Detailed Narrative
Q4 & Full Year Financial Performance Overview
SKF India reported Q4 FY26 sales of INR 5.55 billion, marking a 3% sequential growth and a 14.8% year-on-year increase, driven primarily by higher volumes in cars, 2-wheelers, and powertrains. For the full fiscal year 2026, sales grew by a solid 12.8% to INR 20.3 billion. However, Q4 PBT dropped by 770 basis points QoQ to approximately 9%, influenced by one-off📎 gains in the prior quarter. The full year PBT also saw a decline of 694 basis points due to a mix of factors including discounts, demerger-related costs, and comparability issues.
Profitability Challenges and Outlook
The company's profitability in Q4 dropped to about 9% (PBT margin), primarily due to the absence of one-off📎 gains recorded in Q3 FY26, such as interest on fixed deposits, forex gains, and employee cost provision reversals. For the full year, PBT margin stood at approximately 12.3%. Management guided for a sustainable PBT margin of 11-12% in the near future, acknowledging that this is a transition period and expressing confidence in returning to normal levels within a couple of quarters. They also noted potential gross margin pressure in the near term due to a lag in passing on rising raw material costs.
Strategic Growth Initiatives and Market Focus
SKF India is implementing a 'RACE' strategy focused on developing products for efficient and new energy vehicles, enhancing commercial excellence, and building capability and capacity. The company has secured new wins in electric motors and wheel hub bearings, particularly for new launches in FY26-27, contributing to an order book visibility extending up to 2030. The strategy aims to leverage market shifts towards EVs and new emission norms (BS-VII, CAFE norms) by offering high-value products like motor bearings and high-speed bearings, which command multifold pricing.
Capital Expenditure Plans for Capacity and Growth
The company plans a total capital expenditure of INR 500 crores between FY26 and FY28, with approximately INR 200 crores allocated for FY26-27. This investment is aimed at capacity development, upgrading manufacturing capabilities, and reducing reliance on trading from SKF Industrial. The capex is expected to support a revenue CAGR of 6-8% and facilitate the introduction of two new product lines in Haridwar this year, aligning with the 'India-for-India' focus and addressing domestic demand.
Market Dynamics and Product Mix
OEM sales accounted for approximately 66% of total sales in Q4, with distribution at 20%, exports at 8%, and SKF Industrial share at 6%. For the full year, OE sales grew a strong 20%, while exports and distribution saw a slight decline, attributed to the company's focus on meeting robust domestic demand amidst limited capacity. In the EV segment, 2-wheelers currently represent about 6% and passenger vehicles about 4% of their respective segments, with EV product performance being significantly higher than ICE vehicles.
Post-Demerger Comparability and Transparency Concerns
Investors raised concerns regarding reduced communication and clarity on normalized margins post-demerger, noting a perceived drop from pre-demerger auto EBITDA margins of 16-19%. Management acknowledged the feedback, committing to improved transparency and confirming no change in royalty or trademark fees from the earlier settlement. They also highlighted the challenge of direct peer comparison post-demerger, as SKF India is now purely automotive, unlike combined entities like Timken and Schaeffler.