Buy NRB Bearings; target of Rs 170: ICICI Direct

ICICI Direct's research report on NRB Bearings

NRB Bearings reported strong Q2FY18 numbers. It reported topline, EBITDA and PAT numbers that were above our estimates Revenues came in at Rs 208.2 crore, up 15.9% YoY. We estimated revenues of Rs 201.8 crore for the quarter EBITDA increased 35.1% YoY to Rs 38.3 crore. The company reported strong EBITDA on account of a sharp increase in gross margins (up 630 bps YoY). Accordingly, EBITDA margins came in at 18.4% vs. 15.8% in Q2FY17. We estimated margins of 15.9% for the quarter. Employee expenses increased 18.6% YoY at Rs 32.4 crore PAT increased 29.2% YoY to Rs 21.2 crore (despite EBITDA growth of 35.1%), as other income fell to Rs 3.6 crore vs. Rs 5.8 crore in Q2FY17.

Outlook

We maintain our BUY recommendation on reasonable valuations (17.6x FY19E earnings) and an improving growth outlook from its key segment – automotive and the after-market segment. We now estimate topline and bottomline growth of 11.1% and 13.2% CAGR, respectively, over FY17-20E. With moderate capex of ~Rs 50 crore over FY18E-20E, we believe NRB is well placed to capitalise on the next phase of growth. We now value the company at 21x FY20E EPS of Rs 8.1 to arrive at a target price to Rs 170 per share. We have a BUY recommendation on the company.