SKF India

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.

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.

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.

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.

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.