IGI Logo

Strong performance despite headwinds

Schaeffler India (SCHFL) reported strong Q4CY21 sales growth of 20% YoY/ 2% QoQ, 17% ahead of estimates, driven by outperformance across domestic segments, strong exports and commodity cost passthrough. This led to EBITDA growth of ~25% YoY (35% above estimate) and an uptick of 90bp YoY/110bp QoQ in EBITDA margin to 18.8%. SCHFL has embarked on capex of INR10bn to be incurred over three years focusing on conventional, hybrid as well as rising localisation, and exports. With parentco making huge strides in E-mobility, SCHFL is well placed as electrification picks up in India. The strong showing impels us to raise CY22/23E EPS by 19%/23%. Retain ‘BUY’ with a revised TP of INR2,110 at 42x (14% premium to average) Q2CY23E EPS.

Strong showing despite underlying headwinds

Overall sales surged 20% YoY across segments with mobility up 23% YoY and others up 5% YoY. This was led by improvement within automotive (auto aftermarket, up 35% YoY, industrials up 33%, exports up 61% YoY while tech was up merely 7% YoY led by production slowdown). Within Others, domestic was flat YoY while exports were up 57% YoY driven by wind and industrial automation. SCHFL won several orders across automotive technologies in transmission solutions, Gen 3 bearings, hydraulic Cam phaser solution for engines. Within aftermarket, they are increasing coverage through new clutches for LCV, launched shock absorbers. Within industrial they had strong wins in material handling, metals segments. Management continues to focus on E-mobility (3% of sales) in line with parentco’s focus on Emotors, MCU, thermal management systems. Having incurred INR1.92bn capex (CY21), SCHFL maintained INR10bn over three years. Exports remain an integral part of strategy.

Cost-flexing program drives margin gains

Gross margin expanded 108bp YoY/148bp QoQ to 38.9%. Cost-reduction measures and focus on localisation led to EBITDA margin expansion of 90bp YoY to 18.8%. EBITDA jumped 25% YoY/9% QoQ. We expect new products, price hikes, rising localisation and rising content per vehicle to help sustain margins.

Outlook and valuation: Robust bearings; maintain ‘BUY’

SCHFL is well placed as a play on mobility with rising localisation and exports. It is undertaking capex of INR10bn to leverage the uptick over the next three years. We expect a 15% sales CAGR/17% EBITDA CAGR over CY21-23E. Retain ‘BUY’ with TP of INR2,110 (INR1,717 earlier) at 42x Q1CY23E EPS. SCHFL is trading at 34x CY23E EPS.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://www.edelweiss.in/disclaimer
SEBI Registration No. INH000000172

Above views are of the author and not of the website kindly read disclaimer