri amongst the 15
industry and spearheaded the companys foray into design engineering. Under her leadership,
most powerful businesswomen in
the company set up an R&D centre and increased export sales by tapping leading global
India from 2011 through 2014
automobile OEMs. She is also the chairman of the board of SNL Bearings (subsidiary).
Strong focus on in-house R&D

NRB set up an in-house R&D centre in 2000. This has enabled the company position itself as
a supplier of high-end /critical applications to domestic and global OEMs, offering a wide and
diversified product range. Being a preferred supplier also means that NRB is the first port of
call as global OEMs expand their footprint in India.
Strong second line of management

The company has inducted various professionals at senior and mid-management levels, who
have significant experience in the bearings industry.
Tanushree Bagrodia, CFO, is an INSEAD MBA graduate and has substantial experience
in investment banking.
Sumit Mitra, MBA from IIM Calcutta, heads the international business and supply chain.
He has 16 years of experience in bearings, precision auto components and other
industries. He has previously worked at Honeywell Automation, SRF Group and Dalmia
Cement.
Mr Hemant Jog, Vice President, Manufacturing, heads the Waluj plant in Aurangabad.
He holds a Bachelors degree in Mechanical Engineering and Post Graduate Diploma in
Materials Management. He has 28 years of experience in the bearings industry.
Mr Hideki Kokubu, Vice President, International Business Development is responsible for

business from the ASEAN.
12
NRB Bearings Ltd

RESEARCH
Corporate Governance
CRISILs fundamental grading methodology includes a broad assessment of corporate
governance and management quality, apart from other key factors such as industry and
business prospects, and financial performance. In this context, CRISIL Research analyses
shareholding structure, board composition, typical board processes, disclosure standards and
related-party transactions. Any qualifications by regulators or auditors also serve as useful
inputs while assessing a companys corporate governance.
NRBs corporate governance is good. It is supported by a strong board and efficient practices.
It adheres to all regulatory requirements.
Board composition complies with the listing norms
The board comprises eight members, of whom one is an executive chairman and four
are independent directors, thereby meeting the requirements under Clause 49 of SEBIs
listing guidelines.
Corporate governance is good. The

board has a judicious mix of
relevant and diversified experience
The independent directors are highly qualified, have strong industry experience and have
been on the board for more than three years.
Board processes
Necessary
committees
audit,
stakeholders
relationship
and
nominations
&
remuneration - are in place, headed by independent directors. These committees have a

wider scope and, hence, the decision-making process is collaborative and appropriate.
The company also has a Corporate Social Responsibility (CSR) committee that has
spent the mandatory 2% of average profit over last three years, reiterating the
managements commitment to promote education and gender equality, empower women
and ensure environmental sustainability.
Quality of earnings and disclosure standards
Quality of earnings is good as reflected in the following:

-
Accounting policies are appropriate and conservative.
The company has been generating operating cash flow over last few years, in line
with revenue growth.
High debtor and inventory days, due to the customised nature of its business, which
requires it to maintain high inventory.
Healthy dividend payment:

-
The company has maintained a healthy dividend payout ratio of ~40% (average)
over last few years. Compared with PAT growth, the dividend payout is appropriate
and, hence, benefits minority shareholders.
Good disclosure standards:

