SKF was incorporated in 1961.It is one of India’s leading company in Automotive, Industrial products includes Bearings, seals, lubrication systems, Rotating shaft services and provide solutions for machine health assessment, reliability engineering, and remanufacturing.
|Market Cap. (Cr.)||8008.95|
|52 Wk. high/low||2313/1237.50|
|Book Value (Rs)||268.48|
Share Holding Pattern %
|Non Promoter Corp.||0.00|
|Public & Others||17.40|
The global bearing market is estimated to reach around USD 190 billion by 2025, registering a CAGR of ~8.5% over the assessment period. Bearings by Product type: Plain Bearings, Ball Bearings, Roller Bearings and others) and its’ Application:Automotive,Electronics,Aerospace,Defence,Construction etc.
The company is expecting the growth from infrastructure sector such as steel, cement, construction equipment which is expected to grow at the rate of 7% and government of India has set a target of Rs. 15lac Cr investment for constructing roads in the next two years. Company is also expecting growth from the sector linked to consumer demand like Textile, Food and Beverages.
The PLI scheme introduced by Govt. of India on 11thNovemeber 2020 worth Rs. 1.46Lac Cr out of which Rs. 57042Cr allocated to Automobile and Auto parts. The company would get benefit as government may introduce eligibility criteria to use 80% of the locally sourced parts in vehicle to get benefit under PLI scheme.
Company has paid the special dividend of Rs.642 Cr 1300% of the face value (Rs.10) in H1Fy21 despite being dividend paid the company Maintains’ the healthy cash balance of Rs.759.8 Cr as against negative cash balance of Rs.370 in H1 FY20. The company has reduced it’s debt by Rs.90 Cr that drastically reduced the D/E ratio from 0.5 to 0.2 in FY19-20.
In Q2FY21 Company has registered the sales of Rs.703.24 Cr as against Rs.301.24 Cr and achieve the growth rate of 133% Q-o-Q which increases the EBITDA margin by 191% Q-o-Q but Reduction in PAT margin from 11.32% to 9.25% Y-o-Y due to fall in other income.
Company has two product classification in its’ portfolio-
Industrial Offerings: Wide product portfolio of bearings, seals, and lubrication systems, coupled with rotating equipment solutions and remanufacturing.
Applications: Caters over 40 industries globally, directly as well as indirectly, through a network of distributors.
Aftermarket: Undisputed leader in the industrial distribution market, which primarily serves the aftermarket.
Position: Key player in railway and heavy industries.
Automotive Offerings: Customized bearings, seals, and related products for wheel-end, driveline, engine, e-power train, suspension, and steering applications.
Applications: Cars, light and heavy trucks, trailers, buses, and two-wheelers.
Aftermarket: Vehicle aftermarket is supplied with spare parts, both directly and indirectly, through its extensive distribution network.
Position: Leader in wheel-end solutions and a strong position in application-driven power train solutions. Leading player in component development for automotive electrification.
The increase demand for ball bearings is rising including machine tools, Automotive and evolving medical sector is expected to drive this market growth in the near future. Rising Demand of High Precision bearing in specific applications will contribute in the growth of the market. Self aligned bearing gained popularity in the end user segment because of its’ insulation against extreme environmental factors and increasing adoption of precision engineering gaining momentum on the industrial front and playing important role in the market. This takes palc e on account of demand from industries such as aerospace and defense, ship building, energy and many others.
The impact of Covid-19 and sudden impose of lockdown distrupt the supply chain, operations and transportation. According to United Nation(UN) Analysis.
The chrome steel metal which is an intermediate used in the process of precision engineering bearing process. These chrome steel bearing enhance the physical properties of the bearing such as, hardness , wear resistance, fatigue life as against the traditional ones’ Precision engineering is concerned with designing components, fixtures and machines that have an extremely low tolerance and are stable over time in case of extreme working conditions.
The manufacturers are emphasizing of precision bearings for power trains and drive parts of artificial Satellites etc.
To surge the entire ecosystem. The integration of sensors with bearings evolved into smart bearings. For industrial applications, the sensor measures the direction, temperature, speed and vibration of these bearings. Also, the introduction of real-time enabled Internet of Things(IOT) and Artificial Intelligence (AI) is benefitting the end users to track the conditions of the bearings on the real time basis. Moreover the Technological shift towards electric Vehicles (EV) found to be positive. It is because; the electric vehicles have bearings with advanced technology with an Internal Combustion engine.
