CRISIL IERIndependentEquityResearch

NRB Bearings Ltd

Initiating Coverage

Enhancing investment decisions

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Explanation of CRISIL Fundamental and Valuation (CFV) matrix

The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process Analysis of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental grade is assigned on a five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The valuation grade is assigned on a fivepoint scale from grade 5 (indicating strong upside from the current market price (CMP)) to grade 1 (strong downside from the CMP).

CRISIL Fundamental Grade

5/5 4/5 3/5 2/5 1/5

Assessment
Excellent fundamentals Superior fundamentals Good fundamentals Moderate fundamentals Poor fundamentals

CRISIL Valuation Grade

5/5 4/5 3/5 2/5 1/5

Assessment
Strong upside (>25% from CMP) Upside (10-25% from CMP) Align (+-10% from CMP) Downside (negative 10-25% from CMP) Strong downside (<-25% from CMP)

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Analyst Disclosure
Each member of the team involved in the preparation of the grading report, hereby affirms that there exists no conflict of interest that can bias the grading recommendation of the company.

Disclaimer:
This Company commissioned CRISIL IER report is based on data publicly available or from sources considered reliable. CRISIL Ltd. (CRISIL) does not represent that it is accurate or complete and hence, it should not be relied upon as such. The data / report is subject to change without any prior notice. Opinions expressed herein are our current opinions as on the date of this report. Nothing in this report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The subscriber / user assume the entire risk of any use made of this data / report. CRISIL especially states that, it has no financial liability whatsoever, to the subscribers / users of this report. This report is for the personal information only of the authorised recipient in India only. This report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person especially outside India or published or copied in whole or in part, for any purpose.

NRB Bearings Ltd

Supplier of precision engineering bearings to leading OEMs
Fundamental Grade Valuation Grade Industry 4/5 (Superior fundamentals) 5/5 (CMP has strong upside) Auto Components

January 02, 2014 Fair Value CMP CFV MATRIX

Excellent Fundamentals 5
Fundamental Grade

46 36

NRB Bearings Ltd, the fourth largest organised bearings player in India, manufactures customised bearings for leading domestic and global auto companies. Its strong engineering capabilities and customised product offering have ensured a steady relationship with its clients. Being positioned in the niche customised bearings segment, the company faces less competition from global bearing manufacturers such as SKF (Sweden), Timken (the US), who largely produce off-the-shelf bearings. As needle roller bearings constitute 50% of NRB Bearings revenues, it faces competition from the Schaeffler Group as the latter also produces needle roller bearings. We assign NRB Bearings a fundamental grade of 4/5, indicating its fundamentals are superior relative to other listed securities in India. Preferred supplier of customised bearings to leading OEMs Indigenous engineering capabilities and a proven track record of supplying customised bearings rank NRB Bearings as a preferred supplier to the domestic and global auto companies. Some of its key customers include Hero MotoCorp, Bajaj Auto, Maruti Suzuki, Renault Volvo, ZF Friedrichshafen AG, Getrag Transmissions Corporation and GKN Driveline. It works with many OEMs directly and indirectly from the conceptualisation stage to provide anti friction solutions. This helps it generate better EBITDA margin though it leads to lower asset turnover. Tapping global OEMs NRB Bearings exports to global OEMs such as Renault Volvo and Daimler Trucks. Association with global OEMs helps the company enhance its engineering capabilities and benchmark its quality against global standards. The companys exports constituted 21.7% of total revenues in FY13; exports grew at a CAGR of 66.3% during FY11-13. Strong focus on exports has enabled NRB Bearings to combat the current slowdown in the domestic automobile industry, which we expect to recover marginally in FY15. Key risk: Dependence on domestic auto (OEM) industry NRB Bearings is dependent on the domestic auto market (64% of FY13 revenues) which is susceptible to cyclicality. However, its diversified presence across various sectors (such as two-wheelers, three wheelers, four-wheelers and commercial vehicles, etc.) within the domestic auto market partially mitigates this risk. Revenues to increase at a CAGR of 10.3% over FY13-16 We expect revenues to increase at a CAGR of 10.3% to 7.9 bn during FY13-16 led by a likely recovery in the domestic auto market in FY15 coupled with growth in exports. We estimate EBITDA margin to improve in FY15 - after dropping in FY14 - following recovery in demand. We expect PAT CAGR of 11.9% as we expect operational efficiencies to kick in. Valuations: CMP has strong upside CRISIL Research has used the discounted cash flow method to value NRB Bearings and arrived at a fair value of 46. At the current market price of 36, the valuation grade is 5/5.

4 3 2 1

Poor Fundamentals

Valuation Grade
Strong Downside Strong Upside

KEY STOCK STATISTICS

NIFTY/SENSEX NSE/BSE ticker Face value ( per share) Shares outstanding (mn) Market cap ( mn)/(US$ mn) Enterprise value ( mn)/(US$ mn) 52-week range ()/(H/L) Beta Free float (%) Avg daily volumes (30-days) Avg daily value (30-days) ( mn) 6221/20888 NRB 2 96.9 3,488/57 6,180/102 42/29 0.9 37.2% 25,252 0.9

SHAREHOLDING PATTERN
100%
14.6% 14.8% 5.0% 7.9% 17.3% 1.2% 18.7% 17.1% 1.2% 19.0%

80% 60% 40% 20% 0%

5.1% 7.9%

72.4%

72.4%

62.8%

62.8%

KEY FORECAST (CONSOLIDATED)

( mn) Operating income EBITDA Adj net income Adj EPS ( ) EPS growth (%) Dividend yield (%) RoCE (%) RoE (%) PE (x) P/BV (x) EV/EBITDA (x) FY12 5,600 1,156 500 5.2 (13.0) 5.6 21.2 22.7 7.0 1.5 4.8 FY13 5,912 1,071 449 4.6 (10.3) 4.7 15.6 20.7 7.8 1.7 5.8 FY14E 6,211 1,084 374 3.9 (16.7) 3.6 15.9 17.7 9.3 1.6 5.4 FY15E 7,017 1,274 508 5.2 35.9 5.1 18.9 21.4 6.9 1.4 4.4 FY16E 7,942 1,466 629 6.5 23.8 6.7 20.7 23.2 5.5 1.2 3.9

Dec-12 Promoter

Mar-13 FII

Jun-13 DII

Sep-13 Others

PERFORMANCE VIS--VIS MARKET

Returns 1-m NRB Bearings CNX 500 9% 1% 3-m 22% 10% 6-m 6% 7% 12-m 10% 1%

ANALYTICAL CONTACT
Mohit Modi (Director) Elizabeth John Vishal Rampuria Client servicing desk +91 22 3342 3561 clientservicing@crisil.com mohit.modi@crisil.com elizabeth.john@crisil.com vishal.rampuria@crisil.com

NM: Not meaningful; CMP: Current market price Source: Company, CRISIL Research estimates

For detailed initiating coverage report please visit: www.ier.co.in CRISIL Independent Equity Research reports are also available on Bloomberg (CRI <go>) and Thomson Reuters.