-
Based on publicly available information, including annual reports and website

uploads, the disclosure standards are satisfactory. Although the company does not
hold an investor conference call (post quarterly results), it shares information
regularly.
13
Valuation
Fair value maintained at 127 per
Grade: 3/5
share
We maintain our DCF-based fair value at 127 per share. The fair value implies P/E multiples
of 21.5x FY16E and 16.5x FY17E EPS. At the current market price of 138, the valuation
grade is 3/5.
Key DCF assumptions
Discounted value of the firms estimated free cash flows from FY17 to FY25.
Cost of equity of 15.8%.
Terminal growth rate of 3% beyond the explicit forecast period until FY25.
WACC computation
FY16-25
Cost of equity
Terminal value
15.8%
15.8%
Cost of debt (post tax)
4.2%
4.2%
WACC
Terminal growth rate
9.8%
9.8%
3%
One-year forward P/B band
One-year forward EV/EBITDA band
()
( mn)
180
20,000
160
18,000
140
120
16,000
100
12,000
80
10,000
60
8,000
40
6,000
20
4,000
2,000
EV
4x
Source: NSE, CRISIL Research
P/E premium / discount to CNX 500
P/E movement
6x
Jun-15
8x
Dec-15
Dec-14
Jul-14
Jul-13
Jan-14
Jan-13
Aug-12
Feb-12
Mar-11
Aug-11
Sep-10
8x
14x
Mar-10
Sep-09
Jun-15
Dec-15
Dec-14
Jul-14
Jan-14
Jul-13
Jan-13
6x
12x
Apr-09
NRB
10x
Aug-12
Feb-12
Aug-11
Mar-11
Sep-10
Mar-10
Sep-09
Apr-09
14,000
10x
(Times)
100%
80%
30
60%
25
40%
20
20%
0%
15
-20%
-1 std dev
Median premium/discount to CNX 500
1yr Fwd PE (x)
Median PE
Dec-15
Jun-15
Jul-14
Jan-14
Jul-13
Jan-13
Aug-12
Feb-12
Aug-11
Mar-11
Sep-10
Mar-10
Sep-09
Dec-15
Jun-15
0
Apr-09
Premium/Discount to CNX 500
Dec-14
Jul-14
Jan-14
Jul-13
Jan-13
Aug-12
Feb-12
Aug-11
Mar-11
Sep-10
Mar-10
Sep-09
Apr-09
-80%
Dec-14
-60%
14
+1 std dev
10
-40%
NRB Bearings Ltd

RESEARCH
Peer valuation comparison

Company
Currency
NRB Bearings Ltd*
bn
Bearings Manufacturers
Domestic
Fag Bearings India bn
SKF India
bn
Timken India
bn
Average
Median
Global
Timken
US$ bn
SKF *
US$ bn
MCap
11
FY15
21.0
P/E
FY16E
16.6
FY17E
12.8
FY15
4.4
P/B
FY16E
3.9
FY17E
3.3
FY15
11.4
EV/EBITDA
FY16E FY17E
9.5
7.7
FY15
22.5
ROE
FY16E
23.9
FY17E
26.2
79
69
41
51.4
34.1
50.4
45.3
50.4
41.5
30.9
19.2
30.5
30.9
35.3
24.9
15.9
25.4
24.9
7.1
4.9
9.3
7.1
7.1
6.2
4.4
8.1
6.2
6.2
5.4
3.9
6.8
5.4
5.4
29.0
21.9
30.1
27.0
29.0
26.9
20.9
23.9
23.9
23.9
23.1
16.5
19.1
19.6
19.1
14.6
15.1
19.7
16.4
15.1
15.7
14.9
21.1
17.2
15.7
17.3
16.4
22.6
18.8
17.3
17.4
15.1
13.1
1.9
NA
NA
9.3
7.2
19.5
17.0
13.3
3.4
3.0
3.4
10.8
9.2
6.7
8.1
12.2
NA
7.6
23.3
20.1
23.8
FY1
5
ROE
FY16
E
FY17
E
Source: CRISIL Research estimates; * Not updated
Auto Component sector valuation comparison
MCap
FY1
5
P/E
FY16
E
FY17
E
FY1
5
P/B
FY16
E
FY17
E
FY1
5
448
51.9
30.8
21.4
13.5
10.6
8.2
17.6
12.3
9.2
27.5
37.2
41.0
90
6
38
8
11
NA
28.9
28.8
10.5
58.9
35.8
28.9
28.2
21.0
17.8
9.5
NA
21.5
21.0
19.7
11.9
13.0
8.2
NA
14.8
13.0
4.7
3.0
4.3
1.9
3.6
5.2
4.0
4.1
2.7
4.0
1.7
NA
4.6
4.0
3.5
2.3
3.7
1.4
NA
3.8
3.5
23.5
14.1
12.3
5.7
19.7
15.5
15.9
14.2
10.2
10.1
5.2
NA
10.4
10.2
11.3
7.8
8.2
4.6
NA
8.2
8.2
(6.1)
10.6
15.6
19.7
6.3
12.3
13.1
15.3
13.1
22.0
18.2
NA
21.1
18.2
18.6
20.1
24.9
18.2
NA
24.6
20.1
22
5,315
9
17.3
17.3
15.6
16.7
14.6
16.0
12.4
14.3
12.3
14.6
10.9
12.6
9.0
1.7
3.2
4.7
8.7
1.4
2.7
4.3
6.1
1.4
2.3
3.2
10.0
8.5
6.5
8.3
9.5
7.5
5.4
7.4
8.2
6.9
4.9
6.7
49.8
11.6
21.9
27.8
59.0
9.1
22.5
30.2
69.6
9.6
22.2
33.8
17.3
14.6
12.3
3.2
2.7
2.3
8.5
7.5
6.9
21.9
22.5
22.2
Company
Currency
Auto Component Manufacturers
Domestic
Motherson Sumi
Systems Ltd
bn
Mahindra Forgings Ltd
bn
Setco Automotive Ltd
bn
Sundram Fasteners Ltd
bn
Munjal Showa Ltd
bn
Automotive Axles Ltd
bn
Average
Median
Global
Delphi Automotive PLC
US$ bn
Denso Corp
JPY bn
Valeo SA
Eur bn
Average
Median
EV/EBITDA
FY16
FY17
E
E
Source: Industry sources
15
CRISIL IER reports released on NRB Bearings Ltd

