Bearing Industry - Sector Update

Bearings Industry Sector Update
Outlook : BULLISH
SKF India - Buy The Growing Global Bearings market :
CMP: Rs 1,250
Target price : Rs 1,432 The global bearings market grew 4% in CY14 reaching total size of USD 40 billion. The
Upside: 15% industrial original equipment bearing markets accounted for ~40% of world demand and
included manufacturers of light and heavy industrial machines and equipment, as well as
aerospace, off-highway and railway vehicles. Sales through distributors (industrial
NRB Bearings– Buy distribution and the independent vehicle aftermarket) maintained around 30% of world
CMP: Rs 144 bearing demand, of which around 30% is related to the vehicle service market and around
Target price : Rs 179 70% to the industrial market. The automotive original equipment bearing markets, including
Upside: 24%
two and four-wheelers, accounted for ~30%.
Menon Bearings– Buy Europe accounts for 25% of the total world market with Germany alone accounting for
CMP: Rs 51 almost 10%. The Americas now represent slightly more than 20% of global demand, of which
Target price : Rs 68 the USA, Canada and Mexico together account for about 80%. In South America, Brazil is the
Upside: 32% major market and makes up more than 60% of regional demand. Asia’s share of the world
bearing market was relatively unchanged and accounted for almost 50% compared with less
than 30% ten years ago. China’s share of the total world bearing market was slightly down to
Timken India - Buy about 25%. Japan’s share of the world bearing market accounts for slightly more than 10%.
CMP: Rs 546 Other Asian markets with sizeable bearing production account for about 10%, including
Target price : Rs 719
India, Thailand, Indonesia, Malaysia and the Republic of Korea. The Indian bearing market
Upside: 32%
accounts for less than 5% of the world bearing market.
FAG Bearings- Not Rated
CMP: Rs 4,020 SKF is the world leader on the bearings market with other major international companies
including the Schaeffler Group, Timken, NSK, NTN, and JTEKT. The top 6 world bearing
manufacturers represent about 60% of the global rolling bearing market while the group of
Chinese bearing companies, including small and larger ones, represents less than 20% in
the world with more than 80% of their sales in Asia, less than 10% in Europe, less than 7% in
Americas. The remaining 20% of Chinese bearing companies includes many smaller regional
competitors.
Domestic Bearing market ready to roll:

The current size of the bearings market in India inclusive of exports stands at ~8500 Cr.
Ravikant Sangepag ~40% of the total demand is fulfilled through imports from from countries like Germany,
Research Analyst Japan, China, Singapore, Sweden, France and Italy with the balance being made locally. A
ravikants@systematixshares.com
major portion of bearings market in India is unorganized that caters to the low-end
replacement market.. The demand for the bearings is derived from two key user segments -
the automotive and industrial sectors. Domestic bearings industry is fairly concentrated,
with the top five players contributing over 90% of overall turnover. SKF India is the leading
December 09, 2015 player in the market followed by FAG Bearings, NBC Bearings and Timken India.
The revenue projections for the bearings market in India anticipates that the market is
estimated to grow at a CAGR of 19.8% over FY’2015-FY’2019 owing to the stable economic
growth in the forthcoming years and the support from government. The ‘Make in India’
initiative launched by the newly formed government is expected to be the catalyst for
inclining manufacturing activities in the country which will increase the bearings
consumption in the forthcoming years. We believe that the surge in exports, incline in
demand for passenger vehicles, two wheelers & four wheelers as well as elevation in
number of heavy, general and other Industries will transpire the growth of bearings market
of India in years to come.
1
Bearings Industry
Bearings Industry Overview

Bearings are mechanical components used to enable rotational or linear movement, and to disable
the unwanted friction and handling stress. Bearings are extensively used in the rotating parts of
virtually all machines, making precision in dimension key to performance. The structure of ball
bearing is simple, it has a ball, which has internal & external smooth metal surfaces, which helps
bearings to move. The ball in the bearing is responsible for carrying the weight of the load, and
load’s weight is responsible for giving a push to the bearing’s rotation.
There are different types of bearings used in the automotive an industrial applications, such as ball,
roller & thrust bearings, housed units, needle roller bearings, plain bearings, plummer blocks,
sleeves, slim section bearings, spherical roller bearings, etc. For instance, applications such as
wheels and transmissions use roller bearings, as roller bearings support heavy-duty applications.
Global Industry
The global bearings market is generally seen as the worldwide sales of rolling bearings, comprising
ball and roller bearing assemblies of various designs, including mounted bearing units. The global
rolling bearing market size in 2014 in volume increased by 4% year over- year and reached USD 40
billion. The industrial original equipment bearing markets accounted for almost 40% of world
demand and included manufacturers of light and heavy industrial machines and equipment, as well
as aerospace, off-highway and railway vehicles. Sales through distributors (industrial distribution
and the independent vehicle aftermarket) maintained around 30% of world bearing demand, of
which around 30% is related to the vehicle service market and around 70% to the industrial market.
The automotive original equipment bearing markets, including two and four-wheelers, accounted for
more than 30%.
Europe accounts for 25% of the total world market with Germany alone accounting for almost 10%.
The Americas now represent slightly more than 20% of global demand, of which the USA, Canada
and Mexico together account for about 80%. In South America, Brazil is the major market and
makes up more than 60% of regional demand. Asia’s share of the world bearing market was
relatively unchanged and accounted for almost 50% compared with less than 30% ten years ago.
China’s share of the total world bearing market was slightly down to about 25%. Japan’s share of
the world bearing market accounts for slightly more than 10%. Other Asian markets with sizeable
bearing production account for about 10%, including India, Thailand, Indonesia, Malaysia and the
Republic of Korea.
The Chinese bearing market, which remains the largest of the emerging markets, is very
fragmented, with the main international bearing companies accounting for about one third of the
market while the other two thirds of the market consists of a host of local manufacturers. Some of
the largest include: Wafangdian (ZWZ), Luoyang (LYC), Harbin (HRB), Zhejiang Tianma (TMB),
Wanxiang Qianchao, and C&U.
The Indian bearing market accounts for less than 5% of the world bearing market. The players in
that market include international manufacturers and several local manufacturers such as NEI, NRB,
ABC and TATA. SKF is the world leader on the bearings market with other major international
companies including the Schaeffler Group, Timken, NSK, NTN, and JTEKT. The top 6 world
bearing manufacturers represent about 60% of the global rolling bearing market while the group of
Chinese bearing companies, including small and larger ones, represents less than 20% in the world
with more than 80% of their sales in Asia, less than 10% in Europe, less than 7% in Americas. The
remaining 20% of Chinese bearing companies includes many smaller regional competitors.
2
Bearings Industry
Radial deep groove ball bearings are the most common rolling bearing type, accounting for almost
30% of the world bearing demand. Other major ball bearing types include angular contact ball
bearings, self-aligning ball bearings, thrust ball bearings and automotive wheel hub ball bearing
units. Roller bearings account for less than half of worldwide rolling bearing sales. Roller bearings
are named after the roller shape, such as cylindrical roller bearings, needle roller bearings, tapered
roller bearings and spherical roller bearings. All of these are available for loads acting across the
shaft (radial bearings) and for loads that are parallel with the shaft (thrust bearings). The largest
roller bearing family is the tapered roller bearing, with about 20% of the world bearing market.
Domestic Industry
The current size of the bearings market in India inclusive of exports stands at ~8500 Cr. A major
portion of bearings market in India is organized (~90%) that caters to OEM’s and large part of
replacement market while small scale unorganized players (~10%) have presence in the low-end
replacement market. A significant (~40%) portion of bearings are imported from countries like
Germany, Japan, China, Singapore, Sweden, France and Italy. The demand for the bearings is
derived from two key user segments - the automotive and industrial sectors. The industrial market is
larger than the automobile market in value terms..
The Indian market is characterized with challenges like counterfeit/spurious products, volatile prices
of raw materials and growing cost pressure on Indian suppliers. The bearings industry is fairly
concentrated, with the top five players contributing over 90% of overall turnover. SKF India is the
leading player in the market followed by FAG Bearings, NBC Bearings and Timken India. To meet
growing customer expectations, most of the bearings manufacturers have regularly invested in
modern manufacturing technology and have taken a number of initiatives to strengthen their
competitive advantage by partnering with customers with a focus on application engineering and
R&D to develop advanced products.
The demand for bearings is largely dynamic because the industry is closely linked to global GDP
trends owing to its extensive applications in production and engineering industries across the world.
The global bearings industry was worth USD ~ 40 billion during 2014. Several main industrial
sectors and user segments are expected to push the production of industrial equipment and
automotives, leading to an increase in demand for railway equipment, electronics, aircraft and
motorcycles in the developing countries.
The bearings industry in India has been heavily dependent upon imports as the major players are
global entities which import majority of products from their global manufacturing units located
abroad. India is largely regarded amongst the fastest growing market for bearings in the world
which has ultimately led to a number of multinational companies emerge the Indian markets such as
SKF, Timken and FAG bearings. The Indian bearings Industry in present is quite bullish with
excellent growth prospects, owing to spurt in growth of automobile and industrial sector which has
given substantial rise to the demand for bearings.
The revenue projections for the bearings market in India anticipates that the market is estimated to
grow at a CAGR of 19.8% over FY’2015-FY’2019 owing to the stable economic growth in the
forthcoming years and the support from government. The ‘Make in India’ initiative launched by the
newly formed government is expected to be the catalyst for inclining manufacturing activities in the
country which will increase the bearings consumption in the forthcoming years. The surge in
exports, incline in demand for passenger vehicles, two wheelers & four wheelers as well as
elevation in number of heavy, general and other Industries has transpired the growth of bearings
market of India. The government has already made clear its continuing focus on infrastructure from
Power and Oil & Gas, Airports Roads and Ports. As per the planning commission’s estimates, the
government has planned substantial investment in the 12th Five Year Plan which has been
aggregated at about Rs 1 trillion. This infrastructure spending will lead to growth in the
manufacturing sector which in turn will have a positive impact on bearings industry. The focus on
renewable energy will further lead to increased demand for bearings in India as wind and water
turbines require heavy usage of bearings to convert the kinetic energy into electricity.
3
Bearings Industry
Relative Comparison of companies under coverage

