Indian equity markets have grown relatively well in the last one year with the key indices Sensex and Nifty registering a gain of about 15% led by rise in shares of HUL, Tech Mahindra, TCS, Bajaj Finance, Maruti Suzuki, RIL and Kotak Mahindra Bank. In the corresponding time, the automobile index benchmark Nifty Auto has risen 14% while some of the underlying components have surged in range of 30 to 90%.
We bring to you a small-cap auto stock below Rs 200 that has returned about 44% in the last one year to buy and gain up to 22% in next one year. Shares of NRB Bearings have advanced 43.56% in the span of last one year to Rs 175 from a share price level of around Rs 122. The research and brokerage firm HDFC Securities has given a buy rating with a target price of Rs 214 which implies a potential upside of 22% from the current market price of Rs 175.
“NRB remains a key beneficiary of the strong volume growth witnessed in the automobile segment across sectors with OEMs accounting for ~65% of revenues. Exports are also growing at a robust pace led by a recovery in the North-American and European truck/PV markets (~20% of revenue). Increasing traction in the after-market segment and incremental revenue from the Defence, Aerospace and Railway segments coupled with fall in interest cost would aid in topline and margin expansion, HDFC Securities said in a research report.
Pointing out at the upside triggers for NRB Bearings, HDFC Securities said that automobile sales in the domestic market continue to remain strong. NRB Bearings has robust export revenue growth which may drive a well-diversified revenue stream. While, vulnerability to cyclicality in demand from automobile OEMs, working capital-intensive operations, raw material price volatility and forex risk may impact financial performance remain some of the concerns.
“We feel investors could BUY the stock at CMP and add on declines to Rs 155-160 band (15.5x FY20E EPS) for sequential targets of Rs 199 (19.5x FY20E EPS) and Rs 214 (21x FY20E EPS) in three to four quarters. At a CMP of Rs 173.9, it is trading at ~17x FY20E EPS,” HDFC Securities said further.
NRB Bearings shares are categorised in the ‘B’ group on BSE and are a component of S&P BSE SmallCap and Nifty Infrastructure indices. As per the closing price of Rs 176.1, NRB Bearings commands a market capitalisation of Rs 1,706.81 on BSE.
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