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Research
BUY NRB Bearings: AnandRathi Institutional Research
Posted On : 2016-02-13 11:13:42( TIMEZONE : IST )
NRB Bearings - Profitability hit, growth expected; target cut; maintaining a Buy ; with a target price of Rs 140.
With margins contracting 552bps yoy to 12.8%, NRB Bearings' revenue slipped 4.6% yoy to Rs. 1.58bn. Due to this, profitability was impacted to a great extent and PAT came at only Rs. 78m (down 36.9% yoy). With the company's focus on increasing export revenue, long-term benefits are expected.
4.6% yoy decline in sales. Q3 FY16 revenue dipped 4.6% yoy to Rs. 1.58bn, 14.3% below our estimate. The decline was because of slow demand across segments. Over the last many quarters export had been supporting growth; this quarter, exports did not grow.
Shrinking operating margins. The Q3 operating margin declined a sharp 552bps yoy to 12.8% on account of lower fixed-cost absorption. For 9mFY16, the EBITDA margin declined 342bps yoy to 15.3%. Ahead, NRB expects the margin to improve, driven by its focus on mounting exports.
Subdued margins weigh on profit. PAT plunged a steep 36.9% yoy to Rs. 78m. Despite a huge 59% yoy increase in other income, the lower profitability stemmed from subdued margins. For 9M, PAT declined 10.6% yoy to Rs. 361m.
Path ahead. The company expects revenue to increase on account of higher export revenue. Economic growth, anticipated to improve in the quarters to come, augurs very well for NRB. Also, with good growth in the OEM and replacement markets, decent growth is expected in the near future.
Valuation. With the expected revival in auto-sector demand and the brighter outlook for the economy, NRB's prospects too are expected to be promising. We maintain our Buy recommendation. Assigning PE of 17x to FY18e earnings, we derive a target of Rs. 140 (we have introduced FY18 estimates). The stock trades at 17x FY17e and 13.3x FY18e. Risks: Keener competition, higher input costs, currency fluctuation.
Shares of NRB BEARINGS LTD. was last trading in BSE at Rs.114.9 as compared to the previous close of Rs. 115. The total number of shares traded during the day was 481660 in over 43 trades.
The stock hit an intraday high of Rs. 115.9 and intraday low of 109.5. The net turnover during the day was Rs. 53468711.