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Table 1: NRB Bearings - Business environment

Domestic (OEM) Revenues contribution - FY13 Revenues contribution - FY16E Sales (FY11-13) - two-year CAGR Sales CAGR (FY13-16E) Key products/ service offering 64.4% 53.7% 4.1% 4.1% Big end bearings Key customers Bush bearings Crank pins Cylindrical bearings Specialised ball bearings Steering column bearings Tapered roller bearings Ashok Leyland Ltd Bajaj Auto Ltd Hero MotoCorp Ltd Honda Motorcycle & Scooters India Ltd Mahindra and Mahindra Ltd Tata Motors Ltd Daimler Trucks Getrag Transmissions Corporation (Worlds largest supplier of transmission systems to passenger /commercial vehicles) GKN Driveline (European automotive and aerospace player) Renault Volvo (European truck manufacturer) ZF Friedrichshafen AG (Germanybased global leader providing driveline technology to auto OEMs ) Increased mining of existing customers through new product development New client acquisitions Deeper penetration and wider range of specialised bearings Sold through dealers Exports 21.7% 32.4% 66.3% 26.5% Needle and cylindrical bearings Planetary shafts Polyamide cages Rings and sleeves Specialised ball and tapered roller bearings Aftermarket (Replacement) 13.9% 13.9% -2.8% 10.6% Ball bearings Big end bearings Bush bearings Crank pins

Demand drivers

Growth in the domestic automobile market Increased mining of existing clients through new product development New client acquisition / entry in new segments Unlisted player in India - INA Bearings

Key competitors Key risks

Listed players in India - SKF India, FAG Bearings and Timken India Cyclicality in the automobile industry Foreign currency risk

Note: SKF India, FAG Bearings India and global peers such as Timken (the US) and SKF have financial year ending in December. Source: Company, CRISIL Research

Needle roller bearings (constitute ~50% of NRB Bearings revenues)

Bearing is a machine element used to support load and reduce friction in moving parts. The bearings industry is classified into a) bimetal bearings and b) antifriction bearings (which include ball bearings and roller bearings). The rolling element acts as a differentiator in a bearing. Roller bearings are named after the rollers shape, such as cylindrical roller bearings, needle roller bearings, tapered roller bearings, spherical roller bearings and thrust roller bearings. The choice of bearing primarily depends on revolutions per minute (RPM) and load. Needle roller bearings are typically customised bearings as against ball bearings which are generally off-the-shelf bearings. Needle roller bearings are used in medium RPM, high-load requirements compared to ball bearings which are used in high RPM, medium-load requirements. For compact size applications, typically needle roller bearings are preferred. Two-wheeler machinery is more compact than four-wheeler machinery; hence, needle roller bearings are largely used in two-wheelers.

NRB Bearings Ltd

Grading Rationale
Engineering capabilities rank it as a preferred supplier of customised bearings to leading OEMs
NRB Bearings, the fourth largest (11% market share by sales) organised bearings player in India, manufactures customised bearings for the mobility segment (automobiles, off-highway vehicles such as construction equipment, tractors, etc.). Needle roller bearings constituted ~50% of its revenues in FY13. The company holds a dominant position in the domestic needle roller bearings market with ~70% share (by sales).

Figure 1: Has 11% share in organised bearings market...

Indian Bearing Industry (estimated at 90 bn. Out of this,40% is met through imports)

Figure 2: ...and around 70% share in needle roller bearings

Indian Bearing Industry 90-95 bn Roller Bearings (52% share)

Ball Bearings (48% share)

SKF India (41% share)

FAG Bearings* (26% share)

Timken India (13% share)

NRB Bearings (11% share)

INA Bearings* (10% share)

*FAG Bearings and INA Bearings are part of Schaeffler Technologies Based on FY13 sales value Source: Companies, CRISIL Research

Tapered roller bearing (42% share)

Cylindrical roller bearing (29% share)

Spherical roller bearing (17% share)

Needle roller bearing (9% share)

Thrust roller bearing (4% share)

Source: Industry, CRISIL Research

Figure 3: Needle roller bearings dominate NRBs revenues

Others 22% Cylinder roller bearings 16%

NRB holds a dominant position

Ball Bearings 8%

in the domestic needle roller bearing market with ~70% share (by sales)

Spherical roller bearings 1% Needle bearings, bushes , cages and rollers 50%

Taper roller bearings 3%

Others include crank pins, hub pins, etc. (as on 9MFY13) Source: Company, CRISIL Research The companys Engineering and Design R&D Centre, set up in 2000, employs 40 dedicated engineers (from reputed institutes such as Indian Institute of Technology, Birla Institute of Technology and Science etc). As bearings are used in critical automobile applications (such as gearbox/transmission system and steering systems), the company has laid down stringent control over processes such as heat treatment, grinding, etc. to ensure quality of bearings. As NRBs bearings are largely used for critical applications, the quality standards are important.

CRISIL IERIndependentEquityResearch

Table 2: NRB Bearings product usage in critical applications

Products Polyamide cages Needle bushes Big end bearings Crank pins Source: Company Technology is a significant entry barrier : Precision is required to make customised bearings; certain crank pins and needles require 2 micron grades and 2.499 micron grades of size, respectively, in diameter. A small variation in size could lead to rejection. This leads to significant entry barriers for new players. The bearings industry requires technology and technical knowhow. Engagement with the clients from the conceptualisation phase itself has ensured a steady relationship with leading OEMs across the automobile industry two/three-wheelers, commercial vehicles, passenger cars, off-highway vehicles, etc. It strategically targets the leading automobile OEMs. It is a tier I (direct supplier) supplier to leading domestic OEMs such as Hero MotoCorp, Bajaj Auto, Tata Motors, Maruti Suzuki and Ashok Leyland; and tier I/II (direct and indirect supplier) supplier to reputed global players such as Renault Volvo, Daimler Trucks, ZF Group, and Getrag Group. Critical automobile application Gearbox Gearbox / steering Engine Engine

Figure 4: Domestic automobile OEMs dominate sales

Revenue mix
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 11.3% FY08 Exports 15.6% FY09 7.8% FY10 9.6% FY11 14.0% FY12 21.7% FY13 71.6% 65.5% 72.9% 72.5% 70.6% 64.4% 17.1% 18.9% 19.3% 17.9% 15.3% 13.9%

Figure 5: Two-wheeler OEMs 48% of domestic (OEM) sales

Others - state transport utilities and defence 0.2% Farm equipment off highway 11.2% Two-wheeler (2W) 47.4%

Passenger Car 14.2%

Domestic (OEM)

Replacement/ After m arket

Commercial vehicles (CV) 27.0%

FY13 domestic sales break-up Source: Company, CRISIL Research Source: Company, CRISIL Research

NRB Bearings Ltd

Reasons for high contribution from two-wheeler OEMs in domestic sales

In volume terms, the industry size of two-wheelers is 15.7 mn units whereas the size of four-wheelers is 2.5 mn as of FY13. In value terms, the four-wheeler industry is ~1 trillion, almost double the 0.6 trillion two-wheeler industry. However, percentage of needle bearings used in two-wheelers is higher than that used in four-wheelers. Typically, the mix between needle and ball bearings in two-wheelers is 60:40, compared to four-wheelers where it could be 35:65. Further, the two-wheeler industry is less cyclical than the four-wheeler industry and this has helped the company during the current slowdown. In value terms, NRB Bearings holds ~5% share in the bearing requirement of the twowheeler industry compared to ~3% in the four-wheeler industry. However, for needle/ roller bearings, the share is much higher.

