INDUSTRY AUTOS CMP(as on 23 May 2018) Rs 158 Target Price Rs 217 Nifty 10,430 Sensex 34,345 KEY STOCK DATA Bloomberg NRBBR IN No. of Shares (mn) 97 MCap (Rs bn) / ($ mn) 15/224 6m avg traded value (Rs mn) 47 STOCK PERFORMANCE (%) 52 Week high / low Rs 183/107 3M 6M 12M Absolute (%) (1.8) 13.6 40.9 Relative (%) (2.4) 11.3 27.8 SHAREHOLDING PATTERN (%) Promoters 53.63 FIs & Local MFs 17.39 FPIs 16.06 Public & Others 12.92 Source : BSE Abhishek Jain abhishekkumar.jain@hdfcsec.com +91-22-6171-7314 Strong Show NRB posted strong numbers in 4QFY18. Revenue came in at Rs 2.35bn (+25% YoY), fuelled by strong growth across OEMs segments (2W, CV and tractor segment) and export. EBITDA rose 69% YoY to Rs 422mn with margin at 17.9% (+468bps YoY), driven by operating leverage and richer product mix (higher revenue from CVs). APAT at Rs. 268mn (+129% YoY, 26% QoQ) led by strong operating performance and higher other income (Fx gain Rs 50mn) NRB s growth story is premised on (1) Strong volume growth in OEMs (account for ~65% of revenue), (2) Revival in exports, led by a recovery in the North- American and European truck /PV markets (~22% of revenue), (3) Incremental revenue from the Defence, Aerospace and Railway segments, and (4) Reduction in debt along with fall in interest cost. We have increased our 19/20E by 20/18% factoring in revival in CV and export sales along with margin expansion. We value the stock at Rs 217(18xFY20E EPS). Maintain Buy RESULTS REVIEW 4QFY18 23 MAY 2018 NRB Bearings BUY Highlights of the quarter Strong growth in OEMs: Growth was visible across OEMs segments mainly CV and 2W segment. Although the replacement market remains muted. Product mix was favourable with higher share of CVs. The company is also looking to procure incremental revenue from the Defence, Marine and Railway segments. Improving exports: Revenue from exports picked up(~+20% YoY in FY18), driven by the combined impact of a pick-up in orders from the heavy truck segment in North America, growth in the European PV market, and appreciation of the Euro. Revenue from other geographies (ASEAN region and Iran) also supported export growth. Improvement in WC and Net debt: Improvement in working capital is visible (116 days in FY18 vs 134 days in end FY-17) and net debt has reduced to Rs 1.73bn in FY18 vs Rs 2.35bn in end-fy17. Near-term outlook: Expect strong earnings growth in 1Q, led by rising CV and 2W domestic volume along with pick-up in exports. Financial Summary (Rs mn) 4QFY18 4QFY17 YoY (%) 3QFY18 QoQ (%) FY17 FY18 FY19E FY20E Net Sales 2,353 1,880 25.2 2,078 13.2 7,255 8,551 9,517 10,615 EBITDA 422 249 69.4 405 4.2 1,167 1,683 1,841 2,054 APAT 268 117 129.3 212 26.3 517 907 1,021 1,169 Diluted EPS (Rs) 2.8 1.2 129.3 2.2 26.3 5.3 9.4 10.5 12.1 P/E (x) 30.0 17.1 15.2 13.3 EV / EBITDA (x) 15.3 10.2 8.8 7.6 RoE (%) 17.7 26.6 24.7 23.9 HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters
