CRISIL Research has assigned a CRISIL IER fundamental grade of 4/5 to NRB Bearings. The grade indicates that the company's fundamentals are 'superior' relative to other listed equity securities in India. CRISIL Research has assigned a valuation grade of 5/5, indicating that market price has 'strong upside' from the current levels.

CRISIL's one-year fair value of the stock is Rs 46. The stock is currently trading at Rs 36 a share. The grades are not a recommendation to buy, sell or hold the graded instrument, or a comment on the graded instrument's future market price or its suitability for a particular

The assigned fundamental grade takes into account NRB Bearings' strong engineering capabilities which make it a preferred supplier of customised bearings to leading OEMs. Being positioned in the niche customised bearings segment, the company faces less competition from global bearing manufacturers such as SKF (Sweden) and Timken (the US), who largely produce off-the-shelf bearings.

The grade is constrained by NRB Bearings' dependence on the domestic auto market (64% of FY13 revenues) which is susceptible to cyclicality. However, its diversified presence across various sectors (such as two-wheelers, three wheelers, four-wheelers and commercial vehicles) within the domestic auto market partially mitigates this risk. The company also has an elevated inventory cycle (127 days in FY13) compared to that of other bearing players due to the wide range of bearings manufactured.

CRISIL Research expects NRB Bearings' revenues to increase at a three-year CAGR of 10.3% to Rs7.9 billion in FY16 driven by exports and a likely recovery in the domestic automobile market. EBITDA margin is expected to rebound to 18.5% in FY16 from 17.5% in FY14 due to higher operating leverage. EPS is expected to grow at a three-year CAGR of 11.9% to Rs6.5 in FY16. We expect RoE to be 23% in FY16.

CRISIL Research has used the discounted cash flow method to value NRB Bearings and has arrived at a fair value of Rs46 per share. At this value, the implied P/E multiples are 8.8x FY15E EPS and 7.1x FY16E EPS.

Shares of the company declined Rs 1.35, or 3.55%, to settle at Rs 36.65. The total volume of shares traded was 5,988 at the BSE (Thursday).