NRB Bearings domestic twowheeler sales recorded a fiveyear CAGR of 16% during FY0813, in line with the two-wheeler industry.

The global bearings industry is dominated by large manufacturers such as SKF, Timken and Schaeffler Technologies; it is an oligopolistic market as these three players together have more than 60% share. However, NRB Bearings focuses on the niche customised bearings segment which helps it to differentiate itself from the global bearing manufacturers who largely focus on off-the-shelf bearings. As needle roller bearings constitute 50% of NRB Bearings revenues, it faces competition from the Schaeffler Group as the latter also produces needle roller bearings.

Figure 6: Global bearings industry is an oligopolistic market

Global Bearing Industry (estimated at 3 trillion)

Automotive segment/ mobile industries (0.9 trillion)

Industrial segment ( 1.3 trillion)

Af ter market segment (0.9 trillion)

1 Euro = 85.2; 1 US$ = 61; 1 SEK =9.44 Source: Companies, Industry, CRISIL Research Also, as NRB Bearings produces a wide range of customised bearings, it does not face any threat from Chinese bearing players who play the volume game with off-the-shelf products.

Diversified client base minimises concentration risk

NRB Bearings client portfolio is well diversified no client has more than 10% share; its top customer had 9% share in FY13. Though contribution of top 10 customers increased to 49% in FY13 from 41% in FY11 the constitution within top 10 clients has changed over the years.

CRISIL IERIndependentEquityResearch

Figure 7: Diversified clientele (domestic + exports)

50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% FY09 Top customer FY10 FY11 Top 5 custom ers FY12 FY13 8% 10% 9% 9% 9% 31% 41% 44% 35% 33% 43% 34% 47% 31% 49%

Top 10 customers

Source: Company, CRISIL Research

Table 3: Key customers

Category Two-wheeler OEMs Passenger/commercial vehicle/utility vehicle OEMs Transmission systems for passenger vehicles/commercial vehicles Automotive components Tractor/agriculture machinery Source: Company Based India India Germany British / USA USA Key Customers Hero MotoCorp Ltd, Honda Motorcycle & Scooter India Pvt. Ltd, Bajaj Auto Ltd, TVS Motor Co Ltd Tata Motors Ltd, Mahindra & Mahindra Ltd, Maruti Suzuki India Ltd, Ashok Leyland Ltd Getrag Group, ZF Group GKN Driveline, Meritor John Deere

Tapping global OEMs

NRB Bearings exports to global OEMs such as Renault Volvo and Daimler Trucks. Association with global OEMS helps the company enhance its engineering capabilities and benchmark its quality to global standards. Some of these global OEMs are potential entrants into India going forward, while some are already established (e.g. Volvo). The company exports to Europe, the US and Latin America. Its total exports increased at a healthy CAGR of 66.3% during FY11-13; the contribution of exports to total sales increased to 21.7% in FY13 from 9.6% in FY11.

NRB Bearings Ltd

Figure 8: Exports 66.3% CAGR in FY11-13

( mn) 1,400 1,200 1,000 800 600 400 200 450 0 FY09 FY10 Exports FY11 FY12 FY13 271 446 759 1,234 -60% -40% 24% 65% 70% 63% 80% 60% 40% 20% 0% -20% -40%

In the long term, growth of the automotive market largely hinges on the expected recovery of the Indian economy and, consequently, an improvement in consumer sentiments

y-o-y growth (RHS)

Source: Company, CRISIL Research Exports help to reduce the impact of volatility in the domestic automobile market, which has been going through a difficult phase with muted sales across categories. In FY13, although domestic sales declined by 4% y-o-y (constituting 64.4% of total sales), the companys total revenues grew by 5.6% y-o-y because export sales increased by 63% during the same period.

Table 4: Automobile industrys volume growth and outlook

FY13 Two-wheeler Commercial vehicles Passenger car and utility vehicles Tractors Source: CRISIL Research CRISIL Research expects growth in the automobile industry to be subdued in the short term on the back of weak consumer sentiments, high fuel prices and high interest rates. Accordingly, we expect NRB Bearings domestic revenues to remain muted in FY14 and recover marginally in FY15 with a 7% growth. We forecast its export revenues to increase at a CAGR of 26.5% during FY13-16 driven by new products and clients. The companys export growth will help to combat the domestic slowdown in FY14. 2.8% -2% 2% 1.7% FY14E 4 to 6% -6 to-8% -8 to -10% 7 to 10% Five-year CAGR (FY13-18) 9 to 11% 10 to12% for MHCVs and 13 to16% for LCVs 10 to12% 7 to 9%

Aftermarket segment offers opportunities to de-risk revenues

The aftermarket segment constituted 13.9% of NRB Bearings total sales in FY13. Currently, most of its aftermarket sales are largely to the two/three-wheeler industry through a 250strong dealer network. Bearings ideally should get replaced when the vehicle completes 10,000 kms. NRB Bearings aftermarket revenues decreased by 3% CAGR to 791 mn during FY11-13 as the company focussed largely on exports and domestic sales to OEMs. Since Q2FY14, the company has been focussing on the aftermarket segment, especially on off highway segment. It has launched various products in the aftermarket segment. We expect the companys sales in the aftermarket segment to increase at a CAGR of 10.6% during FY13-16.

Typically, whenever there is any noise in the machine, there could be a need for bearing replacement

CRISIL IERIndependentEquityResearch

Post demerger, NRB Bearings to cater to mobility segment

The industrial bearings division of NRB Bearings was demerged into NRB Industrial Bearing Ltd (NIBL) on October 1, 2012. NRB Bearings continues to be managed by Ms. Harshbeena Zaveri and NIBL is managed by her brother, Mr. Devesh Sahney. The demerger agreement mandates NRB Bearings to cater to mobility segment and NIBL to the process industry segment. However, on expiry of the demerger agreement, there will be no such restriction for either company. Currently, NRB Bearings focuses largely on auto OEMs and we expect this to continue in the near to medium term. As highlighted earlier, we expect the automobile industry to post doubledigit growth in the long term following an expected recovery of the Indian economy and, consequently, an improvement in the consumer sentiments.

NRB Industrial Bearings was demerged with effect from October 2012

Highlights of demerger and its impact on NRB Bearings financials

Under the demerger scheme, NIBL shares were allotted to all equity shareholders of NRB Bearings in the ratio 1:4. Post the demerger of its industrial bearings division into the wholly owned subsidiary NIBL in October 2012, NRB Bearings consolidated FY13 revenues grew 6% y-o-y, while PAT declined 10% y-o-y.

Table 5: Demerger of industrial bearings division had insignificant impact on NRB Bearings financials
FY12 ( mn) Revenues Profit before tax Source: Company Owing to the demerger, NRB Bearings net worth has been reduced by 618 mn in FY13 which relates to the excess of assets over liabilities of the industrial bearings business. This led to an expansion of NRB Bearings leverage to 1.4x in FY13 from 1.1x in FY12. NRB Bearings leverage is higher than that of global bearing players. Debt Equity Ratio SKF (Sweden) Timken (US) NRB Bearings Source: Companies FY11 0.6 0.3 0.6 FY12 0.6 0.3 1.1 FY13 0.7 0.2 1.4 Industrial bearings division 347 57 NRB Bearings consolidated 5,600 733 Share of industrial bearings division 6% 8%

Generates healthy EBITDA margin...

