NRB Bearings Limited (NRBBEARING) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the NRB Bearings Limited Q4 FY '26 Earnings Conference Call. [Operator Instructions] I now hand the conference over to Mr. Diwakar Pingle from Ernst & Young. Thank you, and over to you, sir.

Thank you, Rutuja. Good afternoon to all the participants on this call. Before we proceed to the call, let me remind you that the discussion may contain forward-looking statements that may involve known and unknown risks, uncertainties and other factors. It must be viewed in conjunction with our business risks that could cause future results performance or achievement to differ significantly from what is expressed or implied by such forward-looking statements. Please note that we've mailed the results and the same are available on the company's website. In case you have not received the same, you can write to us, and we're happy to send the same over to you. To take us through the results and answer your questions today, we have the top management of NRB Bearings Limited, represented by Ms. Harshbeena Zaveri, Vice Chairman and Managing Director. We will start the call with a brief overview of the quarter gone past and then conduct the Q&A session. With that said, I will now hand over the call to Harshbeena Zaveri. Over to you, ma'am.

Good afternoon, everybody. Thank you for joining us today for NRB Bearings Final Year '25-'26 and Quarter 4 Earnings Conference Call. I'm sorry, I have a little bit of a sore throat today. So please pardon me for my throat or take a break for a little bit of water. I must say it's always good to connect with all of you. These conversations have been extremely helpful to us, not just to share our performance but also to explain how we think about the business, how we allocate capital, how we prepare NRB for the next phase of growth. And today, I would like to take a little bit of your time and not restrict myself only to numbers because I believe that context is very important. Let me start with the financial performance for the quarter and for the full year. At a consolidated level, for quarter 4, revenues from operations grew 13% year-on-year to INR 372 crores. EBITDA increased by 17% year-on-year to INR 74 crores, delivering a healthy EBITDA margin of 19.5%. Profit after tax for the quarter stood at INR 42 crores. For the full year, revenue from operations grew 11% to INR 1,335 crores. EBITDA increased by 19% year-on-year to INR 267 crores and margins expanded to 19.5% from 18.3% in this financial year. Profit after tax increased by 77%. That's basically the entire profit after tax, and it is now INR 146 crores. Gross margins and EBITDA margins have improved steadily. And this is not because of any one single factor. It's the outcome of several structural initiatives. These include a higher use of solar energy, leading to lower power and fuel costs, higher automation, reducing dependence on labor, continuous improvement in yields and renegotiated vendor costing across material, components, logistics, insurance across all elements of material-related costs. I will pause here and say clearly that we are satisfied with the quality of growth. We believe that it's important to deliver growth at an accelerated pace, and we are working on that as well. This is a year where growth is not the outcome of one-off benefits. Growth has come from volume, from growth of market share across segments, from spreading our capacities and from improvements in product mix as well as sustainable internal efficiency improvements. Essentially, our growth is a result of a very comprehensive operational improvement plan. Now let me touch upon the operating environment during the financial year '26. I don't believe this has been an easy year globally for any of us. But despite challenges arising from geopolitics, logistical disruptions, energy availability challenges and uncertainty in overseas markets, we've not seen much material impact on our domestic business. While export demand was impacted, NRB and its subsidiaries remained more vigilant than many of those around us. Our international business did grow over the previous year to a little over 4%. Our global customers have continued to honor their production schedules and commitments. This quarter, like others, we were impacted by sudden challenges that emerged unexpectedly during -- due to the Middle East situation. However, this was not unique to NRB. It was industry-wide, it was country-wide and all over the world. Everyone was affected. However, India was particularly affected by the gas shortage. The ensuing product mix changes, which we faced from customers, who were struggling as they adapted to the constraints in the supply chain, but good supply side situations from certain suppliers who were carrying adequate inventory and also a fairly healthy demand surge. We actually came up to this challenge, we believe, better than most. But to some extent, the situation did reduce our original business plan for the quarter. From an operational standpoint, we feel we handled the situation effectively without disruption because we did not stop our customer lines, at no point did we fail to meet key customer commitments. That for us is nonnegotiable. This brings me to one area that often draws attention, and that is our inventory position. I would like to clarify how we approach it internally. We have strategically positioned inventory across India and key global locations such as Germany and the United States to ensure responsiveness and resilience. This approach allows us to absorb logistics volatility, adapt quickly to changes and maintain customer schedules, reliable delivery even during a crisis or a disruptive situation. For several products, we are 100% or near 100% suppliers to international customers, making it critical that we never become a bottleneck in the production plan. Similarly, our situation on share of business is extremely high. And at most companies for the products that we are leaders of, it is even 60% to 70% with certain products being 100%. Our inventory strategy, therefore, supports uninterrupted supply even under stressed global supply chain conditions. Nevertheless, we believe that there was and will continue to be scope for improvement. And our inventories at the end of the year were, in fact, lower by over INR 20 crores, even though our sales rose significantly. NRB's improved inventory position is close to optimal at this point, especially considering the global disruption. This, as we mentioned, is diligence, reflecting our flexibility, strong processes and strong customer-centric philosophy. More importantly, this optimized inventory position is linked to the value we deliver. This also enables us in turn to secure appropriate value and pricing. In fact, this is the comprehensive result of our R&D and new product capabilities, our ability to adapt to customer demand collectively across all areas that the customer