CMP M-Cap Revenue EBITDA PAT EBITDAM PATM P/E P/BV RoE
FY15/(*CY14)
(Rs) (Rs Cr) (Rs Cr) (Rs Cr) (Rs Cr) (%) (%) (x) (x) (%)
SKF India* 1,250 6,592 2,416 283 203 11.7 8.4 32.5 0.0 15.1
NRB Bearings 144 1,395 670 124 53 18.5 7.9 26.2 5.1 22.5
Menon Bearings 51 236 103 23 12 21.8 11.2 20.6 5.5 29.3
FAG Bearings* 4,020 6,680 1,675 283 153 16.9 9.1 43.7 6.0 14.6
Timken India 546 3,713 926 134 81 14.4 8.7 46.0 8.5 19.7
Our recommendations…
 SKF India Ltd (SKF) – Buy:
SKF India, is domestic arm of SKF Group, a leading global supplier of products, solutions and
services within rolling bearings, seals, mechatronics, services and lubrication systems. Services
include technical support, maintenance services and condition monitoring. Incorporated in 1961,
today, with 3 manufacturing facilities located in Pune, Bangalore and Haridwar, with 11 sales
offices across India and a supplier network of over 300 distributors, SKF continues to serve
bearing industry for over 4 decades. SKF is the largest manufacturer of the bearings in India with
~28% market share in domestic bearing industry. With revival in both automobile and industrial
activities, we expect SKF to clock revenue growth of CAGR 8% from CY14 to CY18. SKF has
recently forayed in both renewable and railway segment. With new government clearly targeted to
provide impetus to these industries SKF is well positioned to benefit from huge investments
envisaged in these industries in medium to longer term. With Ahmadabad facility getting fully
operational in 4Q CY15, we expect traded/imported component of the industrial bearings to decline
significantly from current level of 85%. We expect import substitution of industrial bearings, to be a
key driver for SKF’s margin expansion as SKF would improve its turnaround time with reduced
cost. We expect EBITDAM of SKF to improve to 12.5% by CY17 (11.7% in CY14). We recommend
buy with a target of Rs. 1,432, an upside of 15% in 12 months.
 NRB Bearings Ltd (NRB) – Buy:
NRB Bearings Limited is (NRB) NRB was incorporated in 1965 as an Indo-French venture with
Nadella and pioneered the production of needle roller bearings in India NRB provides bearings for
the requirements of the mobility industry which has original equipment manufacturers (OEMs),
including 2/3 wheelers, such as motor cycles, scooters, mopeds, auto rickshaws and industrial four
stroke engines, passenger cars from small car hatchbacks to luxury models and utility vehicles,
commercial vehicles, such as buses, farm equipment and off highway vehicles, including forklift
trucks and construction equipment, railway locomotives, defense vehicles, including gun carriers
and tanks. Its products include loose needle rollers, needle roller bushes and cages, ball and roller
bearings and automobile components. Its subsidiaries include SNL BEARINGS LTD, NRB
Bearings (Thailand) Ltd and NRB Bearings Europe GmBH. With ~70% market share, NRB is a
leader in domestic needle roller bearing market worth ~Rs 440 Cr in FY15. With domestic auto
industry showing signs of recovery (NRB quarterly revenue perfectly correlated with quarterly
automobile production), we expect domestic revenue to grow at a CAGR of 13% through FY18.
With further expansion in to new geographies, market share gains with existing customers and
acquisition of new customers, we expect export revenue to grow at a CAGR of 17% till FY18
pushing up contribution of exports to total revenue to ~26% by FY18. We expect strong growth in
top-line coupled with positive operating leverage to improve EBITDAM from 18.5% in FY15 to 20%
in FY18. We recommend buy with a target of Rs. 179, an upside of 24% in 12 months.
 Menon Bearings Ltd (MBL) - Buy:
Menon Bearings Limited (MBL) is an India-based engine bearings company. The Company is
engaged in the manufacturing of auto components. The Company's products include bi-metal
engine bearings, bushes and thrust washers for light and heavy automobile engines, two wheeler
engines, as well as compressors for refrigerators and air conditioners, among others. It also offers
aluminum die casting components. MBL’s bearing products include bearings for connecting rods,
bearings for crank shafts, flanged bearings and trimetal bearings. It provides truncated bushes for
connecting rods, ball indented bushes, bushes for connecting rods, cam shafts, rock shafts and
rocker arms. The Company's thrust washers include washers with thrust face contours and ring
type thrust washers. MBL exports its products to the United States, the United Kingdom, Italy,
France, China, Mexico and Brazil, among others. With focus on quality, MBL has been able to gain
share from ~12% in FY12 to ~15% in FY15. With continued improvement in market share in both
domestic and overseas market and recovery in domestic automobile industry, we expect MBL’s
revenue to grow at a CAGR of 12% through FY18. With improved utilizations and managements
continual effort to reduce its operating cost, we expect MBL to main the margins at 25% at the
minimum. We recommend buy with a target of Rs. 68, an upside of 32% in 12 months.
4
Bearings Industry
 Timken India Ltd (TIL) –Buy:
Timken India Limited (TIL) was incorporated in 1987 as Tata Timken Limited (TTL), a joint venture
between Tata Iron and Steel Company (TISCO) and The Timken Company, USA. It commenced
commercial production at its Jamshedpur plant in March 1992. The Timken Company is a world
leader in tapered roller bearings and a leading producer of quality alloy steel. Tata Steel is the
world's 10th largest steel manufacturer. TISCO and TIMKEN each held 40% equity stake in the
company and the public held the rest. In 1999, Timken acquired from Tata Steel its 40% stake in
Tata Timken Limited. The Timken Company now holds 75% equity stake and the remaining 20% is
owned by Indian Public. The name of the Company was changed to Timken India Limited on July
2, 1999. The company has sales offices in Kolkata, Delhi, Bangalore, Pune and Jamshedpur.
Exports contribute ~36.5% to total revenue in FY15. Continued focus on export markets, we expect
TIL’s export revenue to grow at a CAGR of 20% through FY18. Gearbox servicing business
although contributing small portion (Rs 24 Cr in FY14) to the business is a high margin business.
With huge scope for cross selling of the services in the vertical, we expect revenue in the segment
to grow at a CAGR of 60% through FY18. TIL derives 25% of its revenues from CV & off highways
segments, 25% from process industries, 25% from Railways and balance 25% from after markets
& service. With diverse clients across the industries, TIL is well positioned to sail through difficult
time. We recommend buy with a target of Rs. 719, an upside of 32% in 12 months
 FAG Bearings Ltd (FAGB) – Not Rated:
FAG Bearings India Ltd (FAGB) is a leading player in the Indian Bearing industry. The company
manufactures a very wide range of bearings conforming to the stringent international quality
standards. They are leading OEM supplier to several industries including automotive, mechanical,
power, cement, mining, besides the Railways, with clientele ranging from Tata Motors, Maruti,
Ashok Leyland and the Indian Railways, among many others. Their manufacturing plants are
located at Vadodara in Gujarat. FAGB was incorporated as Precision Bearings India Ltd in the year
1962. In the year 1993 and 1998, they became the first Indian Bearing company to achieve ISO
9001 and QS 9000 certification respectively and in the year 1999, they received ISO 14001
certification. In the year 2000, the company set up India's first production facilities to produce hub
bearings. In the year 2001, the company entered a joint venture agreement with FAG Kugelfischer
Georg Schaefer AG of Germany and formed FAG Roller Bearings Private Ltd for manufacture of
taper roller bearings at Pune in Maharashtra. The Pune plant currently has the production capacity
of 2 million tapered roller bearings of world class quality for automotive and industrial applications.
We have not rated this stock.
Risk to our call

