NRB Investing for Massive Production Boost

NRB Bearings Ltd. (India; BSE 530367) is reportedly initiating one of the most aggressive production expansions announced recently in the bearing industry. By 2008, NRB said it intends to more than double its manufacturing capacity for needle roller bearings, and more than triple its capacity for cylindrical roller bearings. To accomplish all this across its four manufacturing locations in India, NRB is planning to spend more than Rs 1 billion (USD $21.6 million) in production equipment and capital improvements. Rs 500 million ($10.8 million), or half, will come from internal capital reserves, while the other Rs 500 million ($10.8 million) will be financed by taking on new debt. All of NRB's manufacturing locations will receive significant investments: Thane, Aurangabad, Jalna, Waluj, and Hyderabad. The high level of investment is significant for a company in such a competitive market, whose sales are currently on a run rate of approximately RS 2.6 billion ($60 million). Earlier this year, NRB President, Harshbeena Zaveri, said: "We want profit growth to be 30% plus. We definitely expect to maintain that top line growth." Founded in 1965 as a joint venture with French needle bearing manufacturer Nadella, NRB now has an overall 13% market share of India's bearing market. NRB manufactures needle roller, thrust and cylindrical roller bearings; the majority of its output -- 85% -- goes to automobile and light truck manufacturers. In the Indian market, NRB is also a key supplier to the textile and rail industries. Some production is exported to European automakers such as Renault and Volvo, but exports currently account for only 8% of sales. Going forward, NRB has established a far more aggressive strategy aimed at building export sales. For example, it has nearly doubled the R&D budget, in large part to fund the work needed to capture additional European sales and market share. Domestically, its largest customer is heavy truck manufacturer Tata Motors Ltd., followed by two-wheeler producers Bajaj Auto and Hero Honda. NRB is also seeking type approval by GM, Volvo and others. Until mid-November 2005, Timken owned 26% of NRB, a legacy of its acquisition of Torrington which had acquired Nadella. Timken divested that 2.5 million share ownership to two Sahney family-controlled entities for Rs 230 per share, or $13 million. The Sahney family has since reduced its NRB holdings from 85% to 75%, to comply with BSE stock market requirements limiting ownership stakes.