|Particulars ( inRs. Cr.)||202009||202006||201909||YoY (%)||QoQ (%)||FY20||FY19||YoY|
|( % )|
|Revenue from Operations||703.24||301.24||747.2||-6%||133%||2841.58||3034.53||-6%|
|Raw Material Consumed||156.2||47.3||155.96||0%||230%||602.8||734.27||-18%|
|Raw Material as % of Sales||22%||16%||21%||6%||41%||21%||24%||-12%|
|Purchase of Fin. Goods||173.98||145.02||336.62||-48%||20%||1203.22||1085.91||11%|
|Profit After Tax||65.02||-0.25||84.62||-23%||6402%||275.96||481.43||-43%|
|Profit After minority Interest||65.02||-0.25||84.62||-23%||6402%||275.96||481.43||-43%|
Company has registered the growth in revenue of 133% Q-o-Q resultant of which increase in EBITDA margin of 191%
Q-o-Q. The growth in Revenue and EBITDA margin is realized mainly from the company’s core operation as other income during the Quarter Reduced from Rs.15.27 Cr to Rs.7.78 Cr.
Company has raised its’ debt as interest cost rises from Rs.0.5 cr to Rs.0.8 Cr during the quarter but there is a significant Reduction in interest cost Y-o-Y from Rs.2.45 Cr to Rs.0.8 Cr.
In Q2FY21,Y-o-Y Company’s EBITDA margin Reduced to 14.16% from 15.82% due to Fall in other income to Rs.7.78 from Rs.23.22.
Company seems well sounded to cover its’ fixed financial cost as it has Interest Coverage Ratio of 106 Times in Q2FY21 as compared to 42.48 Times in Q2FY20 which Shows improvement by 150%.
|SOURCES OF FUNDS : 202003 201903 201803|
|Total Shareholders Funds||1905.25||1696.94||1837.31|
|APPLICATION OF FUNDS :|
|Less: Accumulated Depreciation||243.46||199.06||168.93|
|Capital Work in Progress||41.07||62.18||37.06|
|Current Assets Loans & Advances:|
|Cash and Bank||618.29||603.42||742.64|
|Loans and Advances||137.17||81.4||103.26|
|Total Current Assets||1642.94||1667.08||1739.54|
|Current Liablities & Provisions:|
|Total Current Liabilities||516.5||477.37||493.44|
|Net Current Assets||1126.44||1189.71||1246.1|
|Deferred Tax Assets||20.71||29.98||25.55|
|Deferred Tax Liability||3.8||7.14||8.04|
|Net Deferred Tax||16.91||22.84||17.51|
In H1FY21 Company has borrowed the amount of Rs.30 Cr to finance it’s operations and sold it’s Investment in Government securities which reduced the company’s current ratio as on 30-9-2020 to 2.40 from 3.07 as on 31-3-2020.
*Debt/Equity ratio of the company as on 30th September 2020 is 0.054 Times.
The company has an efficient cash conversion cycle of 60 days.
The company has a ROCE of 21.01%.
*Debt includes Long term obligations and short term debt
Cash flow Statement:
|Cash and Cash Equivalents at Beginning of the year||116.25||118.36||118.36||107.51||230.49||94.58||193.12|
|Net Cash from Operating Activities||72.61||148.74||329.79||180.98||367.21||114.97||26.18|
|Net Cash Used in Investing Activities||618.94||-106.16||-154.04||306.41||-264.92||147.11||-173.85|
|Net Cash Used in Financing Activities||-615.57||-79.66||-177.86||-476.54||-225.27||-126.17||49.13|
|Net Inc/(Dec) in Cash and Cash Equivalent||75.98||-37.08||-2.11||10.85||-122.98||135.91||-98.54|
|Cash and Cash Equivalents at End of the year||192.23||81.28||116.25||118.36||107.51||230.49||94.58|
Company has an improved CFO/PAT stands at 1.12 in H1FY21 as against 0.91 in H1FY20 which implies good cash flow management in H1FY21 as compared to H1FY20.
In FY19-20 company has an improved cash flow from operations by 82.22%.
During the H1FY21 company has paid the special dividend of Rs.641.16 Cr despite paying such huge dividend company is able to maintain the healthy cash balance of Rs.192.33Cr at the end of H1FY21 as against Rs.116.25 Cr as on FY19-2020.
A combination of environmental considerations, digitalization, and a shift from transactional to fee-based business models will revolutionize the way SKF does business, and will help provide more value to customers. The bearings’ demand is mainly derived from two main user segments: automotive and industrial sectors. The Extension of (PLI) scheme worth Rs 6,322 Cr to the Indian steel sector will spur more investments and production in the specialty steel segment. Automotive has claimed high double-digit growth than industrial which has grown in low single digit. In H1FY21 Company report a Profit of Rs.64.77 Cr and we expect the company has the more room to grow within the next two years. Hence, we recommend to Buy a stock at CMP of Rs.1545 for a target price of Rs.2000 FY22E.
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