Shriram Needle Bearing Industries -- No pin-pricks to it

Recommendation:Accept

B. Krishnakumar

PROMOTED by SRF, Shriram Needle Bearing makes needle-roller bearings.

The company is a relatively small player in the bearings industry. Given the rising competition and the sluggish demand growth, the financials of Shriram Needle Bearings has been under pressure in recent years.

NRB Bearings has entered into an agreement with SRF and other stakeholders to acquire a 45.78 per cent stake in Shriram Needle Bearings. In accordance with SEBI's Takeover Regulations, NRB Bearings made an open offer to acquire 20 per cent stake from the public at Rs. 8 per share.

NRB Bearings is a major player in the bearings industry with a strong presence in the needle-bearing segment. The company has consistently expanded its product and customer base. As a result, its financial performance has improved in the last couple of years. The acquisition of a controlling stake would lend further strength to the company in terms of wider geographical reach and higher volume.

From Shriram Needle Bearing's standpoint, the acquisition could strengthen the company's financial position. Under NRB Bearings' fold, Shriram Needle Bearing can be expected to fare better. Moreover, there also exists a possibility of the company getting merged with NRB Bearings at a later date. However, there are no such indication now. For shareholders of Shriram, a lot would hinge on the swap ratio.

On the other hand, if the merger is not put through, the shareholders of Shriram Needle Bearing could be pushed to a tight corner. Already, there is a liquidity squeeze at the stock market on account of low floating stock. The scrip was last traded on February 8, 2000, at Rs. 30 with trading volume of just 100 shares. Given this backdrop, if Shriram Needle Bearing is retained as a subsidiary of NRB Bearings, the shareholders of the former would suffer from the lack of liquidity.

In such a situation, it would be relatively safe for the stakeholders of Shriram Needle Bearings to accept the open offer of NRB Bearings. High net worth investors willing to take risks could probably reject the offer in anticipation of a merger of the company with NRB Bearings.

Salient features

NRB Bearings is making an open offer to acquire a 20 per cent equity stake in Shriram Needle Bearing. The open offer is at a price of Rs. 8 per share.

NRB Bearings has agreed to acquire 45.78 per cent stake held by SRF and others in Shriram Needle Bearing at Rs. 5 per share.

NRB Bearings is a major players in the bearings sector, with a strong presence in the needle-bearings segment. Given the lacklustre financial performance of Shriram Needle Bearing and the poor liquidity at the stock market, existing holders could accept the NRB Bearings open offer.

The Shriram Needle Bearing stock is currently listed at the BSE.

The lead manager to the offer is ICICI Securities and Finance Company.

The offer opened on March 27 and closes on April 25.