NRB Bearings has better EBITDA margin than its peers because of the following: Production of a wide range of high-margin, low-volume bearings (50% of which are needle bearings): Margins of global bearing manufacturers such as SKF (Sweden) and Timken (the US) are relatively lower than that of NRB Bearings because these global players largely focus on off-the-shelf products. NRB Bearings EBITDA margin is not comparable with that of domestic bearing players such as INA India, FAG India and Timken India as these players also generate sales through trading operations which fetch lower margins.

NRB Bearings Ltd

Integrated operations NRB Bearings has integrated operations - from engineering and design, needle / rollers in-house manufacturing, heat treatment, testing to final assembly of bearings. Our channel checks indicate that other players such as INA Bearings import rollers, while SKF India produces a limited quantity indigenously.

Most of the indigenously produced rollers are captively consumed

Loose needle rollers (000s) Utilisation (%) Sales/production Captive utilisation Source: Company FY10 FY11 FY12 FY13 66% 33% 67% 53% 36% 64% 80% 28% 72% 70% 27% 73%

Due to better EBITDA margin but low asset turnover, the company has moderate RoCE of 15.6% (in line with that of peers).

Figure 9: Better EBITDA margin...

(%) 30.0 25.0 20.0 15.0 10.0 5.0 0.0

Figure 10: ... but low gross asset turnover...

(x)

4.0 3.0
24.1 20.6 18.1 17.2 16.1 14.0 9.9 16.0 18.0 22.1 21.0 18.3 18.0 19.6 16.3 13.2 13.0 11.8 15.4 13.5 10.4 6.6 13.3 2.5 3.0 2.7 2.7 2.9 2.5 3.7 2.8 Timken India
47.7 60.0

3.1 3.4 3.3

2.0
1.2 1.2 1.2 1.2 1.5 1.4

1.0 0.0

SKF (Sweden)

NRB Bearings

Tim ken (the US)

Tim ken India

Schaeffler (Germ any)

FAG Bearings India

INA Bearings

1.7 1.9 1.9

SKF (Sweden)

NRB Bearings

Schaeffler (Germany)

SKF India

FAG Bearings India

Timken (the US)

FY11

FY12

FY13

FY11

FY12

FY13

Note: SKF India, Timken India and FAG Bearings India have trading sales Source: Company, CRISIL Research Source: Company, CRISIL Research

Figure 11: ... lead to moderate RoCE than peers

INA Bearings Tim ken India SKF India FAG Bearings India Schaeffler (Germ any) Tim ken (the US) SKF (Sweden) NRB Bearings 0.0 10.0 6.7 6.9 10.5 18.1 16.8 15.6 21.6 19.3 15.6 21.2 30.0 31.2 40.0 4.7 15.0 17.1 17.1 20.4 25.5 32.4 0.5 27.6 30.1 30.9 35.8

Figure 12: High leverage leads to better RoE

INA Bearings Timken India SKF India FAG Bearings India Schaeffler (Germany) Timken (the US) SKF (Sweden) NRB Bearings 0.0 FY13 2.5 13.5 14.2 16.7 22.8 22.2 22.4 26.8 23.9 36.4 15.7 23.3 23.0 22.1 20.7 22.7 20.0 (%) FY12 30.0 28.3 30.1 40.0 FY11 31.5

19.1

2.2

20.0 (%)

FY13

FY12

FY11

Note: NRB Bearings leverage is 1.4x in FY13 compared to 0.7x and 0.2x for SKF (global peer) and Timken (the US) Source: Company, CRISIL Research Source: Company, CRISIL Research

SKF India

2.3

CRISIL IERIndependentEquityResearch

... but elongated working capital cycle

NRB Bearings inventory days are relatively higher than that of other bearing manufacturers such as FAG and SKF India on account of the following: To provide an extensive range of products it is crucial for NRB Bearings to stock a significant quantity of products. Our channel checks indicate that INA Bearings product range is limited compared to that of NRB Bearings. Also, SKF Indias regular product range comprises 150160 types of bearings, whereas it NRB Bearings product range includes 500-600 types of bearings.

Figure 13: Inventory break-up

Stores and spares 12% Raw m aterial 25%

Figure 14: Higher inventory than other manufacturers

(days) 140 120 100 80 60 40 20 0

125 129 127

83 76 70

59 61 46

110 84 93
FY13

102 104 103

90 86 92

Schaeffler (Germany)

54 51 51

Tim ken (the US)

SKF (Sweden)

NRB Bearings

FAG Bearings India

Finished goods 37%

Work in Progress 26%

FY11

FY12

As of FY13 Source: Company, CRISIL Research Source: Company, CRISIL Research

10

INA Bearings

Timken India

SKF India

53 54

NRB Bearings Ltd

Key Risks
Dependence on domestic OEMs; cyclicality of the industry
NRB Bearings is dependent on the domestic auto market. The company derives almost 64% of its revenues from the domestic automotive industry which experiences cyclicality. However, its diversified presence across various sectors (such as two-wheelers, three wheelers, fourwheelers and commercial vehicles to name a few) within the domestic auto market mitigates this risk. Though we expect the automobile industrys growth to marginally improve in FY15, higherthan-expected delays may affect financials and, consequently, the valuations. NRB Bearings dependence on exports also provides a fillip to its revenues.

Foreign currency volatility

In rupee terms, the foreign currency loan as on March 31, 2013 was 1.1 bn, representing 46% of total borrowings. The company exported 1.4 bn of products in FY13. The company remains a net exporter, which provides a natural hedge to the foreign currency borrowings.

Volatility in raw material prices

There could be a challenge to pass through the significant increase in raw material costs, which is an industry-wide phenomenon. For instance, one of the factors for low profitability in FY09 was the companys inability to pass on the sharp increase in raw material costs (steel and oil) entirely to its customers.

11

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Financial Outlook
Revenues to rise at CAGR of 10.3% to 7.9 bn during FY13-16
We estimate consolidated revenues to increase at a three-year CAGR of 10.3% to 7.9 bn in FY16 driven by exports and a likely recovery in the domestic automobile market. We forecast exports to increase at a CAGR of 26.5% during FY13-16 fuelled by client additions and by mining the existing client base. We expect revenues of the domestic automobile segment to increase over FY13-16E to 4.1 bn at 4.1% CAGR following improvement in demand scenario from FY15 onwards. As domestic sales constitute a major portion of total sales, the growth of the domestic automobile industry would be a key determinant of the companys performance.

Revenues: CAGR of 10.3% during FY13-16

Figure 15: Three-year revenue CAGR of 10.3% over FY13-16

( mn) 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 FY11 FY12 4,817 5,600 5.6 5,912 FY13 5.1 6,211 FY14E 7,017 FY15E 7,942 FY16E 16.3 13.0 13.2 34.7 (%) 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0

Figure 16: Contribution of exports to sales to increase

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 10% FY11 Exports 14% FY12 22% FY13 26% 26% 30% 33% 72% 71% 64% 61% 59% 56% 54% 18% 15% 14% 13% 14% 15% 13%

H1FY14 FY14E

FY15E

FY16E

Revenues

% growth y-o-y (RHS)

Domestic (OEM)

Replacement/ After market

Source: Company, CRISIL Research

Source: Company, CRISIL Research

EBITDA margin estimated to be 18.5% in FY16

CRISIL Research expects the companys EBITDA margin to be 18.5% in FY16, following improvement in demand scenario.

