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SKF India: Analyst meet extracts - Views on News from Equitymaster

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SKF India: Analyst meet extracts

May 14, 2009

SKF India held an analyst meet last week to discuss the company’s performance in CY08 and 1QCY09. The management also discussed company’s expansion plans for the future. What is the company’s business?
SKF India, a part of AB SKF Group Sweden, is a leading technology and solutions provider of products, solutions and services in the area comprising bearings, seals, mechatronics, services and lubrication systems. It is a market leader in the bearing industry commanding a market share of around 30% and is a main supplier to all user segments. It currently has two fully operational state of art manufacturing plants in Pune and Bangalore, employing a total work force of 2,092 employees. It has a network of over 200 distributors across the country. Around 90% of the revenues of the company are contributed by bearings, while balance is contributed by other platforms.

Key takeaways:

On CY08 and 1QCY09 performance: The topline of the company grew by around 3.3% to Rs 16.2 bn in CY08 led by higher domestic sales which grew by 4% YoY during the calendar year. However, export sales declined by 1% YoY mainly on account of weakness in auto and industrial segment during the fourth quarter due to the global credit crisis. Operating margins slumped by 3.9% YoY to 11% during the year on account of higher input cost. Net profits declined by 20.5%YoY to Rs 1.3 bn during the year. For the quarter ended 31st March 09, net sales declined 14% on QoQ basis while net profits declined by 11%. Operating margins remained stable at 5.7% on a QoQ basis in 1QCY09 on the back of cost cutting measures across all the overheads. The company managed to save over Rs 500 m due to the implementation of six sigma during the year. Going forward, the company expects more savings from the same each year.

On expansion plans: The company is planning a greenfield project at Haridwar with an investment of around Rs 1.5 bn. The first phase of the project is likely to be completed before January 2010 wherein it would have capacity of manufacturing 40 m bearings annually. Around 28 m bearings would be earmarked the original equipment manufacturers (OEM) and 12 m for the aftermarkets. It may be noted that the company is likely to avail tax incentives from this plant if it becomes operational before 31st March 2010. Thus the company is keen on completing the project before time. The project is likely to be funded by internal accruals as the company plans to remain a debt free entity.

On contracts: The company’s contract with Hero Honda has been renewed till December 2014. Majority of production from the Haridwar plant would be supplied to Hero Honda. SKF India has also committed to a business agreement for 5.5 years with Suzlon and parent company SKF for mainshaft bearings and slewing bearings. The contract value is around 303 m euro. All the sales to Suzlon for this contract would be routed through SKF India. However, the management has not disclosed the trading margins it is likely to earn from the same.

Management’s guidance for CY09: The management believes that the economic condition in CY09 would remain subdued. It expects the economy to grow between 5.5 and 6%, while the growth of industry to remain flattish or marginal. The company also plans to focus on maintaining its profitability along with its market share.

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