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Decent performance led by better margins…

About the stock: SKF India is one of the leading bearing manufacturers known for its deep groove ball bearings and has a presence across the industrial & auto sector

* Auto & industrial have been contributing 50-50% to SKF’s topline over the years, with a slight tilt on either side depending on macros

* SKF boasts a debt free balance sheet, coupled with consistent RoCE & RoICs upwards of 20%

Q4FY22 Results: SKF reported decent Q4FY22 results.

* Revenue for the quarter came in at | 1039 crore (I-direct estimate of | 1038.9 crore), up 22.6% YoY and 7.4% QoQ

* EBIDTA margins came in at 15.3% vs. 12.7% in Q3FY22. Absolute EBIDTA came in at | 159.4 crore (I-direct estimate of | 139.1 crore), up 29.4% QoQ

* Ensuing PAT came in at | 109.5 crore (I-direct estimate of | 102.6 crore) compared to | 104.9 crore in Q4FY21 and | 88.8 crore in Q3FY22

What should investors do? SKF has been making strides towards innovation and R&D and has made significant inroads in REP. Going ahead, a recovery in CV, upcoming e-market & commencement of DFC should augur well for the company.

* We continue to remain positive and retain our BUY rating on the stock

Target Price and Valuation: We value SKF at | 3720 i.e. 36x P/E on FY24E EPS.

Key triggers for future price performance:

* Recovery in auto sector should improve manufacturing segment

* Railways tender for about 100000 new wagons in the next couple of years, indigenisation of industrial segment bearings

* Announcement on manufacturing 400 new Vande Bharat trains in three years

Alternate Stock Idea: Apart from SKF, in our capital goods coverage, we also like NRB Bearings.

* It offers a play on needle roller bearings, which are largely used in auto applications

* BUY with a target price of | 220 per share

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