Fundamental
Fair value
CMP
grade
(on the date of report)
Nature of report
02-Jan-2014
Detailed report
4/5
46
5/5
36
07-Feb-2014
Q3FY14 result update
4/5
46
4/5
38
02-Jun-2014
4/5
65
2/5
85
01-Sep-2014
4/5
104
3/5
110
26-Dec-2014
4/5
127
3/5
123
30-Dec-2015
Detailed report
4/5
127
3/5
138
16
grade
Valuation
Date
NRB Bearings Ltd

RESEARCH
Company Overview
NRB was incorporated in 1965 as Needle Roller Bearing Company Ltd. It was set up as a joint
venture (30% stake) with French needle bearings manufacturer, Nadella SA (later acquired by
Top fourth largest bearing
Timken France), which provided technological support. In 2005, NRB promoters bought
company in India (organised), in
Timkens stake.
terms of sales
The company has eight manufacturing plants one each in Waluj, Jalna, Chikalthana
It has a product range of over
(Aurangabad) and Thane (Maharashtra), Pantnagar (Uttarakhand), Hyderabad (Andhra
3,000 different sizes of bearings
Pradesh), Ranchi (Jharkhand) and Rayong (Thailand). It has total capacity to produce 438 mn
pieces, as of FY15. Waluj and Jalna plants constitute more than 80% of the companys
bearings production.
NRB has two subsidiaries, SNL Bearings (73.7% stake) and NRB Bearings, Thailand (whollyowned). In October 2012, NRB demerged its industrial bearings division into a wholly-owned
subsidiary - NRB Industrial Bearings Ltd.
Table 6: Subsidiaries have miniscule contribution in consolidated entity