Figure 17: Trend in EBITDA margin

( mn) 1,600 1,400 1,200 1,000 800 600 400 200 FY11 FY12 EBITDA FY13 FY14E FY15E FY16E 5% 1,162 1,156 1,071 1,084 1,274 1,466 0% 24.1% 20.6% 18.1% 17.5% 18.2% 18.5% 25% 20% 15% 10% 30%

EBITDA margins (RHS)

Source: Company, CRISIL Research

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NRB Bearings Ltd

PAT to increase at 11.9% CAGR during FY13-16

We expect PAT to decline to 374 mn in FY14 compared to 449 mn in FY13 as we have raised the tax rate to 27% from FY14 onwards compared to 20% in FY13. This is largely due to the 30% tax exemption at the companys Pantnagar plant compared to 100% earlier. We expect profitability to improve in FY15 and further in FY16 following a) a likely recovery in the domestic automobile market, b) EBITDA margin improvement and c) operating leverage starts.

Figure 18: PAT margin of 7.9% expected in FY16

( mn) 700 600 500 400 300 200 100 0 FY11 FY12 FY13 FY14E FY15E FY16E 575 500 449 374 508 629 -100 -13 -10 -17 36 24 164 (%) 200 150 100

Figure 19: Return ratios to improve, after declining in FY14

(%)

35.0 30.0

31.2

30.1 25.0 22.7 20.7 21.2 15.6 10.0 FY11 FY12 RoE FY13 FY14E FY15E RoCE 17.7 21.4

23.2

50 0 -50 20.0 15.0

20.7 18.9 15.9

FY16E

Adjusted PAT

Adjusted PAT margins (RHS)

Source: Company, CRISIL Research

Source: Company, CRISIL Research

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CRISIL IERIndependentEquityResearch

Management Overview
CRISILs fundamental grading methodology includes a broad assessment of management quality, apart from other key factors such as industry and business prospects, and financial performance.

Experienced management
Mr. Trilochan Singh Sahney, Executive Chairman, is the founder promoter of NRB Bearings. He has handed over the operational management to his daughter - Ms. Harshbeena Zaveri currently the Managing Director and President of the company. She has almost 26 years of experience in the bearings industry. Under her leadership, the company set up the R&D centre and increased export sales by tapping leading global automobile OEMs. She is also the chairman of the board of SNL Bearings (subsidiary).

Managing Director and President Harshbeena Zaveri featured in Fortune Indias The Most Powerful Women in Business in November 2012

Strong focus on in-house R&D

NRB Bearings set up an in-house Research and Development Centre in India in 2000. The R&D initiative has enabled the company to position itself as a customised bearings supplier for high-end /critical applications offering a wide and diversified product range.

Strong second line of management

NRB Bearings management has a professional approach towards managing the company. It has inducted various professionals from the industry at the senior and mid-management levels who have significant experience in the bearings industry. Dr. S T Salunke, MBA in Engineering Management from US and UK, is the Vice President of the Engineering Centre, Thane. He has been associated with the company for over 13 years. He has previously worked with FAG Bearings in the R&D, product and process development department. Mr Hemant Jog is Vice President, Manufacturing and heads the Waluj plant in Aurangabad. He holds a Bachelors degree in Mechanical Engineering and Post Graduate Diploma in Materials Management. He has 28 years of experience in the bearings industry. Mr Sumit Mitra, MBA from IIM Calcutta, heads the international business and supply chain. He has 16 years of experience in bearings, precision auto component and other industries. He has previously worked at Honeywell Automation, SRF Group, Dalmia Cement, etc. Ms. Tanushree Bagrodia has recently joined the company as CFO. She is an INSEAD MBA graduate and has substantial experience in the investment banking industry.

Senior leaderships involvement in business is high

The managing director (MD) is deeply involved in decision-making on key issues. As mentioned above, the company also has a strong second line of professional management team that supports decision-making and subsequent execution. Even though the MD is not near retirement age, succession planning is a monitorable as her kin are not inducted into the business.

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NRB Bearings Ltd

Corporate Governance
CRISILs fundamental grading methodology includes a broad assessment of corporate governance and management quality, apart from other key factors such as industry and business prospects, and financial performance. In this context, CRISIL Research analyses the shareholding structure, board composition, typical board processes, disclosure standards and related-party transactions. Any qualifications by regulators or auditors also serve as useful inputs while assessing a companys corporate governance. Corporate governance at NRB Bearings is good. It is supported by strong board and efficient board practices. Further, it adheres to all regulatory requirements.

Board composition currently complying with the listing norms

Currently, the board of NRB Bearings consists of eight members, of whom one is an executive chairman and four are independent directors, thus meeting the requirements under Clause 49 of SEBIs listing guidelines. During October 2012 to May 2013, the board composition did not comply with SEBIs listing norms - Independent directors constituted 43% of the board instead of at least 50% as per SEBIs requirement. This was because Mr. S.C. Rangani was appointed as an executive director in October 2012 which reduced the number of independent directors.

Corporate governance at NRB Bearings is good

In May 2013, Mr. Tashwinder Singh was appointed as an independent director and now 50% of the board constitutes of independent directors. Mr. S.C. Rangani was appointed as the executive director and company secretary on the board in October 2012. He has worked for more than two decades with NRB Bearings across various departments finance, IT, legal and secretarial. He has four decades of experience in the manufacturing industry. He has been a key member of the top management team. The independent directors are highly qualified, have strong industry experience and have been on the board for more than three years. Mr. Tashwinder Singh, Director at KKR, a private equity firm, was inducted as an independent director in May 2013. Prior to joining KKR, he worked with Citigroup for 18 years across various divisions. There was almost full attendance in all the board meetings held in FY13.

Board processes
The company has audit and shareholders grievance committees in place to support corporate governance practices. Both these committees are chaired by an independent director - Dr. (Ms.) Kala Pant, who has been on the board for over a decade. Dr. Pant has conducted post graduate doctoral research in banking and transport. Currently, she is on the board of I.F.B. Agro as a nominee director on behalf of UTI. In the past, she has served as nominee director on the board of various public limited companies.

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CRISIL IERIndependentEquityResearch

Valuation

Grade: 5/5

CRISIL Research has used the discounted cash flow method (DCF) to value NRB Bearings and arrived at a fair value of 46 per share. The fair value implies P/E multiples of 8.8x and 7.1x in FY15E and FY16E EPS, respectively. At the current market price of 36, the valuation grade is 5/5.

Key DCF assumptions

We have considered the discounted value of the firms estimated free cash flows from FY14 to FY23. We have assumed a terminal growth rate of 3% beyond the explicit forecast period until FY23.

