A Smallcap Market Leader with Significant Insider Buying 

Dear Viewers

In today's video, I'm going to speak of a market leader that seems to be doing well with regards to its relevance in a world marked by electric mobility.

In fact, it is the an exclusive supplier to Ola's 2-wheeler factory in its product category.

Here's an interesting fact about it.

More than 90% of the vehicles running on Indian roads use this company's products.

Now India is the world's 5th largest vehicle market and is expected to become the 3rd largest in terms of volume by 2026. So needless to say, this company is well positioned to benefit as that opportunity unfolds.

The reason I have chosen to talk of it are not just its decent fundamentals, but also the fact that the insiders have been on a buying spree for this stock for quite some time now.

The stock in question is NRB Bearings that makes balls, roller bearings and other components that offer precision friction solutions. Its products find applications in auto (from 2 wheelers to 3 wheelers and 4 W and even EVs) and other mobility applications such as Railways, defense, farm equipment, aircraft and aerospace applications.

NRB Bearings was the first in India to introduce needle roller bearings. More interestingly, it is a market leader in this niche with 60% market share. It also makes other products like planetary shafts, crank pins, and kingpins.

Speaking of precise revenue breakup, Needle Roller Bushes and Cages comprise 56%, Ball and Roller Bearings account for 29% and automobile components comprise 15%.

The company's manufacturing facilities are based at multiple locations across India - Maharashtra in Western India Hyderabad in South and Uttarakhand in North India.

While there is a cyclicality element due to high exposure to auto segment, within auto sector, the strategy is de-risked serving all segments - the Commercial Vehicle, Two/Three-wheeler, and Passenger Car segments. It also caters to agriculture and construction equipment industries and global defence.

OEMs and tier 1 clients account for 65 to 70 percent of its revenues. No single customer with its tier-1 supplier accounts for more than 6-7% of the total revenue, thereby limiting customer concentration risk.

The replacement market or aftermarket sales comprise 10-12%.

Geographically too, the business is diversified with 20%-25% share from export markets. Exports are dominated by segments such as hybrid and E Drive passenger cars and trucks, and electric power trainsan and it supplies to the world's foremost E vehicles in Europe, America, Japan and Korea.

The company enjoys a global infrastructure with subsidiaries in Thailand, Germany, US and the UAE and supplies to over 45 countries.

What sets it apart is a strong R&D arm that allows it to introduce new and more efficient products. Its product range spans over 3000 designs, which are customized as per clients' needs. The management is focusing on futuristic products targeting electric, EV agnostic and autonomous vehicles, and expects increased business expected from e mobility.

With expansion of product portfolio to include EV hybrid and EV agnostic products, it has been contacted by several foreign OEMs interested in such products.

Further, it has a 73.45% stake in SNL Bearings, a listed entity.

To cater to the potential demand, the company has planned capex investment of Rs 200 crores over next 2 to 3 years. This will include expansion at Thailand subsidiary as well. As per the ratings report. The capex is expected to be funded by an equal mix of debt and equity. Do note that the current debt to equity is 0.4 times, and will remain well below one time even with the proposed capex.

As an aside, it is also planning to sell land at Thane, with the deal expected to be closed by the third quarter.

Apart from market leadership, innovative products and strong relationships with clients in India and abroad, the business is likely to benefit from structural tailwinds such as China plus one, and other industry tailwinds like PLI scheme with an outlay of over Rs 57 thousand crores over 5 years, localization norms and vehicle scrappage policy to remove old unfit vehicles from the roads.

So that was all good.

The risks to watchout for include slowdown in the auto sector, and ability to maintain margins as key raw material is steel the prices of which can fluctuate. Further the business is working capital intensive.

The company recently had a fire breakout at its Waluj plant, but this in my view is a short term negative.

Coming to some financial performance indicators, the return on equity and return on capital for FY23 stand at 14% and 21% respectively. EBITDA margin for FY23 is at 19%. The dividend payout in FY23 was over 26%, that's a yield close to 1.9% at current price. The debt to equity is well below one.

The stock is trading at a PE or price to earnings of 30 times.

Now remember at the beginning I mentioned an increase in insider stake. This is what the shareholding pattern looks like, with promoter stake up from 49.1% in September 2020 to 50.2% in June 2023. There has been a consistent rise in the last 2 quarters.

Also, in the current quarter too, the stock has witnessed significant insider buying as you could see on the slide.

The maximum buy price has been at Rs 252 which is not too far from current stock price of Rs 268 as on second September.

I would strongly recommend you to consider this not as a recommendation but as a candidate for your watchlist. Be mindful of the valuations and keep in mind all the risk factors I shared.

So, that's all for today's video. Don't forget to like and share. I would appreciate your feedback on the same.

Thank you for watching.

Goodbye.