SKF India Ltd. share price target

GST transition pauses sales; outlook remains healthy SKF India's 2QFY18 results beat expectations, as EBITDA grew 45% YoY due to a favourable sales mix (mfg goods at 63% vs. 56%) and lower overheads due to inventory reduction undertaken over the past few quarters. Net sales growth was largely in line with expectations at 4% YoY, but adjusting for GST-related changes, sales were up 6% YoY on a like-to-like basis. Barring wind energy, management remains confident of healthy growth in all other segments and maintains its guidance of doubling annual capex to INR 800mn-1,000mn by FY21 as capacity utilisation has reached 95%. Given expensive valuations of 27x FY19E and...

Moderate results for Q4: SKF has recorded a moderate turnover growth of 2.3% sequentially; and 2.5% YoY owing to improved volumes, favorable sales mix & increased competition in automotive replacement segment.

However, EBITDA grew 11.9% YoY to | 93.6 crore. This was due to higher gross margins of 40.6% in Q1FY18 from 36.9% in Q1FY17. Higher gross margins were on account of higher realisations / better product-mix. Decline in revenue from low margin traded goods' (13% YoY) also contributed to higher gross margins Accordingly, EBITDA margins came in at 14% in Q1FY18 vs. 12.8% in Q1FY17. We estimated EBITDA margins of 12.9% for the quarter. PAT came in at | 64.3 crore, up 6.4% YoY primarily due to decline in...

Growing Ahead Owing to New Prospects: Moderate results for Q4FY17 - SKF has clocked a turnover de-growth of 1.4% sequentially; however recorded a double digit growth of 10.9% YoY owing toimproved volumes & favorable sales mix. EBITDA, EBIT & PAT margins have slightly contracted by 118 bps, 115 bps & 92 bps QoQ and 190 bps, 157 bps & 6 bps YoY toreach 11.3%, 9.6% & 8.2% respectively. FY17 vs FY16 numbers are not comparable as the company has shifted from calendar year to financial year during FY16 andthe FY16 numbers consist of 15 months for the same period. YoY EBITDA, EBIT & PAT margins have expanded by 65 bps, 108 bps & 67 bps to reach 11.9%, 10.2% &8.6% respectively for FY17.

Growing Despite Challenges: Impressive Q3 results despite headwinds: SKF has clocked a turnover growth of 0.4% sequentially & 8.7% YoY growth for Q3FY17 owing to improved volumes &favorable sales mix. EBITDA, EBIT & PAT margins have slightly expanded by 68 bps, 72 bps & 68 bps QoQ & 20 bps, 50 bps & 58 bps YoY to reach 12.5%, 10.8% & 9.1% respectively. 9MFY17 performance is hit by the demonetization move, however,margin performance has been good and the management is expecting normalcy by next quarter. SKF has grown in all the segments including energy, railways & automotives and has seen a slight dip in after-sales business for the quarter.

Healthy revenue growth along with stable margins: SKF has clocked aturnover growth of 1.3% sequentially & 9.7% YoY growth for Q2FY17 owing toimproved volumes. EBITDA margin has slightly contracted by 10 bps QoQ mainly on account of 4.0% rise in raw material costs & 9.7% rise in other expenses. However,compared to YoY, EBITDA margin has expanded by 90 bps due to higher salesgrowth. EBIT & Net profit margins have contracted by 10 bps each sequentially to reach 10.1%& 8.5% in Q2FY17 and the same have expanded by 130 bps & 80 bps YoY. On a larger note, the margin performance is in line with our estimates for FY17E.

We continue to maintain our positive stance and expect the company to deliver topline and bottomline CAGR of 8% and 11.8% in FY17E-19E. We roll the valuations to FY19E earnings and value the company at 28x FY19E EPS of 56.6 (30x FY18E earlier) to arrive at a target price of | 1585 (vs....

Sustainable revenue growth along with healthy margins: SKF has registered turnover growth of 10.7% sequentially & 7.1% YoY growth for Q1FY17 owing to improved volumes. EBITDA margin has contracted by 130 bps QoQ mainly on account of 9.4% rise in raw material costs & 6.0% rise in other expenses. However, EBIT margin & Net profit margin have managed to expand by 40 bps sequentially to 13.3% & 8.6% in Q1FY17 and the same have expanded by 250 bps & 150 bps YoY.

Valuation and Outlook :Aligning with Indian accounting practices, SKF changed its accounting year from calendar year to financial year starting FY16 comprising of 15 month financials. While introducing FY18E, we also have re-visited the financials accordingly going ahead. While global growth outlook remains subdued, India is one of the few economies expected to deliver growth. Aided by strong parentage and being a market leader, SKF is well positioned to reap the optimum benefits from the much anticipated economic revival. At CMP of Rs. 1422, SKF is trading at 27.4x to its FY18E EPS. SKF, in view of auto industry revival, positive industry sentiments coupled with healthy zero debt balance sheet, is well poised to outperform its peers.They ascribe a multiple of 29.0x FY18E EPS, which is 1 standard deviation of one year forward mean PE during CY05-FY16. We recommend a “HOLD” rating for an upwardly revised target price of Rs. 1504 representing an upside potential of 6%.

Revise earnings upwards to factor in recovery, upgrade to BUY We revise our earning estimates upwards, 5% and 7.6% for FY17E and FY18E respectively to factor in recovery in demand. We re-rate the business of the company and now value it at 30x FY18E EPS of 52.5 to...

SKF India's (SKF) Q5FY16 topline declined marginally by 0.4% YoY to | 587.8 crore, below our estimate of | 601.8 crore, as demand remained sluggish in the industrial and two-wheeler segment...