Contribution of
NRB
Subsidiaries
FY15 PAT ( mn)
SNL
Bearings
Bearings
Thailand
45.5
-29.8
subsidiaries
Consolidated
to consolidated
Total
PAT
entity
15.7
537.0
2.9%
Source: Company
Key milestones
1965
Incorporated in Mumbai as Needle Roller Bearing Company; an Indo-French

joint venture with Nadella France (Timken)
1966
Set up first plant in Thane, Mumbai to produce needle roller bearings
1980
New plant set up in Chikalthana, Aurangabad for needle rollers
1982
New plant set up in Jalna, Aurangabad to produce cylindrical roller bearings,

ball bearings, spherical roller bearings, tapered roller bearings
1990
Name changed to NRB Bearings
1991
New plant set up in Waluj, Aurangabad
1995
Listed on the BSE
2000
Listed on the NSE
Acquired Shriram Needle Bearings Industries Ltd (SNL)
Set up R&D centre in Thane plant
2005
Promoters of NRB Bearings bought Timkens stake
2008
NRB established a wholly-owned subsidiary NRB Bearings Thailand Ltd
New plant set up in Pantnagar, Uttarakhand
2012
Demerged NRB Industrial Bearings as a part of family settlement
2015
NRB Bearings Europe GmbH was set up with a view of increasing exports to
Europe
Source: Company
17
Annexure: Financials
Income statement
( m n)
Balance Sheet
FY13
FY14
FY15
FY16E
FY17E
( m n)
Operating incom e
5,912
6,093
6,685
7,294
8,278
Liabilities
EBITDA
1,071
1,075
1,261
1,321
1,571
Equity share capital
EBITDA m argin
18.1%
17.7%
18.9%
18.1%
19.0%
Reserves
Depreciation
321
356
310
325
338
Minorities
EBIT
751
720
951
995
1,233
Interest
206
196
194
191
179
Operating PBT
544
524
757
804
1,054
Other income
35
30
45
Exceptional inc/(exp)
23
(2)
(2)
56
-
64
-
38
Other debt
2,723
3,162
3,273
3,073
2,873
Total debt
2,723
3,162
3,273
3,073
2,873
102
123
120
120
120
4,822
5,500
5,964
6,112
6,364
2,174
2,320
2,569
2,471
2,368
349
545
203
203
203
2,522
2,865
2,772
2,674
2,571
Inventory
1,475
1,450
1,642
1,792
2,034
Sundry debtors
1,515
1,904
2,120
2,292
2,578
Loans and advances
414
1,731
2,037
2,223
2,523
258
Convertible debt
Deferred tax liability (net)
214
263
283
368
472
330
532
572
746
Capital WIP
Total fixed assets
572
746
534
194
3,139
3,371
332
194
2,692
34
122
449
194
2,348
2,919
Tax provision
Adjusted PAT
194
1,997
29
1,118
(2)
194
1,787
2,571
860
(2)
FY17E
24
800
23
FY16E
2,215
551
Less: Exceptionals
FY15
17
603
PAT (Reported)
FY14
1,998
Net w orth
PBT
Minority interest
FY13
Total liabilities
Assets
Net fixed assets
Investm ents
Current assets
Ratios
FY13
FY14
FY15
FY16E
FY17E
Grow th
Operating income (%)
5.6
3.1
9.7
9.1
13.5
Cash & bank balance
31
56
278
318
EBITDA (%)
(7.3)
0.4
17.3
4.7
19.0
Marketable securities
Adj PAT (%)
(10.3)
(26.0)
60.8
7.2
30.3
Total current assets
3,436
5,142
6,078
6,626
7,393
Adj EPS (%)
(10.3)
(26.0)
60.8
7.2
30.3
Total current liabilities
1,150
2,520
2,901
3,203
3,615
Net current assets
2,286
2,621
3,177
3,424
3,778
13
13
14
14
14
4,822
5,500
5,964
6,112
6,364
Profitability
EBITDA margin (%)
Adj PAT Margin (%)
Intangibles/Misc. expenditure
18.1
17.7
18.9
18.1
19.0
Total assets
7.6
5.5
8.0
7.8
9.0
RoE (%)
20.7
15.8
22.3
20.8
23.7
Cash flow
RoCE (%)
15.6
14.3
16.9
16.8
20.2
( m n)
FY13
FY14
FY15
FY16E
FY17E
RoIC (%)
15.4
11.3
14.3
14.7
17.0
Pre-tax profit
580
554
802
860
1,118
Total tax paid
(140)
(193)
(266)
(283)
Depreciation
321
356
310
325
338
(542)
(311)
(334)
(206)
(414)
219
406
513
696
674
(86)
(698)
(218)
(227)
(236)
Valuations
Price-earnings (x)
29.8
40.3
25.0
23.4
17.9
Price-book (x)
6.7
6.0
5.2
4.6
4.0
EV/EBITDA (x)
15.0
15.3
13.0
12.2
10.2
EV/Sales (x)
Dividend payout ratio (%)
Dividend yield (%)
2.8
2.8
2.5
2.3
2.0
34.9
32.3
28.2
33.2
33.2
1.2
0.8
1.1
1.4
1.9
Working capital changes

