A bearings manufacturer whose shares have risen 8x in a decade
SKF India is a debt-free company and has regularly been paying dividends.
SKF India celebrates a century of its operations in India this year. Over the last decade, the stock has returned over 700 percent to shareholders.
The company is well known as a bearings manufacturer. It manufactures products like rolling bearings, mounted bearings & housings, industrial seals, automotive seals, power transmission solutions, test and measuring equipment & vehicle aftermarket.
In the Rs 4,000 crore bearings industry, SKF India has a 20 percent market share. In an interaction with CNBC-TV18, Managing Director Manish Bhatnagar said that the company plans on increasing this share to the mid-twenties over the next 3-4 years.
Bhatnagar also said that both industrial and automotive segments of the company are growing. Industrial is more diversified and less cyclical as a segment, the automotive segment depends on the economic cycle.
SKF India caters to two-wheelers and CVs within the automotive segment, aerospace, marine, oil and gas, railways, wind energy within industrials, and also caters to F&B, pulp and paper, agriculture and wind energy segments. This is done via six manufacturing facilities and over 450 distributors.
When it comes to financials, the company's sales were hit during the pandemic, declining in both financial year 2020 and 2021. However, they have seen a swift recovery from the last financial year. For the first nine months of the current financial year, sales are at Rs 3,210 crore.
Operating profit or EBITDA for the first nine months of the year is nearly equal to financial year 2022. Net profit for nine-month period has not only surpassed pre-Covid levels, but is also better than financial year 2022. Nearly half of the company's revenue came from the industrial segment, 42 percent came from autos, while exports contributed to the other nine.
The company's main focus is to keep growing faster than the industry and EVs will be an important segment for the same. An Electric Vehicle uses comparatively fewer bearings, but the ones used are more expensive and hence, the management says that a higher EV contribution will not hurt topline, but instead boost margin.
Localisation is where SKF India finds a big opportunity - not only in terms of sales, but also demand. While localisation in the automotive business stands at 90 percent, levels in the industrial business is only at 35-40 percent. That is where it plans to increase these levels to 70 percent in the coming years.
As and when localisation levels improve, the company will be able to cut its inventory by 20-25 percent. It also plans additional capex to improve localisation levels. From the current Rs 150 crore per annum, the company plans on increasing capex to Rs 200 crore to Rs 230 crore.
"Supply chain disruptions are here to stay and that we have spent too much time globalising the supply chain and hence localisation is the way," Bhatnagar said.
SKF India is a debt-free company and has regularly been paying dividends. Over the last five financial years, dividend payout has been to the tune of 18-20 percent. In the financial year 2020 the company paid 220 percent of dividends.
The company is confident of higher investments in growth and dividend payouts at current levels to reward shareholders.
SKF India expects to gain share in the freight wagon segment in future. The company holds a high market share in passenger bogeys and locomotives in range of 30-40 percent and expects to move to a similar range in freight wagon. Risks would include higher commodity prices and inability to pass on price hikes. This would impact margins.
As mentioned earlier, shares of SKF India have gained over 700 percent during the last decade, with the stock doubling in 2014 and 2021.
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