considers important for a key supplier partnership. Over time, this reliability and consistency and world-class engineering capabilities for the launch of next-generation platforms have strengthened our customer partnerships, led to an increase of share of business and share of wallet and reinforced pricing discipline across cycles. This also gives us tremendous opportunities in the new products that we launched within the automotive sector, apart from our new initiatives in the industrial space. When it comes to growth, we internally track performance over longer periods rather than reacting to quarter-on-quarter movements. Firstly, our business has inherent seasonality. Secondly, there are different customer-specific ordering platforms in different parts of the world that we serve. Add to that the layer of complexity of ForEx movements, particularly on the export side and sometimes on the import side. For this reason, a year-to-date and full year lens gives a much more accurate picture of how our business is truly progressing. Viewed this way, FY '26 reflects steady broad-based growth driven by volume expansion, as I mentioned, and a healthy mix of both domestic and global programs adding to NRB's portfolio. This approach helps us stay focused on sustainable execution rather than get sidetracked by short-term fluctuations. On capacity, there is a question around utilization. While reported utilization is roughly 85%, in reality, effective utilization at several of our plants is much closer to full. When you take into account the demand variations, once you adjust also for maintenance, shift patterns, changeovers and generally, the demand pattern from different segments. We have identified bottlenecks at specific plants. To address this, we have already initiated brownfield CapEx. Machinery orders have been placed. In fact, most recently, machines have started to arrive. We expect commissioning of major enhancement projects starting from June, July and continuing through this financial year and beyond up to the first quarter of 2028. You will start seeing partial benefits initially from the current quarter and more during the rest of the year. Operational efficiency and improvements in quality, which have already kicked in, will have their own positive impact, and you will see our growth trajectory rise. Beyond automotive, I want to spend a little time about diversification because this expansion into industrial space is also very close to my heart. We're extremely enthusiastic about our foray into niche and profitable opportunities in the industrial friction solutions arena. This is not about entering commoditized industrial bearings. This is about high-end, specialized, application-specific industrial friction solutions where NRB's engineering depth gives us an edge in segments such as construction equipment, off-highway, industrial gearboxes, switch gears and power generation. These are all global and growing exponential segments. And new customers such as Siemens have been added. New aerospace wins include prestigious, confidential platforms of Hindustan Aeronautics and National Aerospace Laboratories. We are choosing to focus on those which we can build the future on. Acquisition of Mahant Tools is progressing as planned. Operational transition is ongoing, including purchase order migration, compliance alignment and customer integration. We have an order book close to INR 50 crores now, and we expect full operational control between mid-April and May. Before closing, I'd like to briefly outline why we believe NRB is competitively well positioned. NRB always operated with a mass customization mindset. Our start and history in needle bearings and cylindrical bearings particularly makes this a mindset edge. In fact, this gives us an edge beyond in a world which is moving closer and closer to what we do best. In fact, the demand that you see and the kind of global situations in the industrial and automotive space are suited for a supplier with our core competencies. Starting with smaller volumes, moving rapidly to mass customization at breakneck speed, this concentrated in the pecking order of which technology is going to prevail is something we handle exceedingly well. We work traditionally with customers that have a 3- to 5-year timeframe, well ahead of the next platform launch. There are many changes that take place. Sometimes the platforms exponentially are successful. Sometimes there are changes. In fact, this time gets compressed sometimes and moves the other way at others, and adaptability is key. These are the hallmarks of NRB. This is what gives us a differentiated positioning right from design to delivery. Bearings are codesigned at the platform level with the application data coming in from our customers. We sit on the drawing board. We brainstorm. Future technologies that do not exist like the new steering that Magna is going to supply to the entire stable of BMW, which makes them all, our customers, deeply, deeply embedded and makes us difficult to replace. We compete on engineering capability, we compete on flexibility, and we compete by driving this with an immensely disciplined process-oriented approach. We do not work on commodity pricing and short-term solutions. Whether it's ICE, whether it's hybrid, whether it's EV, whether the power generation is [indiscernible] tomorrow, whether it will be wind energy, our bearing content per vehicle and per product remains largely value neutral. That is our model. And we have ensured that specific applications such as, for example, EV-specific bearings are priced in a manner to maintain our existing margin profile. In that sense, we remain EV agnostic in the sense that we are supplying both, I would say, applications across technology in all the spaces that we serve, and there is not much pricing differential when we enter any kind of segment. We believe we are one of the most risk-mitigated companies today when it comes to the concept of pricing and future profitability. To summarize, financial year '26 has been a year of strong and disciplined execution. Margin improvement has been driven by structural actions, disciplined capacity expansion and thoughtful diversification. Our capital allocation remains prudent. Our focus remains on long-term sustainable profitable growth. Most importantly, what gives me the greatest confidence is our people. Across plants, most importantly, at our customers, in our R&D and our supply chain, our team, our employees continue to demonstrate agility, discipline, commitment and incredible collaboration within and outside, as members of cross-functional team that brainstorm how to deal with the constantly changing situation while staying process-oriented or with our supply chain partners or with our customers. Thank you, our investors and analysts for your trust and engagement. With that, I will pause here and open the floor for your questions. Thank you for your patience and listening to me.