Net cash from operations
(368)
Cash from investm ents

Capital expenditure
Investments and others
Net cash from investm ents
(0)
(86)
0
(698)
(0)
(219)
(227)
(236)
Cash from financing

B/S ratios
Inventory days
127
121
128
126
127
Equity raised/(repaid)
Debt raised/(repaid)
148
439
111
(200)
(200)
(125)
(298)
Creditors days
64
76
74
75
76
Dividend (incl. tax)
(192)
(175)
(229)
Debtor days
87
107
109
108
107
Others (incl extraordinaries)
(614)
(7)
(0)
130
144
149
147
146
Net cash from financing
(658)
317
(72)
(429)
Gross asset turnover (x)
1.2
1.2
1.2
1.3
1.4
Change in cash position
(525)
25
222
40
(60)
Net asset turnover (x)
2.6
2.7
2.7
2.9
3.4
Closing cash
56
278
318
258
Sales/operating assets (x)
2.2
2.3
2.4
2.7
3.2
Current ratio (x)
3.0
2.0
2.1
2.1
2.0
Debt-equity (x)
1.4
1.4
1.3
1.1
0.9
Net debt/equity (x)
1.3
1.4
1.2
0.9
0.8
EBIT/Interest (x)
3.6
3.7
4.9
5.2
6.9
Net Sales
EBITDA/Interest (x)
5.2
5.5
6.5
6.9
8.8
Change (q-o-q)
Working capital days
Interest coverage
Quarterly financials (Standalone)

( m n)
FY17E
Per share
Q4FY15
Q1FY16
Q2FY16
1,664
(5.6)
1,562
(6.1)
1,600
2.4
1,681
5.1
Change (q-o-q)
328
9.5
304
(7.4)
215
(29.3)
232
7.8
308
32.9
EBITDA margin
18.6
18.3
13.8
14.5
18.3
PAT
150
123
117
105
157
150
13.9
123
(17.5)
117
(5.4)
105
(9.8)
157
48.9
Adj PAT margin
8.5
7.4
7.5
6.6
9.3
Adj EPS
1.5
1.3
1.2
1.1
1.6
EBITDA
FY13
FY14
FY15
4.6
3.4
5.5
5.9
7.7
CEPS ()
7.9
7.1
8.7
9.3
11.2
Adj PAT
20.6
22.9
26.5
30.1
34.8
Change (q-o-q)
Dividend ()
Actual o/s shares (mn)
1.7
1.1
1.5
2.0
2.6
96.9
96.9
96.9
96.9
96.9
18
FY17E
Q3FY15
1,762
12.4
Adj EPS ()
Book value ()
FY16E
31
(498)
Q2FY15
NRB Bearings Ltd

RESEARCH
Focus Charts
NRBs revenue growth linked with auto growth
Exports recorded 39.8% CAGR over FY11-15
(%)
18.0
16.4
16.0
( mn)
(%)
1,800
30.0
1,600
14.0
1,400
14.2
12.0
20.0
1,000
13.0
800
8.0
5.3
6.0
8.0
4.6
25.0
1,200
9.8
10.0
24.1
23.3
21.5
15.0
8.7
600
10.0
400
4.0
0.9
2.0
5.0
200
3.0
406
705
1,225
1,359
1,548
FY11
FY12
FY13
FY14
FY15
FY12
FY13
FY14
Auto Production
FY15
Export revenues
NRB's Revenues y-o-y
% of total revenues (RHS)
Euro - southward bound
NRBs margin (FY15) continue to outstrip its peers