 The bearing industry is highly competitive, and this competition results in significant pricing
pressure for products that could affect revenues and profitability.
 Weakness in domestic or global economic conditions or in any of the industries or

geographic regions in which end user customers operate, as well as the cyclical nature of
customers’ businesses, could adversely impact revenues growth and profitability by
reducing demand and margins.
 Any change in raw material prices or the availability or cost of raw materials could
adversely affect results of operations and profit margins.
 Warranty, recall, quality or product liability claims could materially adversely affect
earnings.
 Environmental laws and regulations impose substantial costs and limitations on operations.
With India moving on to global standards on these issues, environmental compliance may
be more costly than we expect.
5
SKF
SKF India Ltd. Sector Update
Bearings Rating: Buy

Date December 09, 2015 SKF India, is domestic arm of SKF Group, a leading global supplier of products, solutions
CMP (Rs.) 1,250 and services within rolling bearings, seals, mechatronics, services and lubrication systems.
Target (Rs.) 1,432 Services include technical support, maintenance services and condition monitoring.
Potential Upside 15% Incorporated in 1961, today, with 3 manufacturing facilities located in Pune, Bangalore and
Haridwar, with 11 sales offices across India and a supplier network of over 300 distributors,
BSE Sensex 25,036 SKF continues to serve bearing industry for over 4 decades. SKF is the largest manufacturer
NSE Nifty 7,613 of the bearings in India with ~28% market share in domestic bearing industry. With revival in
Scrip Code both automobile and industrial activities, we expect SKF to clock revenue growth of CAGR
Bloomberg SKF IN 8% from CY14 to CY18. SKF has recently forayed in both renewable and railway segment.
Reuters SKFB.BO With new government clearly targeted to provide impetus to these industries SKF is well
BSE Group A positioned to benefit from huge investments envisaged in these industries in medium to
BSE Code 500472 longer term. With Ahmadabad facility getting fully operational in 4Q CY15, we expect
NSE Symbol SKFINDIA traded/imported component of the industrial bearings to decline significantly from current
level of 85%. We expect import substitution of industrial bearings, to be a key driver for
Market Data SKF’s margin expansion as SKF would improve its turnaround time with reduced cost. We
Market Cap.(Rs. Cr) 6,592 expect EBITDAM of SKF to improve to 12.5% by CY17 (11.7% in CY14).
Equity Sh. Cap. (Rs Cr) 53
52 Wk High/Low 1,540/1,171 Well positioned to ride on domestic economic revival:
Avg. Quarterly Volume 14,958 SKF has ~28% market share in the India Automobile and industrial segments contribute almost
Face Value (Rs.) 10 equally to SKF’s total revenue. With cooling off of inflation, cut in interest rates and improving
automobile sales we believe that India is gradually moving towards high economic growth. With
Shareholding Pattern
th clients such as Tata Motors, Maruti, Mahindra and Mahindra and Toyota, SKF is well-positioned to
(As on 30 Sep 2015)
FII 12.34 benefit from the cyclical turnaround in commercial vehicle and car sales. Besides, bearings are used
DII 20.03 across industries such as material handling, power and mining. We believe that the revival visible in
Promoters 53.58 some pockets such as road building, construction and mining activities will aid SKF to clock revenue
Public & Others 14.05 growth of CAGR 8% from CY14 to CY18.
Total 100.00
Railways and renewal energy to roll revenue further:
Comparative Price Chart
Renewable energy contributed nearly ~6% of SKF revenue in FY15. The new government at the
120 center is clearly targeted to provide impetus to renewable sector stronger development in wind
sector augur well for SKF. With Indian government’s intense focus, we believe India’s wind energy
110 installed capacity is expected to grow at a CAGR of 15% between FY15-FY22 from 22 GW to 60
GW. SKF would be key beneficiary of Indian government’s renewable energy target of 175 GW by
100 FY22. Growing demand for effective mass mobility solutions continues to lead to steady and long-
term development of the railway sector. The government has ambitious plans for growth and
90 modernization of railways. SKF has recently ventured into railway segment and is currently
supplying around ~5% of the contract size; and upon successfully meeting the criteria, SKF would
80
Nov-14 Feb-15 May-15 Aug-15 Nov-15 be eligible for supplying full time contracts which may fare well in near future.
.
SKF Sensex Localization of Industrial bearings to lift margins:
Industrial bearings contribute 51% to SKF’s revenue in CY15. Almost 85% of revenue in the
Ravikant Sangepag segment is driven by imported/ treaded components which have lower margins compared to
Research Analyst localized manufacturing. The company is in process of expansion of its Ahmedabad facility which
ravikants@systematixshares.com mainly caters to industrial bearing segment (namely Railways, Mining, Renewable Energy etc.). With
Ahmadabad facility becoming fully operational in 48 CY15, we expect import substitution of industrial
bearings, to be a key driver for SKF’s margin expansion as SKF would improve its turnaround time
with reduced cost. We expect EBITDAM of SKF to improve to 12.5% by CY17 (11.7% in CY14).
Valuation & Outlook:

Apart from abovementioned factors, SKF’s market leadership position, technological backing from its
parent and debt-free status are other factors that make the stock attractive. At current market price
of 1,250, it trades at about 28.8x CY16E EPS of Rs 43.4. We value the company at 33x its CY16E
EPS and recommend buy with a target of Rs. 1,432, an upside of 17% in 12 months.
Particulars Revenue (Cr) EBITDA (Cr) EBITDAM (%) PAT (Cr) PATM (%) EPS (Rs) P/E (x)
CY13 2,275 239 10.5 167 7.3 31.6 39.5
CY14 2,416 283 11.7 203 8.4 38.5 32.5
CY15E 2,411 253 10.5 181 7.5 34.4 36.4
CY16E 2,773 319 11.5 229 8.3 43.4 28.8
SKF
Story in charts
Correlation with IIP and domestic automobile production:
130 170
Observation of lagged quarterly IIP
120 150
with quarterly revenue of SKF
implies near perfect correlation 110 130
between them. 100 110
90 90
1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q
FY11 FY12 FY13 FY14 FY15 FY16 FY11 FY12 FY13 FY14 FY15 FY16
SKF IIP SKF AUTO
Revenue Trend
3,500 20
Revenue expected to grow with a 15.0
13.0 15
CAGR of 8% till CY17
3,000
6.2 10
2.1 (0.2) 5
2,500
2,773 3,050 0
2,416
2,275 2,411
2,000 -5
CY 13 CY 14 CY 15E CY 16E CY 17E
Revenue (Rs Cr) Growth (%)
EBITDA Trend
400 12.5 13
EBITDA to grow at a CAGR of 10% 350 11.7 12
11.5
through CY17 381
300 10.5 10.5 11
319
250 10
283 253
239
200 9
EBITDA (Rs Cr) EBITDAM (%)
PAT Trend
8.9
300 8.4 8.3 10
7.3 7.5
8
PAT to grow at a CAGR of 10% 250
through CY17 272 6
229 4
200
203 2
167 181
150 0
PAT (Rs Cr) PATM (%)
Trend in ROE (%)

15.1
16.0 13.7 14.0 14.9
14.0 12.2
ROE to stabilize at ~15% by CY17 12.0
10.0
8.0
6.0
4.0
2.0
0.0
SKF
Company Background
The SKF Group is a leading global supplier of products, solutions and services within rolling
bearings, seals, mechatronics, services and lubrication systems. Services include technical support,
maintenance services, condition monitoring, asset efficiency optimization, engineering consultancy
and training. Founded in 1907, SKF has hands-on experience in over 40 industries with our
knowledge across the SKF technology platforms: bearings and units, seals, mechatronics, services
and lubrication systems. SKF employs ~49,000 employees in 140 units and 18 technical centres
across 32 countries. SKF Group reported SEK 71 billion (Rs 802 billion) and PAT of 4.8 billion (Rs
54.2 billion) in CY14.
SKF Global caters to wide range of industries (revenue breakup in CY14)
SKF's roots in India can be traced back to 1923, when a trading arm of SKF Group was set up in
Kolkatta. Since then SKF has been serving the Indian market with high quality bearings for over 3
decades. SKF India Ltd was incorporated in the year 1961 as a result of collaboration between AB
SKF, Associated Bearing Company limited and Investment Corporation of India Ltd and the first
manufacturing plant was commissioned in Pune in the year 1965.
Today, with 3 manufacturing facilities located in Pune, Bangalore and Haridwar, with 11 sales offices
across India and a supplier network of over 300 distributors, SKF continues to serve the varied
markets with reliable solutions.
SKF India revenue breakup in CY14
Export
8%
AM
39% Auto
41%
OE
61% Indus
51%
Client Base:
Key Management Personnel :