[Operator Instructions] The first question is from the line of Raghunandhan N. L. from Nuvama Research.

Congratulations on strong set of results for FY '26. Thank you for the detailed opening remarks. Firstly, in your opening remarks, you mentioned international business grew at 4%. Would you be referring to the stand-alone business that within stand-alone, exports has grown at 4%? Would that be the right understanding?

No, we always look at consolidated because it's intercompany sale, it's inter-subsidiary sale. And if we give you those figures, you will get very confused. It's much more consistent for us just to talk about what we call international business, which is total international customers, which are overseas supplied irrespective from where we supplied them and with subsidiaries at the consolidated. Does that explain? So basically, [indiscernible] that was the growth figure we had, which was not necessarily very satisfying, as I said. But considering all the changes in the world, I mean, it was positive.

True, ma'am. For the stand-alone business, would it be possible to indicate how much was the growth in exports and aftermarket for full year FY '26?

See, for exports, we don't like to give the figure out separately because it causes a lot of confusion, as I said, because there are a lot of intercompany subsidiaries. We have step-down subsidiaries under the holding company. You know the structure, right? I can explain the structure, if you like. Would you like me to do that?

No, ma'am.

Yes. So exactly. I just exports won't give you a good picture. I think it will actually give a confusing picture. And we also have other subsidiaries that supply like SNL, for example. So therefore, what I would like to focus on is fundamentally that, okay, the replacement market grew 10%. Am I right? I just want to first check with my CFO test my memory. Correct? Am I right? My memory says that replacement grew 10%. So even replacement also grew 4%. Okay. So my error, replacement also grew 4%.

Noted, ma'am.

I think the last quarter has been extremely challenging for most companies in the replacement and distribution space. And we, to be honest, revised our plan and decided that we would focus more on OEMs. As you know, we are one of the rare companies that does not have virtually any pricing differential when you look at the cost part. I have explained this in the past, but essentially, [ so however ] the replacement market is extremely expensive, there are lots of discount structures and the way we calculate it is the final impact. Secondly, we're not into commoditized bearings. So the prices that we command at the OEMs, it's not the traditional model, which is similar for commoditized bearings or the tire industry or something. You lose money when you send to the OEM and then you make 4x as much money when you sell in the replacement market, which is the situation with some of our competitors. That's not how our model is.

Well noted, ma'am. And how do you see the outlook for exports and aftermarket for FY '27? Do you think -- directionally, do you think there is an improvement expected?

Yes. We expect 10% to 14% growth in our international business this year as per our current business plan. So last year, there was 4% growth, this year we expect 10% to 14%, maybe even 15%.

Well noted, ma'am. My second question was on the CapEx part. What is the CapEx expected for FY '27, given that you are looking at a good growth and you have also indicated in the BSE filings that there will be an expansion happening? So for FY '27, would INR 80 crores be a good estimate?