(%)
(INR/Euro)
20.0
90.0
18.0
85.0
16.0
14.0
80.0
12.0
75.0
10.0
18.9
8.0
70.0
14.9
14.9
13.2
6.0
65.0
12.1
4.0
2.0
Dec-15
Oct-15
Nov-15
Sep-15
Jul-15
Aug-15
Jun-15
Apr-15
May-15
Jan-15
Feb-15
Mar-15
Dec-14
Oct-14
Nov-14
Sep-14
Jul-14
Aug-14
Jun-14
Apr-14
May-14
60.0
NRB
Bearings
FAG Bearings Timken India ABC Bearings SKF India
Share price movement
()
('000)
450
180
3,000
400
2,500
350
150
Source: NSE, BSE, CRISIL Research
NRB
NRB
Dec-15
Oct-15
Aug-15
Jul-15
Jan-14
Oct-15
CRISIL Fair Value
Dec-15
Jul-15
Aug-15
Mar-15
May-15
Feb-15
Dec-14
Oct-14
Jul-14
Sep-14
Apr-14
May-14
Jan-14
Feb-14
Total Traded Quantity (RHS)
50
May-15
100
Mar-15
500
20
Feb-15
40
1,000
Dec-14
60
200
Oct-14
80
250
1,500
Jul-14
100
300
Sep-14
2,000
120
May-14
140
Apr-14
160
Feb-14
Fair value movement since initiation
CNX500
-Indexed to 100
19
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RESEARCH

CRISIL IER Independent Equity Research

NRB Bearings Ltd

Enhancing investment decisions

CRISIL IER Independent Equity Research

Explanation of CRISIL Fundamental and Valuation (CFV) matrix

Strong upside (>25% from CMP)

Upside (10-25% from CMP)

Align (+-10% from CMP)

Downside (negative 10-25% from CMP)

Strong downside (<-25% from CMP)

About CRISIL Limited

About CRISIL Research

NRB Bearings Ltd

Finding its bearings

4/5 (Superior fundamentals)

December 30, 2015

3/5 (CMP is aligned)

Margin correction in Q4FY15 and Q1FY16 is a blip expect recovery in H2FY16

Integrated operations with an export focus to augur well

Fundam ental Grade

KEY STOCK STATISTICS

PERFORMANCE VIS--VIS MARKET

CMP: Current market price

Source: Company, CRISIL Research estimates

Sayan Das Sharma

Client servicing desk

For detailed initiating coverage report please visit: www.ier.co.in

CRISIL IER Independent Equity Research

Table 1: NRB Bearings - business environment

Revenues contribution - FY15

Big end bearings

Rings and sleeves

Specialised ball bearings

Steering column bearings

Specialised ball and tapered roller

Tapered roller bearings

Ashok Leyland Ltd

Bajaj Auto Ltd

Hero MotoCorp Ltd

Honda Motorcycle & Scooters

Getrag Transmissions Corporation

Mahindra and Mahindra Ltd

Tata Motors Ltd

GKN Driveline (European automotive

Renault Volvo (European truck

ZF Friedrichshafen AG (Germanybased global leader providing

Increased mining of existing

Expected demand revival in

New client acquisitions

Client acquisition / entry in new

Unlisted player in India - INA Bearings

Cyclicality in the automobile industry

Foreign currency risk

Needle roller bearings (~47% of revenue)

NRB Bearings Ltd

Figure 1: Revenue mix FY15

Two-wheelers account for ~48% of

domestic OEM revenues

Figure 2: NRBs revenue growth linked with auto sector growth

NRB's Revenues y-o-y

Source: CRISIL Research

Table 2: Moderate production growth of auto segment