Skip to content

    SKF India

    SKFINDIAGood
    Capital Goods·30 Jun 2025
    Management Summary

    SKF India delivered a solid FY25 performance, hitting the ₹5,000 crore revenue milestone while maintaining healthy margins and return ratios. The primary focus of the call was the strategic demerger of the Industrial and Automotive businesses to enhance agility and capital allocation. Management provided a clear roadmap for capacity expansion and localization, targeting a listing of the new entity by the end of 2025.

    Highlights

    7

    • Annual revenue reached ₹5,000 crores with a 10% CAGR over the last 4 years.

    • EBITDA margin maintained at 17.2% for FY25, within the historical 16-19% range.

    • Industrial segment contributed ~₹3,300 crores (66% of total revenue).

    • Announced significant Capex of ₹500-600 crores for Automotive and ~₹800-950 crores for Industrial by 2028-2030.

    • Demerger process on track with NCLT meeting scheduled for July 14, 2025, and listing expected by December 2025.

    • Strong return ratios with ROCE at 29% and ROE at 22% for the fiscal year.

    • Guidance for next 3 years: 10-12% growth in Automotive and 8-10% in Industrial.

    What Changed1

    vs Q1 FY26

    Guidance items4 → 6 (+2)

    Key financials

    Single quarter

    05 metrics
    1. 01Revenue₹5,000 Cr+10%YoY
    2. 02EBITDA Margin17.2%
    3. 03PBT Margin11.5%
    4. 04ROCE29%
    5. 05ROE22%

    Segment breakdown

    • Industrial₹3,300 Cr66.0%
    • Automotive₹1,700 Cr34.0%
    Donut· Share of Revenue

    Guidance & targets

    6
    CategoryTargetPriority
    Other
    Demerger Listing Timeline
    December 2025
    		High
    Revenue
    Automotive Growth Rate
    10-12%
    		Medium
    Revenue
    Industrial Growth Rate
    8-10%
    		Medium
    Margin
    EBITDA Margin Profile
    17-19%
    		High
    Capex
    Automotive Capex
    ₹500-600 crores
    		High
    Capex
    Industrial Capex (New Plant + Lines)
    ₹800-950 crores
    		High

    Risks & concerns

    4
    RiskSeverity

    Transfer Pricing Margin Volatility

    Quarterly margins fluctuate due to regulatory norms requiring specific margins between trading entities, though they normalize annually. — Analyst acknowledged

    medium

    Execution Risk of Plant Reorganization

    Moving 3 lines from Bangalore to Pune and building a new plant by 2028 involves significant logistical and construction complexity. — Both acknowledged

    medium

    Macroeconomic Sensitivity

    Industrial growth is heavily tied to infrastructure spend and 'China Plus One' trends, while Auto depends on EV penetration and SUV demand. — Management acknowledged

    low

    Areas of Evasion(1)

    • Specific margin splits between direct and aftermarket segments were not provided due to 'clouded' data.

    Q&A highlights

    3

    “That would help us push our existing capacities almost by in the range of 1.3 to 1.5x.”

    Quantifies the asset turn and revenue potential of the massive upcoming Capex cycle.

    asked by Unidentified Participant

    2 min read5 chapters

    Detailed Narrative

    01

    Strategic Demerger Rationale

    The demerger is driven by the need for independent management focus and tailored capital deployment for the distinct Industrial and Automotive segments. Industrial requires smaller batch sizes and quicker resetting times for diverse customers, whereas Automotive demands high-volume efficiency and longer innovation cycles. The split aims to accelerate both growth and profitability by allowing each entity to respond more agilely to its specific macro drivers, such as infrastructure spend for Industrial and EV penetration for Automotive.

    02

    Industrial Segment Expansion and Localization

    The Industrial business, currently at ₹3,300 crores, is poised for growth through a new ₹450-500 crore plant in Pune dedicated to DGBBs and tapered roller bearings by 2028. Management plans to increase localization from the current 30% to 35-40% over the next 3-5 years. Additionally, export share is targeted to rise from 8% to approximately 13%, leveraging India as a global manufacturing hub under the 'China Plus One' strategy.

    03

    Automotive Segment SUV and EV Focus

    Automotive growth is being led by the SUV trend and increasing EV penetration, where SKF holds a healthy market share despite low overall market penetration (under 5% for 2-wheelers). The segment is seeing share gains in the 2-wheeler and 3-wheeler categories, with passenger vehicle wheel-end share increasing from 19% to 22%. A Capex of ₹500-600 crores is planned through 2030 to support these growth drivers and new safety regulations like ABS.

    04

    Manufacturing Footprint Reorganization

    The company is reorganizing its three main plants in Bangalore, Pune, and Haridwar. Bangalore will become 100% automotive, with three existing lines moving to Pune to consolidate industrial manufacturing. Pune will eventually house two distinct plants—one for Automotive and one for Industrial. This reorganization, coupled with a 55:45 manpower split between the two businesses, is designed to optimize manufacturing efficiency for their respective customer profiles.

    05

    Financial Outlook and Margin Stability

    Despite recent volatility attributed to transfer pricing norms in the trading business, management is confident in maintaining a 17-19% EBITDA margin profile. Revenue growth is guided at 10-12% for Automotive and 8-10% for Industrial through FY28. Post-2028, management expects faster growth in Industrial as the new plant capacity comes online and localization benefits begin to reflect in the margin profile.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.