I have been looking at NRB Bearings and invested as well. It’s gone up recently (possibly due to the Thane land sale and good Q4 numbers). Writing up my understanding and analysis of the company and its prospects.
Company Vision: To be a recognized leader in the Design and Production of Customised Friction Solutions, with a presence in every vehicle in the World
Management: Founded by late Mr Trilochan Singh Sahney in 1965, currently Ms Harshbeena S Zaveri, daughter of Mr Trilochan Singh Sahney, is the Vice Chairman and Managing Director of NRB and the Chairman of the Board of SNL. Strong leader who’s been associated with the company for decades, almost starting from the shop floor (somewhat like Siddhartha Lal of Eicher Motors).
Products/Product Profile:
Market leader in needle bearing and cylindrical roller bearing segments - sub-segments include cylindrical roller, special tapered roller and special ball bearing segments.
Full product portfolio includes Drawn cup needle bearings, Cylindrical roller bearings, Planetary shafts and other special pins, Polyamide and steel needle bearing cages, Drawn cup cylindrical roller bearings, Crank pins, Full-complement needle bearings, Special ball bearings, Thrust bearings, Formed strip cages for heavy gearboxes, Tapered and Spherical roller bearings, and Rocker-arm bearings
In FY22, 56% of its sales were of Needle Roller Bushes and Cages, 29% were from Ball and Roller bearings and 15% were from Automobile components. The Company has an estimated market share of 60% in the needle bearing industry in India.
Product Usage
Needle bearings are heavily used in automobile components such as rocker arm pivots, pumps, compressors, and transmissions. The drive shaft of a rear-wheel drive vehicle typically has at least eight needle bearings (four in each U joint) and often more if it is particularly long, or operates on steep slopes
Cylindrical roller bearings are the desired solution for heavy machinery and equipment. They are used in high-speed systems and can be deployed for high-performing systems such as agricultural machinery, wind turbines, mining machines, etc.
Customer Profile
Customers across the entire automobile market (two-wheelers, PVs, CVs, farm equipment & tractors). Large set of customers with no single customer accounting for more than 6-7% of total revenue. Large proportion of revenues from Auto OEMs (both Indian and global). Railways and Defense are also customers.
On the electric side (area of focus for future growth), NRB is exclusive supplier to Ola’s two-wheeler factory and Ola has tapped into NRB for all the customised needle bearings it requires.
The company’s strategy for the future is to have the overseas business largely catering to the EV sector. While its current exports comprise hybrid products and e-drive passenger cars and light, medium and heavy trucks, it will move towards electric powertrains, from the steering, the transmission and e-axle to the braking system. (per Business Line article, but not sure about this).
Revenue and Margins
FY2023 revenue of Rs. 1049 crores (standalone) vs Rs FY2022 revenue of Rs.929 crores. Revenue growth of over 12% in FY23. 65%-70% of revenue from domestic Auto OEMs, 10%-12% from domestic aftermarket, 25%-30% from exports (per CRISIL note)
Increased levels of business from e-mobility segment (per news articles and management commentary) and exports. The share of exports in total revenue stood at 28% in FY22 vs 26% in FY21. Not clear what was the share in FY23.
EBITDA for FY23 at 124 crores vs 97 crores in FY22. Margin expansion in FY23, up nearly 300 bps in Q4 FY23. Operating Margins at 13.7% in FY22 and up to 15.9% in first 9 months of FY23. Overall annualized EBITDA margins will be around 15%, it appears. Elsewhere, I also read that OM is expected to stabilize at 16% - 17% over the medium term, as freight costs and input costs come down/stabilize.
Margin profile could improve based on export mix - “Enhanced product mix and high margins for export sales to Europe and North America for high end new platforms including hybrid and E-mobility” (Q3 FY23 commentary)
Balance Sheet and Cash Flows Profile
Strong net worth of Rs. 616 crores and gearing of 0.41 times as of Sep 2022. Gearing is expected to improve and remain comfortable at 0.2 - 0.4x over the medium term (per CRISIL Credit Rating update).