Key Management personnel Designation
Mr. Kamlesh C. Mehra Chairman
Mr. Shishir Joshipura Managing Director & Country Manager
Mr. Chandramowli Srinivasan Director- Finance
Mr. Sudhir Rege Director-South Asia - Industrial Markets
Mr. Anjali Byce Director-Human Resources
SKF
Financial Performance
PROFIT & LOSS (Rs Cr) CASH FLOW (Rs Cr)
Particulars CY 13 CY 14 CY 15E CY 16E Particulars CY 13 CY 14 CY 15E CY 16E
Revenue 2,275 2,416 2,411 2,773 Cash from operating act. 171 236 248 248
Raw material cost 1,440 1,500 1,497 1,722 Cash from investing act. 54 10 70 101
Employee cost 207 216 215 247 Cash from financing act. (48) (61) (47) (60)
Other operating expenses 389 417 446 483 Net Change in Cash 69 165 131 88
EBITDA 239 283 253 319
Depreciation 49 54 56 62 RATIO ANALYSIS
Other Income 63 77 77 88 Particulars CY 13 CY 14 CY 15E CY 16E
EBIT 253 306 274 346 General
Interest Expenses - - - - EPS 31.6 38.5 34.4 43.4
Profit Before Tax 253 306 274 346 BVPS 241.9 268.6 294.0 326.1
Tax 86 103 92 117 ROE 13.7% 15.1% 12.2% 14.0%
PAT 167 203 181 229 WC as % of Sales 10.9% 11.6% 11.9% 10.9%
Growth
BALANCE SHEET (Rs Cr) Revenue 2.1% 6.2% -0.2% 15.0%
Particulars CY 13 CY 14 CY 15E CY 16E EBITDA -7.5% 18.4% -10.6% 26.0%
Share Capital 53 53 53 53 PAT -12.3% 21.6% -10.6% 26.3%
Reserves & Surplus 1,223 1,363 1,498 1,667 Profitability
Total Shareholder funds 1,276 1,416 1,550 1,720 EBITDA Margin 10.5% 11.7% 10.5% 11.5%
Non Current Liabilities EBIT Margin 11.1% 12.7% 11.3% 12.5%
Longterm Borrowings - - - - PAT Margin 7.3% 8.4% 7.5% 8.3%
Deferred Tax Liabilities 4 0 0 0 Stability
Other LT Liabilities - - - - Debt/Equity 0.0 0.0 0.0 0.0
Current Liabilities Current Ratio 2.6 2.8 3.2 3.2
Trade Payables 251 337 293 337 Interest Coverage NA NA NA NA
Other Current Liabilities 74 86 80 92
ST Borrowings - - - -
ST Provisions 68 45 57 65
TOTAL LIABILITIES 1,695 1,911 2,007 2,241
Non Current Assets
Net Block 376 367 370 373
CWIP 25 18 18 18
NC Investments - - - -
Current Assets
Inventories 255 293 274 315
Sundry Debtors 330 373 351 403
Cash and Bank 376 535 666 753
ST Loans and Advances 71 81 76 87
TOTAL ASSETS 1,695 1,911 2,007 2,241
NRB
NRB Bearings Ltd. Sector Update

Date December 09, 2015 NRB Bearings Limited is (NRB) NRB was incorporated in 1965 as an Indo-French venture with
CMP (Rs.) 144 Nadella and pioneered the production of needle roller bearings in India NRB provides
Target (Rs.) 179 bearings for the requirements of the mobility industry which has original equipment
Potential Upside 24% manufacturers (OEMs), including 2/3 wheelers, such as motor cycles, scooters, mopeds, auto
BSE Sensex 25,036 rickshaws and industrial four stroke engines, passenger cars from small car hatchbacks to
NSE Nifty 7,613 luxury models and utility vehicles, commercial vehicles, such as buses, farm equipment and
off highway vehicles, including forklift trucks and construction equipment, railway
Scrip Code
locomotives, defense vehicles, including gun carriers and tanks. Its products include loose
Bloomberg NRBBR IN
Reuters NBEA.BO needle rollers, needle roller bushes and cages, ball and roller bearings and automobile
BSE Group B components. Its subsidiaries include SNL BEARINGS LTD, NRB Bearings (Thailand) Ltd and
BSE Code 530367 NRB Bearings Europe GmBH. With ~70% market share, NRB is a leader in domestic needle
NSE Symbol NRBBEARING roller bearing market worth ~Rs 440 Cr in FY15. With domestic auto industry showing signs
of recovery (NRB quarterly revenue perfectly correlated with quarterly automobile
Market Data
production), we expect domestic revenue to grow at a CAGR of 13% through FY18. With
Market Cap.(Rs. Cr) 1,395
Equity Sh. Cap. (Rs Cr) 19 further expansion in to new geographies, market share gains with existing customers and
52 Wk High/Low 154/96 acquisition of new customers, we expect export revenue to grow at a CAGR of 17% till FY18
Avg. Quarterly Volume 86,546 pushing up contribution of exports to total revenue to ~26% by FY18. We expect strong
Face Value (Rs.) 2 growth in top-line coupled with positive operating leverage to improve EBITDAM from 18.5%
in FY15 to 20% in FY18.
th
(As on 30 Sep 2015) Leader in needle roller bearing segment:
FII 11.82 NRB is the leader in the needle bearing segment in India with ~70% market share. Needle roller
DII 16.34 bearings constituted ~55% of NRB’s top-line in FY15. NRB work with major OEMs from the
Promoters 57.15 conceptualization stage offers customized bearings this enables it to build strong relationships with
Public & Others 14.69
almost all major OEMs. Needle roller bearings find most of the applications in automotive industry.
Total 100.00
With auto industry finally showing signs of recovery, needle roller bearing market is estimated to
Comparative Price Chart grow to Rs. 538 Cr by FY179 (Rs 440 Cr in FY15). We expect domestic revenue of NRB to grow at a
CAGR of 13% through FY18.
140
Exports to drive revenue growth further:
120 Export contributed ~24% to top-line in FY15 (merely ~9% in FY11) registering CAGR of ~40%. In
order to reduce dependence on domestic market, NRB constantly expanded its geographical
100 presence and forayed into newer platforms. Today, the company exports mainly to Germany,
France, America, Japan, Iran, Sri Lanka etc. The company is targeting to enter African replacement
80 market segment in 2H FY16. The major clients overseas include OEMs such as ZF Friedrichshafen
AG, Getrag, Volvo, Daimler Trucks, Audi etc. With market share gains with existing customers and
60
acquisition of new customers, we expect export revenue to grow at a CAGR of 17% till FY18
Nov-14 Mar-15 Jul-15 Nov-15
pushing up contribution of exports to total revenue to ~26% by FY18.
NRB Sensex
Improved utilization to lift operating margins, lower CAPEX to improve return ratios :
NRB is operating at ~70% utilization level in FY15. With traction in revenue, utilization level could
Ravikant Sangepag improve to ~95% in FY18. We expect EBITDAM to improve from 18.5% in FY15 to 20% in FY18.
Research Analyst
With minimal CAPEX requirement (Rs 80 Cr in FY17 & FY18) we expect NRB to generate FCFF of
Rs 47 Cr/ Rs 67 Cr in FY17/FY18 thereby reducing debt to equity ratio from 1.1x in FY15 to 0.7 in
FY18. We also expect ROE of NRB to improve from 22.5% in FY15 to 25% in FY18.

At the current price of Rs 144, NRB’s stock trades at 18.5x FY17E EPS of Rs 7.8. With strong
growth in top-line, improved margins and significantly improved return ratios will help NRB to sustain
valuation multiples. We value the company at 23x its FY17E EPS and recommend buy with a target
of Rs. 179, an upside of 24% in 12 months.
Particulars* Revenue (Cr) EBITDA (Cr) EBITDAM (%) PAT (Cr) PATM (%) EPS (Rs) P/E (x)
FY14 607 104 17.1 33 5.4 3.4 42.3
FY15 670 124 18.5 53 7.9 5.5 26.2
FY16E 737 125 17.0 52 7.1 5.4 26.8
FY17E 855 162 19.0 75 8.8 7.8 18.5
NRB
Story in charts
190 190
Correlation of quarterly revenue of 170 170
NRB with IIP and Domestic 150 150
automobile production stands at 130 130
0.6 and 1.0 respectively 110 110
90 90
1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q
NRB IIP NRB AUTO
Export revenue and its contribution to total sales

280 25.7 26
Export is expected to grow at a 24.1 24.1 24.9
CAGR of 17% from FY15 to FY18 23.3
230 24
and contribution of export to sales 21.5
180 245 22
is expected to reach 25.7%
compared to current 24% 204
130 170 20
136 155
123
80 18
FY 13 FY 14 FY 15 FY 16E FY 17E FY 18E
Exports (Rs Cr) Contribution (%)
Revenue Trend
1,100 16.0 20
Total revenue is expected to grow 15.9
1,000
at a CAGR of 14% through FY15- 15
FY18 900
10.3 10.0
800 5.7 992 10
700 2.7 855
737 5
600 670
592 607
500 0
EBITDA Trend
250 20.0 21
With EBITDAM improving from
20
18.5% in FY15 to 20% in FY18, 200 19.0
18.5 19
EBITDA is expected to grow at a
150 17.0 17.1 17.0 18
CAGR of 17% through FY18 198
17
100 162
124 125 16
101 104
50 15
Trend in ROE (%)

