Wheels of fortune turn for auto, put NRB Bearings in pole position

ET Intelligence Group: NRB Bearings, India’s leading bearing maker and a key supplier to auto companies, is likely to benefit from the resurgence in the two-wheeler and tractor business, and resumption of a key export order from Audi, a global luxury car company.

The developments will bring back the company’s revenue growth to its five-year average level of 10-11%, and earnings per share are expected to grow more than 20% in FY17, thanks to the debt reduction.

NRB’s revenue growth and margins took a hit in FY16 due to deferment of some export order by global car makers Audi and Daimler.

Its export revenue growth dipped by 11% and margins slipped by 160 bps to 15.9% in FY16. Exports contribute nearly 23% to its total revenue.

However, things appear to be turning around for the company in the current year, both in the domestic as well as export front.

First, the order to supply bearings to Audi is expected to resume from the second quarter of FY17. Then, two-wheelers and tractors volume growth is revised upwards due to better rains this year. Tractors are expected to grow 25% in FY17 compared with a decline in FY16.

Lastly, after the implementation of the new safety norms in two-wheelers and CVs from April 2017, vehicles will require sensor-based bearings which will be more expensive than conventional bearings.

AT CMP of Rs 114.7, the stock is trading at 15 times on the projected earnings of FY18 against a five-year average of 14 times.