No, it will be closer to INR 120 crores. It will be closer to INR 120 crores and the reason for that is we're also looking at land.

Sorry to interrupt you, Mr. Raghunandhan...

Yes, I'll come back in the queue. I'm just clarifying on the question. On CapEx side, INR 120 crores, how would it be distributed between stand-alone and subsidiaries?

I think I'm getting an indication of more questions. And this is -- again, as I'm saying, we fundamentally drive with consolidation. So I mean we don't like to give out too many numbers which are not in the public domain that are necessarily being watched by our competitors, especially since we are outperforming at this point.

Sorry to interrupt. May we request Mr. Raghunandhan to please rejoin the queue? We have participants waiting for their turn. We'll move to the next question from the line of [ Villay Rai ] from Kamakhya Wealth Management.

Congratulations, ma'am, on great set of numbers. Can you please throw some light on capabilities of Mahant Tool Rooms? What exactly do they produce in aerospace segment? Where do they lie in the value chain? What certifications do they have?

So basically, they manufacture products in, what we call, mission-critical areas, okay, for the highest performing aircraft that are used by Indian defense systems. The reason this is very interesting for us is because they are very similar to focus that we have as a company on commercial aircraft. So this is landing gear components. This is the fuel injection system. This is the doors. I mean literally what saves the lives of the pilots and what made our strikes successful. They were at the forefront of that. They also make a product called rod ends, which is similar to one of the bearings that we are focusing on. That, it's not a bearing, but it's a similar product. So interestingly, even though they manufacture more for defense, the applications are similar to what our long-term goal and plan for aerospace is.

So currently, if the order book is 100% towards defense, would they need to apply for more certifications in order to supply to commercial aerospace? How are we planning this? Do we need...

Yes. So they're already in the process of the certification. That means they already are in the process of the certification, and our products will also be covered in the certification, what we've developed. That was the reason that we looked for a company that was in process of the certification rather than the company that already had it. Does that make sense? That means in the next 6 months, they'll be getting the certification, and our products will also be included into that.

May I request the participant to rejoin the queue. [Operator Instructions] The next question is from the line of Nitish Rege from ChrysCapital.

Ma'am, in your opening remarks, you said that we've added Siemens as a customer. Just could you share some more information regarding this? Is it for Mahant? Is it for NRB? Which application product, size of the contract, timeline? Just some color on that.

Sorry, we do not share that information. And often, we are also not permitted to share with our customer confidentiality contract.

Fair. And just one last bookkeeping. In Mahant Tool Room, you said the order book has now reached INR 50 crores, right?

Yes.

This is executable over the next 12 months, 12 to 18 months?

No, no, no, no. It doesn't work like that in aerospace. It means the significance of that is when we announced the acquisition, they had an order book of INR 25 crores. The pace depends on each year. The pace depends on how much big scale -- that means enhanced case will depend on whether a particular landing gear on one aircraft, for example, is rolled out right across, okay, and how fast, but these are concrete orders. The exact pace is not something that we can predict, but it gives you an idea of how much business has been signed up depending on whether the defense organization slows down or moves up. And from every angle that we can see, defense rollout is speeding up. Now the additional business that we got is indicative of the fact that HAL has not just endorsed but has heartily endorsed this change of Mahant Tool Room being a 100% subsidiary of NRB. And in the short span of time, the order book has doubled. So that was the significance of that.

The next question is from the line of Lakshminarayanan from Tunga Investment.

I just want to understand what is the mix of revenues by application. The second question I have is that is the [indiscernible]-related volume loss is completely recovered now because I think last year, we carried some amount of lost opportunity. And the third question is that can you just help me understand the inventory carrying levels, how does it differ between domestic business and international business? Because I believe that international business, the inventory days are slightly longer. So these are my questions.

Okay. So let me start by the segmentation that you mentioned. 2- and 3-wheeler applications for -- one second. Do you want to know the pie of the different segments, just for clarification? Excuse me. Do you want to know, for example, now how much are 2-wheeler and 3-wheeler businesses and how much...

No, no. I'm not looking at 2-wheeler, 3-wheeler. I'm looking at more from an application point of view, it could be industrial, transmission or it could be the way in which as an organization, you define...