26 25.2
23.8
With minimal CAPEX requirement
24 22.5
and better utilization, ROE and D/E
22
ratios are expected to reach 25.2 23.6
20
and 0.7 respectively.
18
16 19.1
14 15.8
12
10
NRB
Company Background
NRB Bearings Limited is (NRB) is India's largest needle and cylindrical roller bearings producer
NRB is the largest needle roller
bearing manufacturer in the headquartered in Mumbai. NRB was incorporated in 1965 as an Indo-French venture with Nadella
country with market share of ~70% and pioneered the production of needle roller bearings in India NRB provides bearings for the
requirements of the mobility industry which has original equipment manufacturers (OEMs), including
2/3 wheelers, such as motor cycles, scooters, mopeds, auto rickshaws and industrial four stroke
engines, passenger cars from small car hatchbacks to luxury models and utility vehicles, commercial
vehicles, such as buses, farm equipment and off highway vehicles, including forklift trucks and
construction equipment, railway locomotives, defense vehicles, including gun carriers and tanks. Its
products include loose needle rollers, needle roller bushes and cages, ball and roller bearings and
automobile components. Its subsidiaries include SNL BEARINGS LTD, NRB Bearings (Thailand) Ltd
and NRB Bearings Europe GmBH. Founded in 1965, NRB was the first company to manufacture
needle roller bearings in India. Today, over 90% of vehicles on Indian roads run on NRB parts. NRB
is the leader in the needle roller bearings segment in India with ~70% market share. With
customized offerings and a pure play on the mobility segment, NRB enjoys a sticky clientele across
all leading OEMs.
SNL Bearings Limited, formerly known as Shriram Needle Bearing Industries Limited, was
incorporated in 1979 and is based in Mumbai. NRB holds 73.45% stake in SNL. The company
manufactures, sells, and exports needle roller bearings and special purpose machines and tools.
The company provides a range of antifriction bearings, including ball bearings; and tapered,
cylindrical, needle, spherical, thrust, and other special application roller bearings. SNL Bearings
offers its products primarily to the automobiles, general engineering, railways, and electrical
equipment industries. The company has operations in India, the United States, Europe and the
United Kingdom. In FY15, SNL has reported PAT of Rs.4.55 Cr (Rs.3.39 Cr in FY14), on account of
higher volumes and improved cost competitiveness. We expect SNL to further capitalize on growth,
enhance profitability in years to come.
NRB Bearings (Thailand) Ltd, a wholly owned subsidiary, has increased its sales by 30% in FY15 to
Rs 22.6 Cr. The Company has turned EBITDA positive for the year and the loss has been lower at
Rs 3 Cr in FY15. NRB Bearings Europe GmbH, a wholly owned subsidiary was set up during FY15
in view of increasing exports to Europe. The Company provides marketing and customer support
services.

Mr. Trilochan Sahany Chairman
Mrs. Harshbeena Sahany Zaveri Managing Director & President
Mr. Satish Rangani Executive Director & Company Secretary
Ms. Tanushree Bagrodia Chief Financial Officer & Vice President-IT
NRB
FINANCIAL PERFORMANCE
Particulars FY14 FY15 FY16E FY17E Particulars FY14 FY15 FY16E FY17E
Revenue 607 670 737 855 Cash from operating act. 72 59 93 104
Raw material cost 234 252 277 321 Cash from investing act. 70 (12) 44 46
Employee cost 101 112 123 143 Cash from financing act. 1 (14) (63) (49)
Other operating expenses 169 183 212 229 Net Change in Cash 2 57 (14) 9
EBITDA 104 124 125 162
Other Income 3 3 4 4 Particulars FY14 FY15 FY16E FY17E
EBIT 71 96 96 130 General
Interest Expenses 19 18 17 16 EPS 3.4 5.5 5.4 7.8
Tax 18 24 26 37 ROE 15.8% 22.5% 19.1% 23.6%
PAT 33 53 52 75 WC as % of Sales 34.5% 34.5% 34.0% 32.1%
Growth
BALANCE SHEET (Rs Cr) Revenue 2.7% 10.3% 10.0% 15.9%
Particulars FY14 FY15 FY16E FY17E EBITDA 3.2% 19.2% 1.1% 29.6%
Share Capital 19 19 19 19 PAT -30.1% 61.3% -2.1% 44.6%
Reserves & Surplus 200 235 273 328 Profitability
Total Shareholder funds 219 254 292 347 EBITDA Margin 17.1% 18.5% 17.0% 19.0%
Longterm Borrowings 97 101 50 20 PAT Margin 5.4% 7.9% 7.1% 8.8%
Other LT Liabilities 8 8 9 10 Debt/Equity 1.3 1.1 0.9 0.7
Trade Payables 73 89 89 103 Interest Coverage 3.7 5.3 5.5 8.0
ST Borrowings 179 185 200 232
TOTAL LIABILITIES 677 735 748 835
Non Current Assets
Net Block 233 258 265 268
CWIP 38 4 4 4
NC Investments 0 0 0 0
Current Assets
Cash and Bank 6 28 14 23
TOTAL ASSETS 677 735 748 835
MBL
Menon Bearings Ltd. Sector Update

Date December 09, 2015 Menon Bearings Limited (MBL) is an India-based engine bearings company. The Company is
CMP (Rs.) 51 engaged in the manufacturing of auto components. The Company's products include bi-metal
Target (Rs.) 68 engine bearings, bushes and thrust washers for light and heavy automobile engines, two
Potential Upside 32% wheeler engines, as well as compressors for refrigerators and air conditioners, among
others. It also offers aluminum die casting components. MBL’s bearing products include
BSE Sensex 25,036 bearings for connecting rods, bearings for crank shafts, flanged bearings and trimetal
NSE Nifty 7,613 bearings. It provides truncated bushes for connecting rods, ball indented bushes, bushes for
Scrip Code connecting rods, cam shafts, rock shafts and rocker arms. The Company's thrust washers
Bloomberg MEN IN include washers with thrust face contours and ring type thrust washers. MBL exports its
Reuters MENO.BO products to the United States, the United Kingdom, Italy, France, China, Mexico and Brazil,
BSE Group B among others. With focus on quality, MBL has been able to gain share from ~12% in FY12 to
BSE Code 523828 ~15% in FY15. With continued improvement in market share in both domestic and overseas
NSE Symbol MENONBE market and recovery in domestic automobile industry, we expect MBL’s revenue to grow at a
CAGR of 12% through FY18. With improved utilizations and managements continual effort to
Market Data reduce its operating cost, we expect MBL to main the margins at 25% at the minimum.
Market Cap.(Rs. Cr) 236
Equity Sh. Cap. (Rs Cr) 5 Niche player with strong moat around the business to continue gaining market share:
52 Wk High/Low 65/9 MBL, with over two decades of history in bimetal bearing industry is largest with market share of
Avg. Quarterly Volume 35,207 ~18% in FY15 (~12% in FY12). The MBL brand enjoys strong equity among leading OEM`s all over
Face Value (Rs.) 1 the world as the preferred OE supplier. MBL's quality systems are TS-16949:2002 & MBL has been
awarded "Ship to Use” certification by major OEMs. With focus on quality, MBL has been able to
th
(As on 30 Sep 2015) gain share of the business from clients (Tata Motors- 40%/60% in FY12/FY15, Cummins India-
FII 0.00 50%/60% in FY12/FY15, John Deere- 80%/100% in FY12/FY15). With recovery in domestic
DII 0.00 automobile industry and improving market share, we expect MBL’s domestic revenue to grow at a
Promoters 74.67 CAGR of 12% through FY18.
Margins to sustain at current elevated levels:
Total 100.00
On the back of positive operating leverage, stringent cost control and daily monitoring of contribution
Comparative Price Chart margins have helped MBL to improve margins from ~15% in FY13 to ~22% in FY15. With their
continual effort, MBL’s management is confident to reduce its operating cost further. MBL currently
260 has capacity/utilization of 90 tonnes a month/~45% and 33 Lac units a month/~72% in Aluminum
die-casting and bearing segments respectively. With continued traction in volume, we expect
210
significant improvement in utilization in FY18 improving profitability further. While commodity prices
are expected to cool down further, MBL may face pressure on its realization in the times to come.
160
We expect MBL to main the margins at 25% at the minimum.
110 Export s to add in revenue growth and margins further:
Exports contributed ~30% to MBL’s revenue in FY15. Key international markets for MBL include
60
China, Japan, USA, Europe, South Africa and Ukraine. Margins in overseas market are ~15% higher
Nov-14 Mar-15 Jul-15 Nov-15
than those in domestic market. Complying with international standards in manufacturing critical
MBL Sensex engine components, MBL has strong relations with reputed OEM’s. MBL recently secured an export
order of USD 4 million which will be on ongoing basis. With focus on export market, we expect
Ravikant Sangepag MBL’s export revenue to grow at a CAGR of 20% through FY18.
Research Analyst Diversified and huge client base to check variability in growth in longer run:
ravikants@systematixshares.com MBLs client list figures more than 100 global OEM’s across industries and continents. Top 5 clients
(Daido Metals, Tata Motors, Tata Cummins, John Deere and FM PBW Bearings Pvt Ltd.) contribute
merely 20% to MBL’s top-line. With diversified and huge client base, we expect MBL to remain
relatively isolated from adverse changes in competitive scenario in underlying industries.
At the current price of Rs 51, MBL’s stock trades at 12.1x FY17E EPS of Rs 4.2. With continued
dominance in bimetal bearing industry and sustained margins, we expect uptrend in MBL’s stock to
continue. We value the company at 16x its FY17E EPS and recommend buy with a target of Rs. 68,
an upside of 32% in 12 months.
Particulars* Revenue (Cr) EBITDA (Cr) EBITDAM (%) PAT (Cr) PATM (%) EPS (Rs) P/E (x)
FY14 87 15 17.7 6 7.1 1.3 38.5
FY15 103 23 21.8 12 11.2 2.5 20.6
FY16E 122 29 23.5 16 12.8 3.3 15.2
FY17E 144 35 24.5 20 13.7 4.2 12.1
MBL
Story in charts
170 170
Correlation of quarterly revenue of
150 150
MBL with IIP and Domestic
90 90
1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q
Menon IIP Menon AUTO
Revenue Trend
200 25
Revenue expected to grow with a 18.0 18.0 18.0
18.9 20
CAGR of 18% till FY18 150
4.4 15
100 5.7 170
144 10
122
50 103
5
83 87
0 0
EBITDA Trend
50 30
EBITDA to grow at a CAGR of 24% 23.5 24.5 25.5
40 21.8 25
through FY18
15.3 17.7 20
30
15
20 43
35 10
10 23 29
15 5
13
0 0
PAT Trend
30 20
PAT to grow at a CAGR of 29% 14.6
25 12.8 13.7
through FY18 15
20 11.2
15 7.1 25 10
4.4 20
10
16 5
5 6 12
0 4 0
Trend in ROE (%)