WACC computation
FY14-23 Cost of equity Cost of debt (post tax) WACC Terminal growth rate 18.6% 8.7% 15.1% Terminal value 18.6% 8.7% 15.1% 3%

Terminal growth rate 1.0% Terminal WACC 13.6% 14.6% 15.6% 16.6% 17.6% 49 46 44 42 40 2.0% 50 47 45 43 41 3.0% 53 49 46 44 42 4.0% 55 51 48 45 43 5.0% 58 54 50 47 44

One-year forward P/E band

() 90 80 70 60 50 40 30 20 10 0
Apr-08 Apr-09 Aug-13 Apr-10 Apr-11 Apr-12 Aug-08 Aug-09 Aug-10 Aug-11 Aug-12 Apr-13 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13

One-year forward EV/EBITDA band

( mn) 12,000 10,000 8,000 6,000 4,000 2,000 0
Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Aug-08 Aug-09 Aug-10 Aug-11 Aug-12 Apr-13 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Aug-13

NRB 9x

6x 12x

8x 15x

EV

3x

4x

5x

8x

Source: NSE, CRISIL Research

Source: NSE, CRISIL Research

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NRB Bearings Ltd

P/E premium / discount to CNX 500

0% -10% -20% -30% -40% -50% -60% -70%

P/E movement
(Times) 25 20 15 10 5 0 -1 std dev +1 std dev

Jan-10

Jan-11

Jul-10

Jan-12

Jan-13

Jan-14

Jul-09

Jul-11

Jul-12

Oct-09

Oct-10

Oct-11

Oct-12

Jul-13

Apr-09

Apr-11

Apr-12

Apr-13

Apr-10

Oct-13

-5
Jul-09 Jul-10 Jul-11 Jul-12 Oct-09 Oct-10 Oct-11 Oct-12 Jul-13 Jan-10 Jan-11 Jan-12 Jan-13 Oct-13 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Jan-14

Premium/Discount to CNX 500 Median premium/discount to CNX 500

1yr Fwd PE (x)

Median PE

Source: NSE, CRISIL Research

Source: NSE, CRISIL Research

Peer valuation comparison

Company NRB Bearings Ltd* Bearings Manufacturers Domestic Fag Bearings India Ltd SKF India Ltd Timken India Ltd Average Median Global Timken SKF Currency bn Market cap 5 FY13 7.8 P/E FY14 9.3 FY15 6.9 FY13 1.7 P/B FY14 1.6 FY15 1.4 EV/EBITDA FY13 FY14 FY15 5.8 5.4 4.4 FY13 20.7 ROE FY14 17.7 FY15 21.4

bn bn bn

26 35 12

12.7 13.7 24.9 17.1 13.7 17.2 19.5

20.1 19.6 NA 19.8 19.8 18.3 17.0

15.8 16.5 NA 16.2 16.2 14.9 13.3

1.9 2.7 2.5 2.4 2.5 2.0 3.4

2.7 2.8 NA 2.7 2.7 NA 3.0

2.3 2.5 NA 2.4 2.4 NA 3.4

10.9 12.3 15.1 12.8 12.3 7.9 10.8

12.9 13.3 NA 13.1 13.1 8.1 9.2

12.9 13.3 NA 13.1 13.1 7.2 7.6

19.8 17.5 13.5 16.9 17.5 14.1 23.3

14.4 14.2 NA 14.3 14.3 14.1 20.1

17.4 15.4 NA 16.4 16.4 21.4 23.8

US$ bn US$ bn

5 12

Source: CRISIL Research estimates*, Industry sources

Auto Component sector valuation comparison

Company Currency Auto Component Manufacturers Domestic Motherson Sumi Systems Ltd bn Mahindra Forgings Ltd bn Setco Automotive Ltd bn Sundram Fasteners Ltd bn Munjal Showa Ltd bn Automotive Axles Ltd bn Average Median Global Delphi Automotive PLC US$ bn Denso Corp JPY bn Valeo SA Eur bn Average Median Source: Industry sources Market cap FY13 P/E FY14 FY15 FY13 P/B FY14 FY15 EV/EBITDA FY13 FY14 FY15 FY13 ROE FY14 FY15

170 6 2 10 3 4

38.3 NA 7.7 10.2 4.6 29.4 18.1 10.2 13.0 24.5 11.8 16.4 13.0

19.8 NA 7.8 8.1 4.1 22.3 12.4 8.1 14.1 16.1 14.9 15.0 14.9

14.7 12.0 5.1 7.1 3.7 9.6 8.7 8.3 12.4 15.4 12.4 13.4 12.4

5.9 0.8 1.0 1.4 0.9 1.3 1.9 1.2 6.2 1.8 2.6 3.5 2.6

4.5 0.7 0.9 1.2 0.8 NA 1.6 0.9 4.4 1.6 2.2 2.8 2.2

5.9 0.8 1.0 1.1 0.7 NA 1.9 1.0 6.2 1.8 2.6 3.5 2.6

13.0 27.1 6.6 6.8 2.4 7.7 10.6 7.3 8.2 10.0 4.4 7.5 8.2

8.2 7.6 7.3 6.3 2.3 NA 6.4 7.3 8.7 7.6 5.4 7.2 7.6

6.5 5.6 4.7 6.3 2.3 NA 5.1 5.6 7.9 7.1 4.8 6.6 7.1

21.4 -14.0 16.6 18.9 29.2 17.5 14.9 18.2 49.3 8.4 17.7 25.2 17.7

32.6 43.1 13.2 16.6 20.2 6.2 22.0 18.4 48.2 11.1 18.0 25.8 18.0

33.7 58.4 18.3 16.1 18.7 13.8 26.5 18.5 43.7 10.9 18.9 24.5 18.9

19 4,907 6

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CRISIL IERIndependentEquityResearch

Company Overview
The company was incorporated in 1965 as Needle Roller Bearing Company Ltd. It was set up as a joint venture (30% stake) with French needle bearings manufacturer Nadella SA (which was later on acquired by Timken France) which gave technological support. In 2005, NRB promoters bought the stake held by Timken.

Top fourth largest bearing company in India (organised), in terms of sales

Manufacturing facilities
NRB Bearings has eight manufacturing plants one each in Waluj, Jalna, Chikalthana (Aurangabad) and Thane (Maharashtra), Pantnagar (Uttarakhand), Hyderabad (Andhra Pradesh), Ranchi (Jharkhand) and Rayong (Thailand). NRB Bearings has total capacity to produce 144 mn pieces as of FY13. Waluj and Jalna plants constitute more than 80% of the companys bearings production.

It has a product range of over 3,000 different sizes of bearings

Bearings capacity and utilisation

(mn) 160 140 120 100 80 60 40 68% 70% 65% 60% FY08 Capacity FY09 FY10 Production FY11 FY12 FY13 80% 76% 81% 77% 82% 85% 80% 75%

Domestic sales dominates revenue mix

Revenue mix
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 11.3% FY08 Exports 15.6% FY09 7.8% FY10 9.6% FY11 14.0% FY12 21.7% FY13 71.6% 65.5% 72.9% 72.5% 70.6% 64.4% 17.1% 18.9% 19.3% 17.9% 15.3% 13.9%

127

103

144

112

144

81

65

86

59

99

75

20

Blended utilisation (RHS)

118

Domestic (OEM)

Replacement/ After m arket

Includes needle roller bushes, cages, ball and roller bearings Excludes subsidiaries capacity and production Source: Company, CRISIL Research

Based on standalone revenues Source: Company, CRISIL Research

It has also set up four marketing offices in Pune, Delhi, Bengaluru and Kolkata with 11 warehouses in India.