So that is not something that we give out, but I can give you a rough indication. This used to be very important to people when EV was happening and they would ask us how much is in engine, okay? And I would say that apart from 2- and 3-wheelers, we are not much in the engine applications. We are in transmission, driveline, chassis and in steering. We are not much in wheel applications and therein lies opportunity for us because there are 2 kinds of opportunities for us, if that is really the end goal of your question. One opportunity is that we are in -- and I'm going kind of picturing a vehicle and telling you that we are increasingly in steerings, and we are really launching some of the most prestigious steerings in the world. When it comes to transmission, it's very interesting. I was recently going to buy a car, okay? And I might answer this as a story. And I said, look, I only want to buy a car that has my bearings. So the company was like you need to get a prestigious car. I'm not a very high profile person, but the company was deciding to continue to be a prestigious car. So I said, okay. And I can tell you that every single Maybach has my bearings in the transmission and then it goes down to all the X classes and the CLS and the CLA -- I mean, literally, every Mercedes from one to the Maybach has us in the transmission. Then you flip over to BMW and you see the models that have that I initial on it, okay? All of them from the 1 Series, the 2 Series, the 4 Series, the 5, the 3, the 8 and you go on all the way to the 7L and they all have us in the transmission. Increasingly, in the next year, as I mentioned, when they change over their steering to the new platform of a highly advanced e-steering that is going to have our bearing starting as Magna rolls it out there. We are in, for example, the transmission across that I mentioned through ZS. So transmission, chassis, steering are our main states, all kinds of electric motors in there. And I mean the small ones like the locking systems and like the starters and things have all bearings. Now you move to truck. When you look at truck, all the same footprint that I mentioned just now as part of the vehicle is replicated. But we are also in very critical applications such as what is known as the kings in bearings. When you see those huge trailers, right, on the road and you wonder how the cargo doesn't get dislocated off, especially if you're seeing a container truck, it's NRB Bearings that holds it together. Literally in every Mercedes and MAC and Freightliner and Scania and Volvo, I mean, this is a patented product that we make, which is a combined cylindrical thrust bearing. It's very hard for me to give data on specific bearings because sometimes what we engineer like an amazing amalgamation of different kinds of bearings put together. So I think that's the kind of space that we're in when it comes to automotive. And literally, I mean, industrial bearings are going to -- they're going to go into the electric grid. They're going to go into industrial gearboxes. They are going to go into literally anything that takes cylindrical roller bearings. We are increasingly developing our product range for construction and off-highway, as I mentioned, and switchgears and the electric grid transmission. So those are the areas of focus. I hope that answers your question fairly comprehensively.

The next question is from the line of Varun Jain from Dolat Capital.

So I have a couple of questions on Mahant Tool Room. So I think last quarter when the acquisition was announced, it was told that the annual revenue run rate for this company is close to INR 2 crores. So in FY '27, how much will be the revenue they'll be able to execute out of the INR 50 crore order book? And is HAL 100% of the order book? That's my first question.

So there are two things. On Mahant Tool Room, if you have a little patience once we complete all elements of this transaction, then we will be able to make a very comprehensive business plan. And we will be happy to give some insight into that approximately 6 months from now, it will be more meaningful. The INR 2 crores actually has no meaning because our idea, we had a plan to set up our own aerospace manufacturing facility. I can tell you fairly candidly that we were carrying at that point of time, INR 100 crores of RFQs from some of the names that are the top 3, top 4 producers of aircraft and their components in the world. However, the situation was that if you wanted to enter that business, it would have taken us 4 years even to be able to respond to the RFQ because without a concrete AS 91000 certification plan, which is in a time-bound manner can be shared, we had no hope. Therefore, our aim was to buy a company. That would give us the people capabilities, the design capabilities and the certification capabilities to take this business to the next level. We also did not want to buy a company that didn't have the right culture, and it was extremely difficult for us to find a company that was doing such complex things but at a scale that we could take to the next level. And that is the entire reason why we acquired it. So if you have a little patience, trust me, we saved 3 years and we were able to really be in a position to make that concrete plan, which typically people either go and acquire a business outright, but we don't believe in acquiring a business outright because the culture doesn't fit then because this requires a lot of innovation.

Sure, ma'am. And this is HAL right now 100% of the order book?

It is, but it's not one division. It's literally every division. HAL is run in a manner where literally each division is like a company of its own. So they have multiple divisions of HAL, which are buying different, different parts for different kind of technologies and aircraft.

The next question is from the line of [ Gajraj Raheja ] from [indiscernible] Financial Consulting.

Am I audible?

Yes, you are.