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Sunday, Sep 22, 2002

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NRB Bearings: Hold

B. Krishnakumar

THE recent improvement in automobile production has resulted in an improvement in business prospects for quite a few companies with exposure to the auto sector. NRB Bearings is one such company whose financial performance has seen sharp improvement in the previous quarter owing to the increase in auto production over the last couple of quarters.

Taking into account a strong presence in the roller bearings market and steady improvement in automobile production, the near-term business prospects appear positive. Long-term investors could use price dips to take exposure in the company while shareholders could remain invested.

NRB Bearings has a strong presence in the needle roller bearings market. It also has a limited presence in taper roller and ball bearings segment. Given that most revenues accrue from the original equipment segment of the auto industry, the company's financial performance has a strong linkage to the automobile production.

For the company, growth in volume is the critical driver of earnings rather than improvement in profitability. For the year ended March 2002, the turnover went up about 9.6 per cent to Rs 128.31 crore while the post-tax earnings increased 10.3 per cent to Rs 9.17 crore. The sustained increase in commercial vehicle, two-wheeler and passenger car production has translated into a sharp spurt in earnings in the first quarter of this fiscal too.

From an investment perspective, the heavy dependence on original equipment segment of auto industry is a spot of bother.

The company has, however, taken efforts to dilute the contribution from this segment by shifting focus to the replacement and export markets. As a result, the contribution of exports has increased steadily from about 2 per cent to about 7 per cent in the last four years. The company is also trying to consolidate its presence in industrial bearings market, which now accounts for about 10 per cent of turnover. The impact of this move would probably be reflected from the third quarter of this fiscal.

From a long-term perspective, the recent acquisition of Fag Bearings by INA Bearings of Germany would have major business implications for NRB Bearings. However, considering that NRB has already established a strong presence in the needle roller bearings market, the threat from INA Bearings may not be that significant in the medium term.

At the current price of Rs 53, the scrip is traded at a price-earnings multiple of 5.6 times the latest earnings.

Taking into account the recent improvement in share price, fresh buying may be considered on price dips while shareholders could remain invested.

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