Subsidiaries and demerged entity

NRB Bearings has two subsidiaries, SNL Bearings (73.7% stake) and NRB Bearings Thailand (wholly-owned). In October 2012, NRB Bearings demerged its industrial bearings division into a wholly owned subsidiary - NRB Industrial Bearings Ltd.

Company structure
NRB Bearings (M Cap 3,550 mn) 73.7% holding SNL Bearings (M Cap 70 mn) NRB Industrial Bearings [Demerged from NRB Bearing effective Oct 2012] (M Cap 180 mn)

Subsidiaries contribution is miniscule in consolidated financials

100% holding NRB Bearings - Thailand (Unlisted)

NRB Industrial Bearings got listed in April 2013 Source: Company, CRISIL Research

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NRB Bearings Ltd

Table 6: Subsidiaries contribution is miniscule in consolidated entity

SNL Subsidiaries FY13 PAT ( mn) Source: Company Bearings 42 NRB Bearings Thailand -25 Total 17 Consolidated PAT 449 Contribution of subsidiaries to consolidated entity 3.8%

SNL Bearings
In 2000, NRB Bearings acquired 45% stake in the DCM Shriram group-promoted Shriram Needle Bearings (known as SNL Bearings). SNL Bearings manufactures various types of needle roller bearings such as needle bushes, needle roller, etc. The purpose to acquire SNL was to get its technical and machine capabilities. NRB turned around SNL Bearings which now is a profit making company with a PAT of 39 mn in FY13.

Milestones
1965 1966 1980 1982 1990 1991 1995 2000 2005 2008 2012 Incorporated in Mumbai as Needle Roller Bearing Company; an Indo-French joint venture with Nadella France (Timken) Set up first plant in Thane, Mumbai to produce needle roller bearings New plant set up in Chikalthana, Aurangabad for needle rollers New plant set up in Jalna, Aurangabad to produce cylindrical roller bearings, ball bearings, spherical roller bearings, tapered roller bearings Name changed to NRB Bearings New plant set up in Waluj, Aurangabad NRB Bearings got listed on the BSE NRB Bearings got listed on the NSE Acquired Shriram Needle Bearings Industries Ltd (SNL) Set up R&D centre in Thane plant Promoters of NRB Bearings bought out the stake held by Timken NRB established a wholly-owned subsidiary NRB Bearings Thailand Ltd New plant in Pantnagar, Uttarakhand Demerged NRB Industrial Bearings as a part of family settlement

Table 7: List of institutional investors holding >1% stake (September 2013)

Name of Shareholder Nalanda India Equity Fund ICICI Prudential Life Insurance Company Acacia Partners Acacia Institutional Partners Catamaran Management Services Pvt. Ltd Acacia Banyan Partners HDFC Trustee Company Total Source: NSE % holding 9.99 5.59 3.59 2.21 1.39 1.14 1.02 24.94

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CRISIL IERIndependentEquityResearch

Annexure: Financials (Consolidated)

Income statement
( m n) Operating income EBITDA EBITDA m argin Depreciation EBIT Interest Operating PBT Other income Exceptional inc/(exp) PBT Tax provision Minority interest PAT (Reported) Less: Exceptionals Adjusted PAT FY12 5,600 1,156 20.6% 293 863 154 710 24 (1) 733 224 10 499 (1) 500 FY13 5,912 1,071 18.1% 321 751 206 544 35 23 603 122 9 472 23 449 FY14E 6,211 1,084 17.5% 337 747 225 522 2 524 142 9 374 374 FY15E 7,017 1,274 18.2% 366 908 205 703 5 708 191 9 508 508 FY16E 7,942 1,466 18.5% 394 1,072 212 860 14 874 236 9 629 629

Balance Sheet
( m n) Liabilities Equity share capital Reserves Minorities Net w orth Convertible debt Other debt Total debt Def erred tax liability (net) Total liabilities Assets Net fixed assets Capital WIP Total fixed assets Investm ents Current assets Inventory Sundry debtors Loans and advances Cash & bank balance Marketable securities Total current assets Total current liabilities Net current assets Intangibles/Misc. expenditu Total assets FY12 194 2,144 9 2,346 2,575 2,575 119 5,040 2,303 456 2,758 2 1,378 1,256 344 556 1 3,534 1,266 2,268 12 5,040 FY13 194 1,787 17 1,998 2,723 2,723 102 4,822 2,174 349 2,522 2 1,475 1,515 414 31 1 3,436 1,150 2,286 13 4,822 FY14E 194 2,009 26 2,228 2,445 2,445 102 4,775 2,386 74 2,460 2 1,565 1,446 435 79 1 3,527 1,226 2,300 13 4,775 FY15E 194 2,303 34 2,532 2,415 2,415 102 5,048 2,346 24 2,369 2 1,730 1,538 492 278 1 4,038 1,373 2,665 13 5,048 FY16E 194 2,649 43 2,886 2,515 2,515 102 5,503 2,501 24 2,525 2 1,915 1,741 572 293 1 4,522 1,558 2,963 13 5,503

Ratios
FY12 Grow th Operating income (%) EBITDA (%) Adj PAT (%) Adj EPS (%) Profitability EBITDA margin (%) Adj PAT Margin (%) RoE (%) RoCE (%) RoIC (%) Valuations Price-earnings (x) Price-book (x) EV/EBITDA (x) EV/Sales (x) Dividend payout ratio (%) Dividend yield (%) B/S ratios Inventory days Creditors days Debtor days Working capital days Gross asset turnover (x) Net asset turnover (x) Sales/operating assets (x Current ratio (x) Debt-equity (x) Net debt/equity (x) Interest coverage 16.3 (0.5) (13.0) (13.0) FY13 5.6 (7.3) (10.3) (10.3) FY14E 5.1 1.2 (16.7) (16.7) FY15E 13.0 17.5 35.9 35.9 FY16E 13.2 15.1 23.8 23.8

20.6 8.9 22.7 21.2 18.4

18.1 7.6 20.7 15.6 15.4

17.5 6.0 17.7 15.9 13.1

18.2 7.2 21.4 18.9 15.7

18.5 7.9 23.2 20.7 17.7

Cash flow
( m n) Pre-tax prof it Total tax paid Depreciation Working capital changes Net cash from operations Cash from investm ents Capital expenditure Investments and others Net cash from investments Cash from financing Equity raised/(repaid) Debt raised/(repaid) Dividend (incl. tax) Others (incl extraordinaries) Net cash from financing Change in cash position Closing cash FY12 734 (221) 293 (482) 325 (1,061) (2) (1,062) 60 1,436 (224) (69) 1,202 465 556 FY13 580 (140) 321 (542) 219 (86) (0) (86) 148 (192) (614) (658) (525) 31 FY14E 524 (142) 337 33 753 (275) (275) (278) (152) (0) (430) 48 79 FY15E 708 (191) 366 (166) 717 (275) (275) (30) (213) (243) 198 278 FY16E 874 (236) 394 (284) 748 (550) (550) 100 (283) 0 (183) 15 293

7.0 1.5 4.8 1.0 38.8 5.6

7.8 1.7 5.8 1.1 34.9 4.7

9.3 1.6 5.4 0.9 33.7 3.6

6.9 1.4 4.4 0.8 34.9 5.1

5.5 1.2 3.9 0.7 37.4 6.7

129 74 77 104 1.2 2.7 2.4 2.8 1.1 0.9 5.6

127 64 87 130 1.2 2.6 2.2 3.0 1.4 1.3 3.6

127 65 85 130 1.2 2.7 2.5 2.9 1.1 1.1 3.3

125 65 80 124 1.2 3.0 2.9 2.9 1.0 0.8 4.4

123 65 80 123 1.3 3.3 3.2 2.9 0.9 0.8 5.1

Quarterly financials (Standalone)