Top-line at Rs 2.35bn (+25%, ahead of its peers like SKF- 8% was led by strong growth in OEMs(specially CVs and 2W) and Export EBITDA margin expanded on the back of operating leverage, richer product mix, cost cutting initiatives and better export realization In 4QFY17, EBITDA margin was exceptionally low owing to GST related expenses Other income was higher owing to forex gain of Rs. 50mn Quarterly Financials Snapshot (Standalone) (Rs mn) 4QFY18 4QFY17 YoY (%) 3QFY18 QoQ (%) Net Sales (incl OOI) 2,353 1,880 25 2,078 13.2 Material Expenses 2,353 1,880 25 2,078 13.2 Employee Expenses 1,005 804 25 817 22.9 Other Operating Expenses 342 297 15 327 4.7 EBITDA 585 530 10 529 10.5 Depreciation 422 249 69 405 4.2 EBIT 73 74 (1) 59 24.4 Other Income 348 175 99 346 0.7 Interest Cost 77 16 378 8 843.9 PBT 34 38 (12) 34 (2.0) Tax 392 153 156 320 22.7 RPAT 124 36 241 108 15.5 APAT 268 117 129 212 26.3 Adj EPS 268 117 129 212 26.3 Margin Analysis 4QFY18 4QFY17 YoY (bps) 3QFY18 QoQ(bps ) Material Expenses As % Of Net Sales 42.7 42.7 (6) 39.3 336 Employee Expenses As % Of Net Sales 14.5 15.8 (127) 15.7 (119) Other Expenses As % Of Net Sales 24.9 28.2 (335) 25.5 (62) EBITDA Margin (%) 17.9 13.2 468 19.5 (156) Tax Rate (%) 31.7 23.8 792 33.6 (195) Net Profit Margin (%) 11.4 6.2 517 10.2 117 Change in Estimates In Rs mn New Old % chg FY19E FY20E FY19E FY20E FY19E FY20E Net Sales 9,517 10,615 9,170.3 10,238.4 3.8 3.7 EBITDA 1,841 2,054 1,633.7 1,844.5 12.7 11.3 Adj PAT 1,021 1,169 845.8 987.9 20.7 18.4 Adj EPS (in Rs) 10.5 12.1 8.7 10.2 20.7 18.4 Source: HDFC sec Inst Research Page 2
With 65% revenue coming in from domestic OEMs, NRB is expected to be a key beneficiary of robust growth in the Automobile sector 2Ws and CVs will remain top contributors to revenue growth Peer Valuations MCap (Rs bn) CMP (Rs/sh) Key Assumptions FY16 FY17 FY18E FY19E FY20E Domestic Revenue 5,379 5,759 6,654 7,393 8,236 Growth (%) 6.0% 7.1% 15.5% 11.1% 11.4% OEM 4,421 4,802 5,643 6,281 7,006 Growth (%) 5.5% 8.6% 17.5% 11.3% 11.5% Aftermarket 958 957 1,011 1,112 1,230 Growth (%) 8.2% -0.1% 5.6% 10.0% 10.7% Export 1,370 1,517 1,896 2,124 2,379 Growth (%) -15.8% 10.7% 25.0% 12.0% 12.0% Total Revenue 6,749 7,276 8,550 9,517 10,615 Growth (%) 0.7% 7.8% 17.5% 11.3% 11.5% Revenue Break Up(Domestic) 2W 30% 31% 32% 32% 32% PV 15% 15% 14% 14% 13% CV 28% 26% 28% 28% 28% Tractor & Farm Equip 10% 12% 12% 12% 12% Others 17% 15% 15% 15% 16% Source: HDFC sec Inst Research Rating TP Adj EPS (Rs/sh) P/E (x) EV/EBITDA (x) RoE (%) FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E Exide Industries 214 252 BUY 298 8.4 11.1 13.0 30.2 22.8 19.3 18.3 16.9 12.9 14.9 13.9 16.7 Jamna Auto 37 93 NEU 90 3.0 3.8 4.8 30.8 24.2 19.4 18.1 14.3 11.5 32.5 33.3 33.5 Suprajit Engineering 36 278 NEU 296 10.3 14.0 16.6 27.0 19.8 16.8 16.2 12.4 10.7 24.6 26.5 25.0 Ramkrishna Forgings 21 741 BUY 913 19.6 34.9 51.3 37.9 21.3 14.4 12.1 9.1 6.8 10.5 14.7 18.7 Subros 18 296 BUY 384 9.1 13.4 19.2 32.5 22.1 15.4 18.8 15.4 12.8 14.8 19.1 23.3 JBM Auto 16 390 BUY 560 17.0 24.6 31.1 22.9 15.9 12.5 10.2 7.6 6.3 18.0 22.7 21.7 NRB Bearings 16 160 BUY 217 9.4 10.5 12.1 17.1 15.2 13.3 10.2 8.8 7.6 26.6 24.7 23.9 Lumax Autotech 11 825 BUY 987 36.3 43.8 54.9 22.7 18.8 15.0 10.3 8.4 6.5 14.7 15.8 17.4 Page 3
