SKF India Ltd - Rs 205.00
Established in 1923, SKF India Ltd (SIL), a part of the US$ 6 billion global AB SKF Group, is a leading technology & solutions provider of products, solutions and services in the area comprising bearings, seals, mechatronics,, services and lubrications systems. With 90% revenue coming from bearings, SIL is India’s largest bearing manufacturer commanding more than 30% market share across the country. Out of that 90% nearly 10% comes from export to various countries around the world. Well bearings are used in the rotating parts of virtually every machine or product manufactured by industry. The automobile industry is the major user segment for bearings, followed by general engineering, heavy industries and railways. Importantly SIL manufactures all types of roller bearing, ball bearing, bearing units, bearing housing, plain bearing etc in hundred of sizes thereby having an extensive product range and literally providing solution for any and every conceivable application. According to the specific industry segment SIL has created following four profit centre or business units.
· Automotive Business Unit (30%): is responsible for sales to the car, light truck, heavy truck, bus and vehicle component industries and the vehicle service market. The products include wheel hub bearing units, taper roller bearings, small deep groove ball bearings, seals, special automotive products and complete repair kits for the vehicle service market.
· The Electrical Business Unit (20%): is responsible for sales to manufacturers of electric motors, household appliances, electrical components for the automotive industry, power tools, office machinery and two-wheelers
· The Service Business Unit (20%): offers mechanical services, predictive and preventive maintenance, condition monitoring, decision-support systems and performance-based contracts. It also supports industrial customers with knowledge-based service solutions to optimize plant asset efficiency.
· The Industrial business Unit (30%): is one of the fastest growing units as it has four specialized business areas namely aerospace, railways, lubrication systems and actuation & motion Control.
Besides above SIL also manufactures precision textile machinery components for textile mills, spindle manufacturers and drafting conversion manufacturers. It even helps customers/textile mills modernize existing machines. Currently, SIL operates thru two manufacturing plants based in Bangalore and Pune. However for future growth, it is putting up a new plant in Haridwar, Uttarakhand with a capacity of 48 million pieces of bearing which will cater to two wheeler market segment. The plant sis expected to start commercial production by mid 2009. Last fiscal it launched power transmission products as a new product range to capture the growth in the energy sector. Of late, SIL also got engaged into marketing, sales and distribution of large size bearings for industrial segment being produced by another group company. Sarcastically, SKF group has recently set up a new unit in Ahmedabad not under SIL but thru SKF Technologies India Private Ltd with an investment of Rs 270 cr to manufacture large bearings. Besides, AB SKF in India also manages another wholly owned subsidiary called SKF Sealing Solutions Pvt. Ltd which offers customers complete sealing solutions based on its leading edge technology.
With India expected to emerge as one of world’s largest economies, it is bound to witness phenomenal growth in industrial, infrastructure and engineering including automotive sector. Hence the future prospects of bearing industry as well as SIL are quite promising. However the rise in steel price is a cause of worry, as it forms the basic material and accounts for almost 45 per cent of total cost. Besides, the competition from unorganized segment is getting intense day by day. Still SIL is expected to do well on the back of strong goodwill and wide distribution network. Financially also it’s on a very strong footing as it continue to be a zero debt company. For year ending Dec 2007 it reported 20% rise in sales to Rs 1568 cr and 60% jump in net profit to Rs 161 cr posting an EPS of Rs 30 on equity of Rs 52.70 cr. However the H1FY08 figures are not so encouraging due to decline in OPM and single digit growth in topline. Accordingly for CY08 it may clock a turnover of Rs 1725 cr and PAT of Rs 145 cr leading to an EPS of Rs 27. Hence it means the scrip is currently trading a PE ratio of less than 8x times which is extremely cheap for such a professionally well managed & debt free MNC engineering company. From CY09 company is expected to maintain healthy double digit growth on the back of revenue generation from new Haridwar plant. Investors are strongly recommended to buy at current levels with a price target of Rs 325 (50% appreciation) with 12~15 months.
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