35 32.4 32.7 32.9
ROE is expected to improve from 29.3
30
current ~30% to ~33% in FY18
25
17.9
20
15 11.2
10
5
0
MBL
Company Background
Menon Bearings Limited is an India-based engine bearings company. The Company is engaged in
MBL is the largest bimetal bearing
the manufacturing of auto components. The Company's products include bi-metal engine bearings,
manufacturer in the country
bushes and thrust washers for light and heavy automobile engines, two wheeler engines, as well as
compressors for refrigerators and air conditioners, among others. It also offers aluminum die casting
components. The Company's bearing products include bearings for connecting rods, bearings for
crank shafts, flanged bearings and trimetal bearings. It provides truncated bushes for connecting
rods, ball indented bushes, bushes for connecting rods, cam shafts, rock shafts and rocker arms.
The Company's thrust washers include washers with thrust face contours and ring type thrust
washers. The Company exports its products to the United States, the United Kingdom, Italy, France,
China, Mexico and Brazil, among others.
MBL has been exporting 30% of production capacity & with growth in export by more than 25 % per
annum. The MBL brand enjoys strong equity among leading OEM`s all over the world as the
preferred OE supplier. MBL's quality systems are TS-16949:2002& MBL has been awarded "Ship to
Use” certification by major OEMs.
Bearing
Strips
10%
Export
31% India Die-
casting Bearings
69% 26% 64%
Client Base:
MBL is a company promoted by the Flagship of Menon Group, the multi-product, high end critical
auto components group with 9 companies in its fold, & globally positioned with business activities
spanning 24 countries around the globe exporting 35 % of its production. Menon Group of
Companies includes :
MENON BEARINGS LTD.
Menon & Menon Ltd.
Menon Pistons Ltd.
Menon Pistons Rings Ltd.
Menon Exports
Menon Metalliks Pvt. Ltd.
Menon Automobiles.
Menon Alkop
Mr. Ram Menon Chairman
Mr. R. D. Dixit Vice Chairman & Managing Director
Mr. Nitin Menon Joint Managing Director
Mr. Sachin Menon Director
Mr. Arun Aradhye CFO
MBL
Financial Performance
Revenue 87 103 122 144 Cash from operating act. 11 11 22 25
Raw material cost 33 39 46 54 Cash from investing act. 4 2 7 7
EBITDA 15 23 29 35
Tax 3 5 7 9 ROE 17.9% 29.3% 32.4% 32.7%
PAT 6 12 16 20 WC as % of Sales 17.3% 15.1% 14.7% 14.0%
Growth
Particulars FY14 FY15 FY16E FY17E EBITDA 20.6% 46.6% 27.0% 23.0%
Share Capital 5 5 5 5 PAT 67.0% 86.9% 35.2% 26.2%
Longterm Borrowings 6 4 4 - PAT Margin 7.1% 11.2% 12.8% 13.7%
Other LT Liabilities - - - - Debt/Equity 0.5 0.4 0.4 0.3
Non Current Assets
Net Block 38 36 38 40
CWIP 1 0 0 0
Current Assets
ST Loans and Advances - - - -
TOTAL ASSETS 74 78 94 110
TIL
Timken India Ltd. Initiating Coverage

Date December 09, 2015 Timken India Limited (TIL) was incorporated in 1987 as Tata Timken Limited (TTL), a joint
CMP (Rs.) 546 venture between Tata Iron and Steel Company (TISCO) and The Timken Company, USA. It
Target (Rs.) 719 commenced commercial production at its Jamshedpur plant in March 1992. The Timken
Potential Upside 32% Company is a world leader in tapered roller bearings and a leading producer of quality alloy
steel. Tata Steel is the world's 10th largest steel manufacturer. TISCO and TIMKEN each held
BSE Sensex 25,036 40% equity stake in the company and the public held the rest. In 1999, Timken acquired from
NSE Nifty 7,613 Tata Steel its 40% stake in Tata Timken Limited. The Timken Company now holds 75% equity
Scrip Code stake and the remaining 20% is owned by Indian Public. The name of the Company was
Bloomberg TMKN.IN changed to Timken India Limited on July 2, 1999. The company has sales offices in Kolkata,
Reuters TIMK.BO Delhi, Bangalore, Pune and Jamshedpur. Exports contribute ~36.5% to total revenue in FY15.
BSE Group B Continued focus on export markets, we expect TIL’s export revenue to grow at a CAGR of
BSE Code 522113 20% through FY18. Gearbox servicing business although contributing small portion (Rs 24Cr
NSE Symbol TIMKEN in FY14) to the business is a high margin business. With huge scope for cross selling of the
services in the vertical, we expect revenue in the segment to grow at a CAGR of 60% through
Market Data FY18. TIL derives 25% of its revenues from CV & off highways segments, 25% from process
Market Cap.(Rs. Cr) 3,713 industries, 25% from Railways and balance 25% from after markets & service. With diverse
Equity Sh. Cap. (Rs Cr) 68 clients across the industries, TIL is well positioned to sail through difficult time.
52 Wk High/Low 668/448
Avg. Quarterly Volume 21,023 Exports to continue driving revenue growth:
Face Value (Rs.) 10 Export revenue of TIL has grown at a CAGR of 24% from FY11 to FY15. Contribution of the revenue
Shareholding Pattern has increased to 36.5% in FY15 compared to 30% in FY11. India contributes ~3% to Timken Global
th
(As on 30 Sep 2015) top-line. TIL has been key supplier to its group companies overseas as it’s made in India product
FII 1.62 continues to be competitive compared to other geographies. Parent is focused to make TiIL as a key
DII 9.39 manufacturing hub to cater burgeoning demand in Asia. Asia currently contributes ~13% to Timken
Promoters 75.00 Global top-line with 25% of total employees employed in the region. On the back of continued focus
on export markets, we expect TIL’s export revenue to grow at a CAGR of 20% through FY17.
Total 100.00
Comparative Price Chart Traction in service business to support revenue growth and margins as well:
Backed up with Philadelphia Gears knowhow and with investment of Rs 15 Cr, TIL set up industrial
160 gearbox service facility in Raipur in FY14. TIl generated revenue of ~Rs 24 Cr. In FY14. Industrial
140 gearbox servicing market currently dominated by unorganized players. The estimated size of the
market is ~Rs 2500 Cr wherein TIL is targeting command up to 15% market share over the longer
120 term. With increased share in service business, we expect revenue from the segment to grow at a
100 CAGR of ~60% through FY18.
80 Diversified revenue drivers :

