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Research
BUY NRB Bearings: Anand Rathi Research
Posted On : 2015-08-02 01:25:24( TIMEZONE : IST )
NRB Bearings by Anand Rathi Research:
NRB Bearings' top-line inched up just 2.1% yoy to Rs. 1.6bn, with margins declining 464bps yoy to 14.5%. Due to this, profitability was impacted to a great extent and reported PAT came at Rs. 104m (down 19.7% yoy). With its focus on increasing export revenue, the company is expected to benefit in the long run.
Slow revenue growth. During Q1 FY16, revenue inched up just 2.1% yoy to Rs. 1.6bn, 5.4% below our estimate. This was because of slow demand across the segment. OEM, replacements and exports registered decent growth and contributed, respectively, ~59%, 16% and 25%, to revenue. Export growth was lower in this quarter.
464-bp yoy dip in margins. Reported EBITDA declined 22.6% yoy to Rs. 232m, with margins shrinking 464bps yoy to 14.5%. This was because of higher raw-material and employee costs (as percent of sales, up respectively 511bps and 135bps yoy). Ahead, the company expects its margin to improve because of its focus on growing exports.
Squeezed margin impacts profitability. Net profit for Q1 FY16 came at Rs. 105m (down 19.7% yoy), because of a 241-bp yoy decline in the tax rate and a subdued operating margin. Other income, also, declined, 5.8% yoy, to Rs. 11.3m.
Guidance. Management's expectation of increasing revenue from new export clients is on track. Economic growth, expected to improve in the quarters to come, augurs well for the company. In the long run, rising export revenue could drive NRB's growth.
Valuation. With the expected revival in auto-sector demand and prospects for the economy looking up, NRB's prospects too are expected to be promising. Hence, we maintain our Buy recommendation. Assigning a PE of 17x to FY17e earnings, we derive a target of Rs. 154. The stock trades at 15x FY16e and 11.7x FY17e. Risks: Keener competition, higher input costs, currency fluctuation
Shares of NRB BEARINGS LTD. was last trading in BSE at Rs.111.2 as compared to the previous close of Rs. 113.3. The total number of shares traded during the day was 5792 in over 119 trades.
The stock hit an intraday high of Rs. 115.5 and intraday low of 110. The net turnover during the day was Rs. 654863.