Net Revenue On The Rise Gross Margin Remained flat YoY Net Revenue (Rs mn) % YoY (RHS) Gross profit(rs. Mn) Gross margin (RHS) The company is the key beneficiary of resurgence in the CV volume, and resumption of a key export order The company is looking a capex of Rs. 650 in FY19 for expanding its capacity 2,500 2,000 1,500 1,000 500-4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 1,600 1,400 1,200 1,000 800 600 400 200-4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 % 4QFY18 62.00 61.00 60.00 59.00 58.00 57.00 56.00 55.00 54.00 53.00 52.00 51.00 EBITDA Margin Improved On Richer Mix One-year Forward P/E Chart Current valuation at 15x; FY19E is below its historical mean (19x) 450 400 350 300 250 200 150 100 50-4QFY16 EBITDA (Rs mn) 1QFY17 2QFY17 3QFY17 4QFY17 EBITDA margin (RHS) % 1QFY18 2QFY18 3QFY18 4QFY18 25 20 15 10 5 - P/E (x) Mean +1 SD -1 SD 34.0 31.0 28.0 25.0 22.0 19.0 16.0 13.0 10.0 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Page 4
Income Statement(Consolidated) (Rs mn) FY16 FY17 FY18 FY19E FY20E Net Revenues 6,749 7,255 8,551 9,517 10,615 Growth (%) 0.7% 7.5% 17.9% 11.3% 11.5% Material Expenses 2,621 2,720 3,287 3,726 4,156 Power & Fuel expenses 294 320 - - - Employee Expenses 1,284 1,316 1,449 1,618 1,805 Other Operating Expenses 1,438 1,732 2,132 2,332 2,601 EBITDA 1,112 1,167 1,683 1,841 2,054 EBITDA Margin (%) 16.5% 16.1% 19.7% 19.3% 19.3% EBITDA Growth (%) -10.3% 5.0% 44.1% 9.4% 11.5% Depreciation 319 323 310 325 344 EBIT 792 844 1,373 1,516 1,710 Other Income (Incl. EO Items) 32 80 122 85 90 Interest 185 170 142 93 74 PBT 639 753 1,353 1,508 1,726 Tax (Incl Deferred) 207 223 424 467 535 Minority Interest 12 14 22 20 22 APAT 420 517 907 1,021 1,169 APAT Growth (%) -19.6% 23.0% 75.5% 12.6% 14.6% Adj EPS 4.3 5.3 9.36 10.5 12.1 EPS Growth (%) -20% 23% 76% 13% 15% Balance Sheet (Consolidated) (Rs mn) FY16 FY17 FY18 FY19E FY20E SOURCES OF FUNDS Share Capital - Equity 194 194 194 194 194 Reserves 2,598 2,846 3,586 4,300 5,119 Total Shareholders Funds 2,792 3,040 3,779 4,494 5,313 Minority Interest 41 55 77 97 118 Long Term Debt 618 1,073 689 539 389 Short Term Debt 2,058 1,507 1,327 897 747 Total Debt 2,676 2,580 2,016 1,436 1,136 Net Deferred Taxes 117 36 58 58 58 Long Term Provisions & Others 129 7 0 - - TOTAL SOURCES OF FUNDS 5,755 5,717 5,930 6,084 6,624 APPLICATION OF FUNDS Net Block 2,595 2,470 2,596 2,671 2,727 CWIP 48 88 148 248 348 Investments - 61 144 - - LT Loans & Advances 640 660 938 763 781 Total Non-current Assets 3,283 3,278 3,826 3,682 3,855 Inventories 1,447 