60 TIL derives 25% of its revenues from CV & off highways segments, 25% from process industries,
Nov-14 Mar-15 Jul-15 Nov-15 25% from Railways and balance 25% from after markets & service. With increased contribution from
TIL Sensex
gearbox service business, portfolio is expected to diversify further. With diverse clients across the
industries, TIL is well positioned to sail through difficult time.
Ravikant Sangepag Valuation & Outlook:

Research Analyst
At the current price of Rs 546, TIL’s stock trades at 30.4x FY17E EPS of Rs 18. TIL trades at
premium to its peers like SKF (P/E- 28.8) due to its higher growth of 18/%/23% in revenue/PAT
compared to 8%/10% of SKF. With continued outpace in growth in both top-line and bottom-line, we
expect TIL to trade at premium to its peers in next couple of years. We value the company at 40x its
FY17E EPS and recommend buy with a target of Rs. 719, an upside of 32% in 12 months.
FY14 721 72 9.9 45 6.2 6.6 83.0
FY15 926 134 14.4 81 8.7 11.9 46.0
FY16E 1,092 158 14.4 99 9.1 14.6 37.4
FY17E 1,277 191 15.0 122 9.6 18.0 30.4
TIL
Story in charts
170 170
Correlation of quarterly revenue of
150 150
TIL with IIP and Domestic
90 90
1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q
Menon IIP Menon AUTO
Revenue Trend
2,000 30
Revenue expected to grow with a 1,493
28.4 25
CAGR of 17% till FY18 1,500 1,277
1,092 20
926
1,000 689 721 18.0 16.9 15
16.9
10
500
3.6 5
4.8
0 0
EBITDA Trend
250 15.5 20
EBITDA to grow at a CAGR of 20%
14.4 14.4 15.0
through FY18 200 15
10.7
9.9
150 231 10
191
100 158 5
134
73 72
50 0
PAT Trend
180 10.0 12
PAT to grow at a CAGR of 23% 8.7 9.1 9.6 10
through FY18 6.4
130 6.2 8
149 6
80 122 4
99 2
81
44 45
30 0
Trend in ROE (%)

25 22.7
ROE is expected to improve from 20.9 21.9
19.7
~20% in FY15 to ~23% in FY18 20
15 13.0 12.4
10
0
TIL
Company Background
The Timken Company (holding company), incorporated on December 16, 1904, engineers,
manufactures and markets bearings, transmissions, gearboxes, chain and related products and
offers a spectrum of power system rebuild and repair services around the world. The Company
operates through two segments: Mobile Industries, which offers bearings, seals, lubrication devices
and systems, as well as power transmission components, engineered chain, augers and related
products and maintenance services, and Process Industries, which provides industrial bearings and
assemblies, power transmission components such as gears and gearboxes, couplings, seals,
lubricants, chains and related products and services. The Company’s industrial brands include
Timken, Fafnir, Philadelphia Gear, Drives and Interlube. As of December 31, 2014, the Company's
global footprint consisted of 61 manufacturing facilities/service centers, 12 technology and
engineering centers and 23 distribution centers and warehouses. Timken operates in around 28
countries and territories around the globe. The Company sells products and services to the following
market sectors: industrial equipment, construction, agriculture, rail, aerospace and defense,
automotive, heavy truck and energy.
Timken India Limited (TIL) was incorporated in 1987 as Tata Timken Limited (TTL), a joint venture
between Tata Iron and Steel Company (TISCO) and The Timken Company, USA. It commenced
commercial production at its Jamshedpur plant in March 1992. The Timken Company is a world
leader in tapered roller bearings and a leading producer of quality alloy steel.Tata Steel is the world's
10th largest steel manufacturer.TISCO and TIMKEN each held 40% equity stake in the company
and the public held the rest. In 1999, Timken acquired from Tata Steel its 40% stake in Tata Timken
Limited. The Timken Company now holds 75% equity stake and the remaining 20% is owned by
Indian Public. The name of the Company was changed to Timken India Limited on July 2, 1999. The
company has sales offices in Kolkata, Delhi, Bangalore, Pune and Jamshedpur.
Manufacturing facility at Jamshedpur largely caters to medium and heavy trucks, off-highway
equipments, Railways markets and exports. The Company meets the demand for other types of
bearings viz., large size tapered roller bearings, spherical roller bearings, cylindrical roller bearings
and specialty ball bearings by sourcing these from other Timken Company plants globally. Apart
from bearings, TIL offers adjacent products related to the Mechanical Power Transmission like
coupling, housed units. Apart from bearing, TIL facility in Raipur with Philadelphia Gears capability
focuses on the industrial gearbox repair, journal rebuilding and chock repairs.
Revenue by Geography Revenue by Segment
Aftermar CV &
ket & Offroad
Service 25%
Export 25%
37%
Domestic
63%
Railways Process
25% industry
25%

Mr. Sanjay Koul Chairman & Managing Director
Mr. Avishrant Keshava Whole Time Director & CFO
Mr. P S Dasgupta Independent Director
Mr. Jai S Pathak Independent Director
Mr. R Ramesh Whole Time Director
TIL
Revenue 721 926 1,092 1,277 Cash from operating act. 48 61 96 94
Raw material cost 447 553 652 762 Cash from investing act. 37 36 18 24
EBITDA 72 134 158 191
Tax 21 42 49 60 ROE 12.4% 19.7% 20.9% 21.9%
PAT 45 81 99 122 WC as % of Sales 27.2% 24.8% 23.8% 23.0%
Growth
Particulars FY14 FY15 FY16E FY17E EBITDA -2.6% 86.8% 18.0% 21.4%
Share Capital 68 68 68 68 PAT 1.2% 80.4% 22.9% 23.2%
Deferred Tax Liabilities - - - - Stability
Non Current Assets
Net Block 97 107 110 113
CWIP 26 27 27 27
Current Assets
TOTAL ASSETS 500 585 668 784
FAGB
FAG Bearings Ltd. Sector Update
Bearings Rating: Not Rated

