SKF India, a 53.58 per cent subsidiary of Swedish giant SKF, is the largest player in the Indian bearings market with a 30 per cent market share. It caters mainly to automotive, electrical and industrial sectors with a product range comprising of ball bearings, taper roller bearings, greases, seals, textile machinery components and bearing accessories (under the brand name SIBCO).
Its lubrication systems are used in mining and construction machinery, wind turbine generators, machine tools and material handling equipment. It has undertaken supply of power transmission equipment like belts, chains, sprockets, couplings and pulleys, to complement its bearings portfolio in India. These products cater to a market of about Rs 1,000 crore currently, by servicing industries such as cement, steel, paper, textiles and machine tools.
SKF India is striving to improve customer satisfaction through its Direct Customer Delivery model wherein the company will act as an interface between its parent and customers for imported bearings in addition to direct supply of domestically manufactured bearings.
Financials
For the March 2007 quarter, SKF has outpaced the overall sector in profit growth. Net sales stood at Rs 359.82 crore, an increase of 21.59 per cent year-on-year (y-o-y). Earnings before interest, tax, depreciation, and amortisation (EBITDA) rose to Rs 62.16 crore, from Rs 38.70 crore a year ago, aided by a 450 basis point spurt in operating profit margin to 16.8 per cent. Net profit stood at Rs 36.66 crore, a sharp rise of 62.79 per cent over the March 2006 quarter figure.
The performance in the last quarter of a financial year is usually the strongest for most companies. For SKF India, the calendar year is the financial year. So, the December quarter is usually its strongest. Even then, it has showed strong sequential growth in January-March 2007, with both operating and net profit growing more than 15 per cent. (See: Performance).
Return on capital employed and return on equity for 2006 have shown improvement of 300 basis points and 170 basis points to 32.2 per cent and 22.7 per cent, respectively year-on-year.
Investment rationale
The demand for bearings in India is greater than domestic supply. In fact, SKF India has seen its inventory, as a percentage of sales, falling 650 basis points from 17.8 per cent in 2005 to 11.3 per cent in 2006. This has helped the company register consistent turnover and profit growth over the past few quarters on y-o-y basis.
The company has committed a capital expenditure of around Rs 150 crore for a ball bearing manufacturing plant in Haridwar, Uttarakhand, which will increase its ball bearing capacity by more than 33 per cent. The unit is expected to be operational by March 2008 and will enjoy high demand since imports currently cater to a significant portion of the domestic demand. It will also benefit from captive demand from its parent, which views the Indian subsidiary as a global manufacturing hub. The parent had come up with a delisting proposal in March 2005, but later dropped the plan as it found the exit price of Rs 295 unacceptable. This has, in fact, benefited minority shareholders.
(Source: Internet)
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