SKFINDIA - SKF India Ltd. Share Price

The management of SKF India Limited provided an optimistic outlook during the Q4 FY 2024-25 earnings call, highlighting a strong macroeconomic environment with GDP growth projected to remain above 6% in the coming year. Key forward-looking points include:

1. Sales Performance: For Q4, sales grew by 1% year-on-year, but for the full financial year, there was a robust growth of approximately 8%, increasing from INR 4,487 crores to INR 4,831 crores.

2. Profit Margins: The profit before tax margin saw significant improvement from 11.9% to 23.3% due to cost-saving measures and adjustments in transfer pricing. The management aims for profit margins to maintain between 16% and 19% across both automotive and industrial segments.

3. Segment-specific Growth:

   • Automotive: Anticipated sustained growth in commercial vehicle production, particularly smaller vehicles, driven by e-commerce demands. Growth in tractors is also expected due to favorable monsoon predictions, and larger passenger vehicles (SUVs) continue to see increasing demand, including a growing presence in the EV segment.
   • Industrial: Continued performance expected in sectors like food, beverages, renewables, and railways, despite anticipating flat growth in steel production.

4. Capex Plans: Management plans to increase capital expenditures, with an expected doubling of capex from the current INR 130 crores to approximately INR 250-300 crores over the next 2-3 years, focusing on both capacity expansion and localization efforts.

5. Demerger Update: The ongoing demerger aims to create two independent entities for better management and focus, expected to complete by Q4 of the calendar year 2025.

6. Financial Expectations for FY 25:

   • EBITDA margins for automotive projected around 18% and for industrial around 17%.
   • PBT margin anticipated to remain in line with FY 24 levels, around 16% for both business segments.

Overall, management maintains a positive outlook despite some challenges, emphasizing operational efficiency and responsive strategies to adapt to market demands.

Question & Answers from Q&A Section of the Earnings Transcript

Question 1: Can you share demand outlook for next year across the key segments? And just on the demerger side, if possible to share, for FY '25, how were the numbers for the EBITDA margins and the PAT for the auto and the industrial segments?

Answer: Going forward, we expect strong growth in commercial vehicles driven by e-commerce and good growth in tractors. Passenger vehicles, particularly SUVs, are also on the rise. EV growth, though small, is present. For the industrial side, we anticipate flat to slightly up growth. For FY '25, our EBITDA margins for automotive and industrial are expected to be around 18% and 17%, respectively, reflecting stable performance similar to FY '24.

Question 2: Is it possible to share the revenue breakup for FY '25?

Answer: For FY '25, automotive represented around 40%, industrial around 52%, and exports around 8% of revenue. Notably, two-wheelers contributed 13%, with cars at 5% and power transmission also approximately 5%. Industrial distribution was around 23%, rail at 7%, and general machinery at 9%.

Question 3: Can you elaborate on the margin front regarding the positive catch-up on the transfer pricing?

Answer: We saw a significant catch-up on transfer pricing adjustments in this quarter. Last quarter, some corrections were made, but not fully. The current quarter adjustments brought margins in line with acceptable levels for tax authorities, leading to a strong uplift in both overall margins and EBITDA.

Question 4: What is the broad capex for both the new companies for the next couple of financial years?

Answer: We currently have a capex of around INR 130 crores, which we expect to double in the next 2 to 3 years. This investment will support new capacity while also reinforcing our operational efficiencies across both automotive and industrial segments.

Question 5: Will the large part of the capex be for industrial or auto?

Answer: Significant chunks of the investments will be in both sectors; however, most of the capex will be directed toward the industrial segment, particularly for setting up a new factory.

Question 6: Will the adjustment for transfer pricing keep happening, or is it settled for this year?

Answer: The transfer pricing adjustment for this year is completed. We will observe how margins develop in the new financial year, but any future volatility will be corrected at the end of the financial year.

Question 7: How is senior management evaluated across growth, margins, and exports?

Answer: Senior management focuses on revenue growth and operating margins. Specifically, they are evaluated based on sales growth and operating margins but not explicitly on exports.

Question 8: What progress has been made on new business lines in the last 3 years, particularly in industrial bearings?

Answer: Recently, we've expanded into services focusing on predictive failure analysis and reliability improvements through analytics. We also launched new, competitive products for the metals segment, reinforcing our capabilities in longer products like steel.

Question 9: Will the new facility in Pune mainly be for import substitute products?

Answer: The new facility will serve dual purposes: to enhance capacity for existing demand and to work on import substitution, particularly for automotive and industrial bearings requiring slight variations.

These responses encapsulate the major questions and answers from the earnings call while adhering to the character limit.