Interest coverage ratio expected to be over 8.4 times over the medium term.
Annual cash accruals of Rs 120-150 crore over the medium term which should take care of modest capex needs amounting to Rs.45- 55 crore per annum, and debt repayments of Rs. 25-35 crore per annum.
Closed smaller plants (Thane and Aurangabad). Sale of the land will add to balance sheet strength.
R&D/Technology expertise
Well-regarded R&D capability. The company’s product range spans over 3000 designs, which are also made to suit its customer’s requirements. NRB has a dedicated engineering & design (E&D) centre Turbhe, which is recognized by the Indian Department of Science & Technology as a world-class research and development facility. In addition, there is another centre that focusses on process engineering at the plant site in Waluj MIDC.
In 2022, NRB also announced the setting up of a global innovation center for advanced technologies in Dubai, besides additional capex investments in its Thailand subsidiary. Revenue Composition.
R&D spend as % of revenue has increased over time - in FY22, it was at 2.1% of revenue, with R&D expenses of Rs. 19 crores.
Subsidiaries and Related Parties
Primary subsidiary is SNL Bearings - also manufactures needle roller bearings for automotives. Has capability to manufacture its own special purpose machines required for bearing manufacturing (possibly by virtue of its technical collaboration with INA Germany). Was acquired by NRB in 2000. Only manufacturer in eastern India, located at Ranchi. Profitable, exited FY23 with 49 crores in revenue and 11 crores in PBT.
Other stepdown subsidiaries - NRB Holdings Limited (holding company of NRB Bearings Europe GmbH and NRB Bearings USA Inc), NRB Bearings (Thailand) Ltd. Recently, NRB Bearings (Thailand) also became a stepdown subsidiary of NRB Holdings limited (registered in UAE).
Related party is NRB Industrial Bearings - run by the brother of Harshbeena Zaveri. Not profitable and low revenue base. But there are inter-company holdings. Potential risks to capital allocation in future.
Challenges/Issues/Triggers
Working capital intensive operations: From CRISIL note - “The Company imports 25-30% of its raw material requirements of which a major component is imported from Europe and Japan. Due to the just-in-time delivery to OEMs and higher transit for imported raw materials, Company is required to maintain larger inventory and thus has high inventory days at 115-130 days. Furthermore, payment terms from the automotive component manufacturers vary from two to three months, resulting in receivable levels of ~90-110 days.”
Higher raw material prices (steel, primarily) can impact profitability. Currently, stable steel prices at lower levels provide support for improved margins.
Waluj Plant Fire in May 2023. Per what was reported, "An auto-product assembly line was majorly damaged and the fire spread to the adjacent stores department damaging the ready components and other production related stores and spares." Covered by insurance, however overall production at Waluj is likely to be affected for a few months. Recognition of loss from the fire can be expected in Q1 and Q2 of FY24.
Some sluggishness in export market and could worse depending on inflation, geopolitics. Export sales to a large extent dependent on Truck sales trend in America and PV sales trend in the Europe.
Thane Plant land sale recently approved. Could boost bottom line with exceptional income, and also support Capex without need for additional debt.
Management Quotes
“Going ahead, the company will not only focus on products which are EV-agnostic, but also expand to newer areas of business development, including products for steering systems, hybrid and electrical transmission, e-chassis applications and other applications which are for hybrid or electric vehicles. The company is continuously investing in the futuristic products as well as on the future platforms which they are co-developing” (Harshbeena Zaveri)
References
CRISIL Ratings Rationale (March 06, 2023)
FY22 Annual Report
FY23 Quarterly results and Results commentary
NRB Bearing charts 200 crore capex plan (Nov 2021)
HDFC Securities Stock Update for NRB Bearings (April 2023)
Disclosure: Invested a few months ago, at around 150 levels. Evaluating if I should add to my position.
