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Friday, April 9, 2010

SKF India rises on parent’s plans to grow in local market

Swedish automotive and industrial component firm SKF AB’s commitment to growing its Indian operations has caught the attention of investors. Even as the Sensex closed 1.5% lower on Thursday, SKF India Ltd’s shares rose by around 2% to close at Rs391 each.

Riding on strong automotive sales, the company with annual revenue of around Rs1,600 crore sees a potential to grow by around 15-20% during its fiscal 2010 ending December. Media reports indicate an addition of 500 new employees. This comes in the wake of the parent company cutting back 1,600 employees globally during the year. India’s importance in SKF’s scheme of things is also marked by its recent expansions. True, the parent’s capex plans are lower this year at $210 million (Rs938.7 crore) compared with $280 million in 2009. But two out of three new factories planned globally are in India.

Despite rather flat sales since 2008, SKF India planned two new factories in Haridwar and Ahmedabad in mid-2009. With operations having just started, the firm is poised to cash in on the growth in the domestic market. According to analysts, SKF will see higher volumes in the coming quarters from the uptrend in the commercial vehicle segment.

SKF India’s new Haridwar facility will cater to the two-wheeler OE (original equipment) segment and the after market. Globally, the group also has a stronghold in the bearings and other components used in drilling rigs and wind turbines. SKF India’s Ahmedabad facility will enhance focus on this segment.

While the parent company’s revenues were down nearly 12% in 2009 from the previous year, SKF India registered only a marginal decline. Again, while the parent company’s profit margin dropped from around 13% in 2008 to 6% in 2009, SKF India’s margin fell to a lesser degree, from 12% to 10%. The parent has indicated a long-term target of improvement in profit margin to 12% at the global level.

SKF India registered earnings of around Rs17 per share during 2009. At the current market price of Rs371, historic earnings are discounted 23 times.

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