SKF India — Q3 FY25 earnings call

Call held 9 Apr 2025

Management summary

SKF India is undergoing a strategic demerger to separate its Automotive and Industrial businesses into two independent listed entities to better address distinct macro drivers and customer needs. While the company maintains strong historical performance with a 27.4% ROCE, management is now focused on localized manufacturing and capacity expansion, particularly in the Automotive segment which is running at full utilization. The demerger aims to improve agility and capital deployment, with a target to list the Industrial entity by Q4 FY26.

Highlights

  • FY24 Revenue reported at ₹4,570 crores (INR 45.7 billion) with a 13% CAGR since 2020

  • EBITDA margin maintained between 16% and 17%, with a 5-year CAGR of 16%

  • Profit After Tax (PAT) reached ₹550 crores (INR 5,500 million) in FY24, reflecting an 18% 5-year CAGR

  • Return on Capital Employed (ROCE) stood strong at 27.4% for FY24

  • Demerger of Automotive and Industrial businesses initiated; expected completion in 12-15 months

  • Shareholders to receive 1 share of SKF Industrial for every 1 share held in SKF India

  • Automotive segment currently facing capacity and space constraints, necessitating additional investments

  • Industrial business localization currently stands at 30% to 35%

Concerns

  • Automotive Capacity Exhaustion

Key financials

  1. Revenue ₹4,570 Cr +13%YoY
  2. EBITDA Margin 16.5%
  3. PAT ₹550 Cr +18%YoY
  4. ROCE 27.4%

What they filed

Q1 FY27: revenue up 27.3%, net profit down 47.9% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue399 559 493 462 496 +24%577 +3%595 +21%588 +27%
EBITDA63 106 123 74 58 −8%82 −23%33 −73%88 +19%
Net profit94 110 203 119 106 +13%62 −44%-20 −110%62 −48%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Automotive
    25% ROCE1 high Asset Intensity
  • Industrial
    32.5% Localization30% ROCE

Guidance & targets

Other

  • Demerger Completion Timeline Other · by Q4 FY26 · High confidence 12-15 months
    the overall timeline for demerger is around 12 months to 15 months. We already started the process in last year, Q4 '24.

    — Ashish Saraf, CFO

  • Listing of Industrial Business Other · Q4 FY26 · Medium confidence Q4 FY26
    we are targeting listing of the industrial business by end of Q4, subject to everything going as per the overall plan.

    — Ashish Saraf, CFO

Capex

  • Annual Capex Spend Capex · FY26 · High confidence ₹150 crores
    We believe that both companies would definitely continue to spend around INR 150 crores going forward as well.

    — Ashish Saraf, CFO

Margin

  • EBITDA Margin Improvement Margin · Medium Term · Medium confidence 200-300 bps
    we would hope that we can get at least 2 to 3 more points on our EBITDA going forward.

    — Mukund Vasudevan, Managing Director

Risks & concerns

  • Automotive Capacity Exhaustion

    high

    The automotive business is running out of physical space and manufacturing capacity, requiring new investments.

    Management acknowledged

  • Demerger Execution and Regulatory Delays

    medium

    Timeline is subject to NCLT approvals and stock exchange observations; currently in the process of filing with NCLT.

    Management acknowledged

  • Asset Allocation Uncertainty

    medium

    Management refused to provide specific numbers for the Gross Block split between the two entities, citing ongoing discussions.

    Analyst deflected

Areas of evasion (3)

  • Specific Gross Block split between segments
  • Historical 3-5 year financial data for separated entities
  • Specific M&A targets or product expansion lines

Q&A highlights

1 direct, 1 evasive
Asset Allocation and Gross Block Split Evasive
we are still in the process of finalizing -- our assets allocation between the 2 companies... Automotive is more localized, there are going to be higher assets and gross block for Automotive.

Investors are concerned about how the capital-intensive manufacturing assets will be divided and the resulting impact on segment-wise ROCE.

Asked by Krupashankar NJ, Avendus Spark

Automotive Capacity Constraints Direct
currently automotive business is running out of capacity and space. We are internally evaluating additional investments that we need to make.

Reveals that the Automotive segment requires immediate capital infusion to sustain growth, which may impact near-term cash flows.

Asked by Viraj, SiMPL

M&A and Product Expansion Post-Demerger Partial
it should spur more opportunities on both sides. I can't give any specifics at this time, but it should spur more opportunities on M&A as well as investments.

Indicates that the demerger is intended to unlock inorganic growth opportunities that were previously constrained by the combined structure.

Asked by Mumuksh Mandlesha, Anand Rathi

2 min read 5 chapters

Detailed narrative

Strategic Decoupling: The Demerger Rationale

SKF India is splitting into two entities to address fundamentally different macro drivers: Automotive is driven by EV penetration (30% target by 2030) and premiumization, while Industrial is fueled by government initiatives like 'Make in India' and infrastructure spending. Management believes the current combined structure limits agility, as the manufacturing philosophies differ—Automotive requires large batch sizes and high automation, whereas Industrial demands high variety and flexible manufacturing lines. The demerger is expected to take 12-15 months, with NCLT approvals targeted by end of Q3 FY26.

Automotive: Navigating Capacity Constraints

The Automotive segment is currently operating at peak capacity, with management explicitly stating they are 'running out of space'. This necessitates a re-evaluation of the historical ₹150 crore annual capex, as additional investments will be required to expand the footprint. Despite these constraints, the segment is pivoting toward high-growth areas like high-speed ceramic bearings for EVs and light commercial vehicles (LCVs) for last-mile connectivity. Management expects the demerger to allow for more focused capital allocation to solve these capacity bottlenecks.

Industrial: Scaling Through Localization and Services

The Industrial business is currently 30% to 35% localized, with a clear strategy to increase this to drive competitiveness. The segment is focusing on 'value selling' and expanding its distribution network into Tier 2 cities. Beyond bearings, the company is investing in services like remanufacturing and condition monitoring (Rotating Equipment Performance - REP) to increase customer uptime. This segment typically enjoys higher ROCE than Automotive due to lower asset intensity, though it requires a more complex, flexible supply chain.

Financial Outlook and Margin Expansion

While FY24 EBITDA margins were healthy at 16-17%, management sees a path to improve this by 200-300 basis points through procurement efficiencies and premium pricing for high-value products like ceramic bearings. Historically, the company has delivered an 18% PAT CAGR over five years. Post-demerger, both entities are expected to maintain the historical ₹150 crore capex run rate, though this is likely a floor given the expansion needs in the Automotive business.

Shareholder Impact and Listing Timeline

The demerger is designed to be shareholding-neutral, with a 1:1 share swap ratio. The new Industrial entity will mirror the existing shareholding pattern and will be listed on both the NSE and BSE. Management is confident in the timeline, aiming for a Q4 FY26 listing. This move is also expected to attract a more diverse investor base, allowing shareholders to choose exposure between the cyclical but high-growth Automotive sector and the steady, service-oriented Industrial sector.

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