Date December 09, 2015 FAG Bearings India Ltd (FAGB) is a leading player in the Indian Bearing industry. The
CMP (Rs.) 4,020 company manufactures a very wide range of bearings conforming to the stringent
Target (Rs.) - international quality standards. They are leading OEM supplier to several industries including
Potential Upside - automotive, mechanical, power, cement, mining, besides the Railways, with clientele ranging
BSE Sensex 25,036 from Tata Motors, Maruti, Ashok Leyland and the Indian Railways, among many others. Their
NSE Nifty 7,613 manufacturing plants are located at Vadodara in Gujarat. FAGB was incorporated as
Precision Bearings India Ltd in the year 1962. In the year 1993 and 1998, they became the first
Scrip Code
Indian Bearing company to achieve ISO 9001 and QS 9000 certification respectively and in
Bloomberg FAG IN
Reuters FAGB.BO the year 1999, they received ISO 14001 certification. In the year 2000, the company set up
BSE Group B India's first production facilities to produce hub bearings. In the year 2001, the company
BSE Code 505790 entered a joint venture agreement with FAG Kugelfischer Georg Schaefer AG of Germany and
NSE Symbol FAGBEARING formed FAG Roller Bearings Private Ltd for manufacture of taper roller bearings at Pune in
Maharashtra. The Pune plant currently has the production capacity of 2 million tapered roller
Market Data
bearings of world class quality for automotive and industrial applications.
Market Cap.(Rs. Cr) 6,680
Equity Sh. Cap. (Rs Cr) 17 FAGB has its presence in automotive and across all core industrial segments. FAGB is No.1 supplier
52 Wk High/Low 4,890/3,100 of hub bearings to the Indian Passenger Car Industry. FAGB caters to all major industry segments
Avg. Quarterly Volume 30,725 including: Construction Machinery, Electrical Engineering, Fluid Technology, Conveying equipment,
Face Value (Rs.) 10
Industrial Gears, Mining & Cement, Power Generation, Agricultural Engineering, Steel plants,
Shareholding Pattern Motorcycles, Textile Machinery, Machine tools, Wind power, Pulp and Paper and so on. Proximity to
th
(As on 30 June 2015) the customer and intimate knowledge of individual requirements has enabled FAG India to provide
FII 2.88 innovative solutions on time and within budgets.
DII 20.43
Promoters 51.33 Since inception of FAGB, the Indian Railways has been an important customer and the company is
Public & Others 25.36 recognized as the most reliable source for critical applications viz. Traction Motors, Journal Roller
Total 100.00 Bearings, Transmission, Auxiliary Motors, etc. Just on track with the Railways.
Comparative Price Chart Export revenue contributed Rs 292 Cr (18%) to top-line in CY14. FAG Bearings from the Indian plant
are exported to Europe (52%), Americas (10%) and Asia Pacific (38%). International customers
160 using FAG India products include: Daimler Chrysler, Volvo, Volkswagen, Renault, Voith, Otis and
140 General Dynamics.
120 Schaeffler – the MNC connection
100 The Schaeffler Group, with its three strong brands INA, FAG and Luk is a leading manufacturer of
rolling bearings and linear products worldwide as well as renowned supplier to the automotive
80 industry. The group generated sales of approximately EUR 12.1 billion in 2014. With around 84,000
60 employees, Schaeffler is one of the world’s largest family companies and, with approximately 170
Nov-14 Mar-15 Jul-15 Nov-15 locations in 50 countries, has a worldwide network of manufacturing locations, research and
development facilities, and sales companies. The Schaeffler Group operates mainly in two verticals,
FAGB Sensex
Automotive Division and Industrial Division.
Access to Schaeffler’s huge technology pool and patents :
Ravikant Sangepag
Research Analyst Schaeffler Group with over more than 132 years has built the competence in application
ravikants@systematixshares.com engineering, advisory work and production technology with largest product portfolios worldwide. This
history set the standard and has resulted in a strong focus on R&D in all branches of the Schaeffler
Group, giving rise to more than 1000 patents per year. With access to Huge technological prowess,
FAGB is well positioned to grow in adverse competitive scenarios in the vicinity it operates.
Valuation:
Revenue and PAT of FAGB has grown at a CAGR of 12% and 6% through CY10 to CY14
respectively. At current market price of 4,020, it trades at about 43.7x CY14 EPS of Rs 92. This is at
a premium to its peer SKF India which trades at about 32.5x CY14 EPS.
CY11 1,309 254 19.4 176 13.4 105.9 10.0
CY12 1,447 221 15.3 159 11.0 95.8 17.9
CY13 1,402 184 13.1 122 8.7 73.3 22.3
CY14 1,632 242 14.8 153 9.4 92.0 44.1
FAGB
Particulars CY 11 CY 12 CY 13 CY 14 Particulars CY 11 CY 12 CY 13 CY 14
Revenue 1,309 1,447 1,402 1,632 Cash from operating act. 172 112 210 67
Raw material cost 757 908 897 997 Cash from investing act. 228 205 8 (63)
Employee cost 101 113 119 138 Cash from financing act. 2 (3) (3) (25)
Other operating expenses 1,054 1,226 1,218 1,390 Net Change in Cash (55) (95) 199 105
EBITDA 254 221 184 242
Other Income 31 45 46 41 Particulars CY 11 CY 12 CY 13 CY 14
EBIT 263 235 187 234 General
Tax 85 74 64 79 ROE 27.0% 19.8% 13.0% 14.6%
PAT 176 159 122 153 WC as % of Sales 11.6% 14.1% 15.7% 16.3%
Growth
BALANCE SHEET (Rs Cr) Revenue 25.8% 10.6% -3.1% 16.4%
Particulars CY 11 CY 12 CY 13 CY 14 EBITDA 43.3% -13.2% -16.7% 31.7%
Share Capital 17 17 17 17 PAT 44.8% -9.5% -23.5% 25.5%
Reserves & Surplus 713 863 973 1,091 Profitability
Total Shareholder funds 730 880 990 1,107 EBITDA Margin 19.4% 15.3% 13.1% 14.8%
ST Borrowings - - - -
TOTAL LIABILITIES 997 1,144 1,333 1,434
Non Current Assets
Net Block 178 279 399 370
CWIP 57 114 13 20
NC Investments - 4 4 4
Current Assets
Cash and Bank 233 195 238 329
TOTAL ASSETS 997 1,144 1,333 1,434
DISCLOSURES/ APPENDIX
I. ANALYST CERTIFICATION
I, Ravikant Sangepag, hereby certify (1) that the views expressed in this research report accurately reflect our personal views about any or all of the subject securities or issuers referred to in this research report, (2)
No part of our compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research report by Systematix Shares & Stocks (I) Limited or its Group/associates
companies. (3) have taken reasonable care to achieve and maintain independence and objectivity in making any recommendations.
Disclosure of Interest Statement Response
Analysts holding in the stock No
Served as an officer, director or employee No
II. ISSUER SPECIFIC REGULATORY DISCLOSURES, UNLESS SPECIFICALLY MENTIONED IN POINT NO. 9 BELOW:
1. The Research Analyst(s), Systematix Shares & Stocks(I) Limited (SSSIL), Associate of Analyst or his relative does not have any financial interest in the company(ies) covered in this report.
2. The Research Analyst, SSSIL or its associates or relatives of the Research Analyst affiliates collectively do not hold more than 1% of the securities of the company (ies) covered in this report as of the end of
the month immediately preceding the distribution of the research report.
3. The Research Analyst, his associate, his relative and SSSIL do not have any other material conflict of interest at the time of publication of this research report.
4. The Research Analyst, SSSIL and its associates have not received compensation for investment banking or merchant banking or brokerage services or for any other products or services from the
company(ies) covered in this report, in the past twelve months.
5. The Research Analyst, SSSIL or its associates have not managed or co-managed in the previous twelve months, a private or public offering of securities for the company (ies) covered in this report.
6. SSSIL or its associates have not received compensation or other benefits from the company(ies) covered in this report or from any third party, in connection with the research report.
7. The Research Analyst has not served as an Officer, Director or employee of the company (ies) covered in the Research report.
8. The Research Analyst and SSSIL has not been engaged in market making activity for the company(ies) covered in the Research report.
9. Details SSSIL, Research Analyst and its associates pertaining to the companies covered in the Research report:
Sr. Particulars Yes / No.
No.
1 Whether compensation has been received from the company(ies) covered in the Research report in the past 12 months for investment banking transaction by SSSIL No
2 Whether Research Analyst, SSSIL or its associates or relatives of the Research Analyst affiliates collectively hold more than 1% of the company(ies) covered in the Research report No
3 Whether compensation has been received by SSSIL or its associates from the company(ies) covered in the Research report No
4 SSSIL or its affiliates have managed or co-managed in the previous twelve months a private or public offering of securities for the company(ies) covered in the Research report No
5 Research Analyst, his associate, SSSIL or its associates have received compensation for investment banking or merchant banking or brokerage services or for any other products or services No
from the company(ies) covered in the Research report, in the last twelve month
10. There are no material disciplinary action that been taken by any regulatory authority impacting equity research analysis activities.
EXPLANATION TO RATINGS: BUY: TP>15%; ACCUMULATE: 5%<TP<15%; HOLD: -5%<TP<5%; REDUCE: -15%<TP<-5%; SELL: TP<-15%
III. DISCLAIMER
The information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently
verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy completeness or correctness.
This document is for information purposes only. This report is based on information that we consider reliable, but we do not represent that it is accurate or complete, and one should exercise due caution while acting
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Bearing Industry - Sector Update

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Bearing Industry - Sector Update

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Bearings Industry Sector Update

Domestic Bearing market ready to roll:

Bearings Industry Overview

Relative Comparison of companies under coverage

 Menon Bearings Ltd (MBL) - Buy:

 Timken India Ltd (TIL) –Buy:

 FAG Bearings Ltd (FAGB) – Not Rated:

Risk to our call

 Weakness in domestic or global economic conditions or in any of the industries or

SKF India Ltd. Sector Update

Bearings Rating: Buy

Valuation & Outlook:

SKF IIP SKF AUTO

Revenue (Rs Cr) Growth (%)

EBITDA (Rs Cr) EBITDAM (%)

PAT (Rs Cr) PATM (%)

Trend in ROE (%)

SKF Global caters to wide range of industries (revenue breakup in CY14)

SKF India revenue breakup in CY14

Key Management Personnel :

NRB Bearings Ltd. Sector Update

Bearings Rating: Buy

Valuation & Outlook:

NRB IIP NRB AUTO

Export revenue and its contribution to total sales

Exports (Rs Cr) Contribution (%)

Revenue (Rs Cr) Growth (%)

EBITDA (Rs Cr) EBITDAM (%)

Trend in ROE (%)

Key Management Personnel :

Key Management personnel Designation

Menon Bearings Ltd. Sector Update

Bearings Rating: Buy

Menon IIP Menon AUTO

Revenue (Rs Cr) Growth (%)

EBITDA (Rs Cr) EBITDAM (%)

PAT (Rs Cr) PATM (%)

Trend in ROE (%)

Timken India Ltd. Initiating Coverage

80 Diversified revenue drivers :

Ravikant Sangepag Valuation & Outlook:

Menon IIP Menon AUTO

Revenue (Rs Cr) Growth (%)

EBITDA (Rs Cr) EBITDAM (%)

PAT (Rs Cr) PATM (%)

Trend in ROE (%)

Revenue by Geography Revenue by Segment

Key Management Personnel :

FAG Bearings Ltd. Sector Update

Bearings Rating: Not Rated

120 Schaeffler – the MNC connection

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