( m n) Net Sales Change (q-o-q) EBITDA Change (q-o-q) EBITDA margin PAT Adj PAT Change (q-o-q) Adj PAT margin Adj EPS Q3FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 1,492 1,442 1,445 1,319 1,541 8% -3% 0% -9% 17% 239 249 200 195 263 -13% 4% -19% -2% 35% 16.0% 17.2% 13.8% 14.8% 17.1% 114 147 101 69 105 114 147 101 69 105 -8% 29% -31% -32% 51% 7.6% 10.2% 7.0% 5.3% 6.8% 1.2 1.5 1.0 0.7 1.1

Per share
Adj EPS () CEPS () Book value () Dividend () Actual o/s shares (mn) FY12 5.2 8.2 24.2 2.0 96.9 FY13 4.6 7.9 20.6 1.7 96.9 FY14E 3.9 7.3 23.0 1.3 96.9 FY15E 5.2 9.0 26.1 1.8 96.9 FY16E 6.5 10.6 29.8 2.4 96.9

Financials have been classified as per CRISIL standards Source: CRISIL Research

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NRB Bearings Ltd

Focus Charts
Bearings capacity and utilisation
(mn) 160 140 120 100 80 60 40 68% 70% 65% 60% FY08 Capacity FY09 FY10 Production FY11 FY12 FY13 80% 76% 81% 77% 82% 85% 80% 75%

Domestic OEMs dominate revenues

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 10% FY11 Exports 14% FY12 22% FY13 26% 26% 72% 71% 64% 61% 59% 56% 54% 18% 15% 14% 13% 14% 15% 13%

127

103

144

112

144

118

81

65

86

59

99

75

20

30%

33%

H1FY14 FY14E

FY15E

FY16E

Blended utilisation (RHS)

Domestic (OEM)

Replacement/ After market

Source: Company, CRISIL Research

Source: Company, CRISIL Research

Three-year revenue CAGR of 10.3% during FY13-16

( mn) 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 FY11 FY12 4,817 5,600 5.6 5,912 FY13 5.1 6,211 FY14E 7,017 FY15E 7,942 FY16E 16.3 13.0 13.2 34.7 (%) 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0

Return ratios to improve, after declining in FY14

(%)

35.0 30.0

31.2

30.1 25.0 20.0 15.0 15.6 10.0 FY11 FY12 RoE FY13 FY14E FY15E RoCE 22.7 20.7 21.2 17.7 21.4

23.2

20.7 18.9 15.9

FY16E

Revenues

% growth y-o-y (RHS)

Source: Company, CRISIL Research

Source: Company, CRISIL Research

Movement in PAT margins

( mn) 700 600 500 400 300 200 100 0 FY11 FY12 FY13 FY14E FY15E FY16E 575 500 449 374 508 629 -100 -13 -10 -17 36 24 164 (%) 200

Share price movement

250 200 150 100 50 0 -50 150 100 50 Apr-10 Feb-08 Mar-09 Apr-11 May-12 Aug-07 Aug-08 Sep-09 Nov-11 Nov-12 Dec-13 Jan-06 Jul-06 Jan-07 Jun-13 Oct-10

Adjusted PAT

Adjusted PAT margins (RHS)

NRB Bearings

CNX 500

-Indexed to 100; Note: We have taken closing price of NRB Bearings adjusting for split and de-merger Source: Company, CRISIL Research Source: Company, CRISIL Research

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CRISIL IERIndependentEquityResearch

CRISIL Research Team

President
Mukesh Agarwal CRISIL Research +91 22 3342 3035 mukesh.agarwal@crisil.com

Analytical Contacts
Sandeep Sabharwal Prasad Koparkar Binaifer Jehani Manoj Mohta Sudhir Nair Mohit Modi Jiju Vidyadharan Ajay D'Souza Ajay Srinivasan Rahul Prithiani Senior Director, Capital Markets Senior Director, Industry & Customised Research Director, Customised Research Director, Customised Research Director, Customised Research Director, Equity Research Director, Funds & Fixed Income Research Director, Industry Research Director, Industry Research Director, Industry Research +91 22 4097 8052 +91 22 3342 3137 +91 22 3342 4091 +91 22 3342 3554 +91 22 3342 3526 +91 22 4254 2860 +91 22 3342 8091 +91 22 3342 3567 +91 22 3342 3530 +91 22 3342 3574 sandeep.sabharwal@crisil.com prasad.koparkar@crisil.com binaifer.jehani@crisil.com manoj.mohta@crisil.com sudhir.nair@crisil.com mohit.modi@crisil.com jiju.vidyadharan@crisil.com ajay.dsouza@crisil.com ajay.srinivasan@crisil.com rahul.prithiani@crisil.com

Business Development
Hani Jalan Prosenjit Ghosh Director, Capital Markets Director, Industry & Customised Research +91 22 3342 3077 +91 22 3342 8008 hani.jalan@crisil.com prosenjit.ghosh@crisil.com

Business Development Equity Research

Vishal Shah Regional Manager Email : vishal.shah@crisil.com Phone : +91 9820598908 Shweta Adukia Regional Manager Email : Shweta.Adukia@crisil.com Phone : +91 9987855771 Priyanka Murarka Regional Manager Email : priyanka.murarka@crisil.com Phone : +91 9903060685 Ankur Nehra Regional Manager Email : Ankur.Nehra@crisil.com Phone : +91 9999575639

Our Capabilities Making Markets Function Better

Economy and Industry Research
Largest team of economy and industry research analysts in India Coverage on 70 industries and 139 sub-sectors; provide growth forecasts, profitability analysis, emerging trends, expected investments, industry structure and regulatory frameworks 90 per cent of Indias commercial banks use our industry research for credit decisions Special coverage on key growth sectors including real estate, infrastructure, logistics, and financial services Inputs to Indias leading corporates in market sizing, demand forecasting, and project feasibility Published the first India-focused report on Ultra High Net-worth Individuals All opinions and forecasts reviewed by a highly qualified panel with over 200 years of cumulative experience

Funds and Fixed Income Research

Largest and most comprehensive database on Indias debt market, covering more than 15,000 securities Largest provider of fixed income valuations in India Value more than 53 trillion (US$ 960 billion) of Indian debt securities, comprising outstanding securities Sole provider of fixed income and hybrid indices to mutual funds and insurance companies; we maintain 12 standard indices and over 100 customised indices Ranking of Indian mutual fund schemes covering 70 per cent of assets under management and 4.7 trillion (US$ 85 billion) by value Retained by Indias Employees Provident Fund Organisation, the worlds largest retirement scheme covering over 60 million individuals, for selecting fund managers and monitoring their performance

Equity and Company Research

Largest independent equity research house in India, focusing on small and mid-cap companies; coverage exceeds 125 companies Released company reports on 1,442 companies listed and traded on the National Stock Exchange; a global first for any stock exchange First research house to release exchange-commissioned equity research reports in India Assigned the first IPO grade in India

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