Hold NRB Bearings; target of Rs 185: ICICI Direct

ICICI Direct's research report on NRB Bearings

After several quarters of strong growth, NRB Bearings reported dismal Q4FY19 numbers. Revenues came in at Rs 212.7 crore, down 9.6% YoY. We estimated revenues of Rs 262.7 crore. We believe the topline decline was mostly on account of the weak performance of the domestic OEM segment. EBITDA declined 38.1% YoY to Rs 26.1 crore. EBITDA came in lower due to topline decline, higher employee expenses (up 13.4% YoY), higher other expenses (up 12.1% YoY) and decline in gross margins by 80 bps YoY. Accordingly, EBITDA margins came in at 12.3% vs. 17.9% YoY. Tax rate for the quarter was at 18.5% vs. 31.7% YoY. Other income declined 95.9% YoY. Accordingly, PAT declined 56.2% YoY to Rs 11.7 crore.

Outlook

With growth moderation expected in FY20E, we expect revenue, EBITDA and PAT to grow at 9.8%, 8.1% and 4.3% CAGR, respectively, in FY19-21E. NRB has executed a capex of ~Rs 50 crore in FY19. The company currently operates at utilisation levels of ~80%. For FY20-21E, NRB has planned a capex ~Rs 100-150 crore. Debt levels have gone up from ~Rs 173 crore in FY18 to ~Rs 260 crore in FY19. Going ahead, debt levels’ working capital management will be the key monitorable. We value NRB at ~15x FY21E earnings to arrive at a target price of Rs 185 per share. We have a HOLD recommendation on the stock.