SKFINDUS

SKF India (Industrial) Limited reported a solid Q4 FY26 with a 9.8% quarter-on-quarter sales growth, reaching INR 950 crores. The adjusted Profit Before Tax (PBT) margin, excluding one-time^📎 demerger expenses, improved to 11.5%. The company also achieved a significant reduction in net working capital by 2.8% QoQ, bringing it to 18.7% of sales, which contributed to a notable jump in cash flow for the quarter. Management expressed satisfaction with the strong growth and margin improvement.

The Indian economy continues to be robust, with a projected Q4 FY26 GDP growth of around 6.5%, despite some global softening. Industrial production maintained a healthy year-on-year growth of 4.5%, consistent over the last few quarters. Key industrial sectors relevant to SKF, such as electricity production, iron and steel production (9.7% YoY), and construction (6.6% YoY), showed strong performance, positively impacting the company's business.

Q4 sales growth was primarily driven by robust OEM performance, particularly in the wind sector, which grew 91% QoQ due to orders from ZF and Suzlon, and the rail sector, which grew around 12%. Significant orders were also delivered in the metals segment. Sales to SKF India Limited, driven by automotive business growth, also contributed. The overall mix shifted towards OEM (50% in Q4 from 46% in Q3), which generally carries lower margins, while the distribution business saw a temporary decline to 32% due to payment corrections.

The reported PBT margin for Q4 FY26 was 9.5%, a substantial improvement from -7.8% in Q3 FY26. After removing one-time^📎 demerger expenses (INR 18.3 crores in Q4 and INR 180 crores in Q3), the adjusted PBT margin was 11.5% in Q4, down from 13.1% in Q3. This margin compression was mainly attributed to the mix shift towards lower-margin OEM business and higher employee costs due to full bonus accrual in the current quarter. Management expects margins to normalize to around 13% by the end of calendar year 2026.

The company demonstrated excellent working capital management, reducing net working capital by 2.8% QoQ to 18.7% of sales. This improvement was primarily driven by a reduction in inventory from 16.9% to 16.0% relative to sales. A significant jump in cash flow was observed in Q4, largely due to this working capital reduction and certain tax adjustments. Management anticipates net working capital to stabilize in the range of 19-20% of sales going forward^⏳.

SKF India (Industrial) Limited's strategy, termed ACES (Accelerate localization, Commercial excellence, Execution, Working as one SKF), is defined through 2028. A key focus is accelerating localization, which involves increasing in-India manufacturing for domestic consumption and enhancing local supplier base. This strategy aims to create a more agile supply chain, reduce costs, and improve product delivery times. Commercial excellence emphasizes customer centricity and innovation, while 'working as one SKF' focuses on internal departmental collaboration.

The company highlighted several success stories, including winning a ₹32.5 crore order from a tractor company by providing localized tapered and cylindrical roller bearings from its Pune and Ahmedabad factories. Another achievement was developing a unitized solution for local commuter trains to increase load capacity from 18 to 21 tons. Furthermore, SKF enhanced its tapered roller bearing capacity in Pune from 600,000 to 886,000 pieces, achieving an 18% cost reduction and 20% improvement in flexibility through process optimization and machine upgrades.

Management projects sales growth to continue around 8%. PBT margins are expected to normalize to approximately 13% by the end of calendar year 2026, with an aspiration to reach 15% by FY29-30, and a long-term goal of 16-18%. A substantial capex of over INR 800 crores is planned over the next four to five years (FY26-FY29/30), primarily for a new Pune plant and expanding DGBB and TRB product lines. The new Pune plant is expected to be commissioned by the end of 2028.