1,723 1,580 1,838 2,050 Debtors 2,259 1,937 2,334 2,347 2,617 Other Current Assets 37 70 75 77 79 Cash & Equivalents 320 225 288 766 931 Total Current Assets 4,064 3,954 4,278 5,028 5,678 Creditors 899 994 1,187 1,219 1,360 Other Current Liabilities &Provns 693 521 986 1,407 1,550 Total Current Liabilities 1,592 1,515 2,174 2,626 2,910 Net Current Assets 2,472 2,439 2,104 2,402 2,769 TOTAL APPLICATION OF FUNDS 5,755 5,717 5,930 6,084 6,624 Page 5
Cash Flow (Consolidated) (Rs mn) FY16 FY17 FY18 FY19E FY20E Reported PBT 639 753 1,353 1,508 1,726 Interest expenses 185 170 142 93 74 Depreciation 319 323 310 325 344 Working Capital Change 141 (366) 135 345 (229) Tax Paid (207) (223) (424) (467) (535) OPERATING CASH FLOW ( a ) 1,077 659 1,515 1,804 1,380 Capex (192) (326) (408) (500) (500) Free cash flow (FCF) 885 332 1,107 1,304 880 Investments - 61 83 (144) - INVESTING CASH FLOW ( b ) (192) (265) (325) (644) (500) Debt Issuance/(Repaid) (488) 208 (564) (300) (300) Interest Expenses (185) (170) (142) (93) (74) FCFE 212 370 401 911 507 Share Capital Issuance Others - - - - - Dividend (281) (165) (242) (306) (351) FINANCING CASH FLOW ( c ) (845) (489) (1,128) (681) (716) NET CASH FLOW (a+b+c) 40 (95) 62 479 165 Closing Cash & Equivalents 320 225 287 766 931 Key Ratios (Consolidated) FY16 FY17 FY18 FY19E FY20E PROFITABILITY (%) GPM 61.2 62.5 61.6 60.8 60.8 EBITDA Margin 16.5 16.1 19.7 19.3 19.3 APAT Margin 6.2 7.1 10.6 10.7 11.0 RoE 15.7 17.7 26.6 24.7 23.9 RoIC (or Core RoCE) 11.2 12.3 20.5 23.4 25.4 RoCE 9.5 11.1 17.2 18.1 19.2 EFFICIENCY Tax Rate (%) 32.4 29.6 31.3 31.0 31.0 Fixed Asset Turnover (x) 1.30 1.43 1.69 1.81 1.97 Inventory (days) 78.3 86.7 67.5 70.5 70.5 Debtors (days) 122.2 97.4 99.6 90.0 90.0 Other Current Assets (days) 2.0 3.5 3.2 3.0 2.7 Payables (days) 48.6 50.0 50.7 46.7 46.7 Other Current Liab & Provns (days) 37.5 26.2 42.1 54.0 53.3 Cash Conversion Cycle (days) 116.4 111.4 77.5 62.7 63.2 Debt/EBITDA (x) 2.4 2.2 1.2 0.8 0.6 Net D/E (x) 0.8 0.8 0.5 0.1 0.0 Interest Coverage (x) 4.3 5.0 9.7 16.2 23.2 PER SHARE DATA (Rs) EPS 4.3 5.3 9.4 10.5 12.1 CEPS 7.6 8.7 12.6 13.9 15.6 Dividend 2.9 1.6 2.6 3.2 3.6 Book Value 28.8 31.4 39.0 46.4 54.8 VALUATION P/E (x) 36.9 30.0 17.1 15.2 13.3 P/BV (x) 5.6 5.1 4.1 3.5 2.9 EV/EBITDA (x) 16.1 15.3 10.2 8.8 7.6 EV/Revenues (x) 2.6 2.5 2.0 1.7 1.5 OCF/EV (%) 6.0 3.7 8.8 11.2 8.8 FCF/EV (%) 5.0 1.9 6.4 8.1 5.6 FCFE/Mkt Cap (%) 1.4 2.4 2.6 5.9 3.3 Dividend Yield (%) 1.8 1.0 1.6 2.0 2.3 Page 6
RECOMMENDATION HISTORY RECOMMENDATION HISTORY NRB 220 200 180 160 140 120 TP Date CMP Reco Target 24-May-17 112 BUY 161 31-May-17 118 BUY 161 14-Aug-17 112 BUY 161 11-Oct-17 128 BUY 161 7-Nov-17 143 BUY 172 9-Jan-18 171 BUY 192 15-Feb-18 166 BUY 204 12-Apr-18 161 BUY 204 23-May-18 158 BUY 217 Rating Definitions 100 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period Page 7
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