BUY NRB Bearings - Margin expansion in Q1 leads to robust profitability: AnandRathi Institutional Reserach

NRB Bearings - Margin expansion in Q1 leads to robust profitability; Buy with a target price of Rs 140.

Off-take for bearings in both OEM and aftermarket has supported NRB's overall revenue growth. Also, with healthy margins, profit grew 33.9% yoy in Q1. Its increasing export focus would drive future growth. We maintain our Buy recommendation.

Upturn in overall demand boost revenue growth. NRB Bearings' Q1 FY17 revenue climbed 9.6% yoy to Rs. 1.74bn, in line with our expectation. Mounting demand has resulted in helping the company come up with decent growth. Exports in Q1 grew.

230-bp yoy expansion in operating profit margin. The Q1 operating profit margin expanded 230bps yoy to 16.8% on account of healthy fixed-cost absorption. Other expenses declined 166bps yoy to 16.3%. In future, with the ramping up of exports, the company expects the margin to improve.

Favourable margin powers bottom-line growth. NRB's Q1 FY17 PAT grew 33.9% yoy to Rs. 141m on account of the higher margins and a slight increase in other income, by 19.5% yoy, to Rs. 13.5m. The tax rate was flattish during the quarter. With rising exports and margins, profitability is expected to rise.

Ahead. With growth expected in exports, we anticipate revenue to register a 13% CAGR over FY16-18. The revival in the auto sector would boost overall demand, hence expanding margins. Also, with the healthy uptick in OEM and aftermarket, profitability is expected to register a 34% CAGR over FY16-18.

Valuation. With the turnaround in auto-sector demand and NRB's increasing focus on exports, its prospects are brighter. We maintain our Buy call, and assign a PE of 17x to FY18e earnings, deriving a price target of Rs. 140. The stock trades at 17.6x FY17e and 13.8x FY18e. Risks: Keener competition, higher input costs, currency fluctuation.

Shares of NRB BEARINGS LTD. was last trading in BSE at Rs.118 as compared to the previous close of Rs. 115.9. The total number of shares traded during the day was 12650 in over 257 trades.

The stock hit an intraday high of Rs. 122.5 and intraday low of 116.75. The net turnover during the day was Rs. 1522136.

Source : Equity Bulls

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