Don’t expect CV cycle turn for another 12-18 months– SKF India
Update on the Indian Equity Market:
On Thursday, Nifty closed 0.6% lower at 15,119. Within NIFTY50, ONGC (+7.6%), GAIL (+7.0%), and BPCL (+4.7%) were the top gainers, while BAJFINANCE (-2.5%), M&M (-2.2%), and TATAMOTORS (-2.2%) were the top losing stocks. Among the sectoral indices, PSU BANK (+5.6%), IT (+1.3%), and METAL (+1.3 %)were the onlygainerswhileFINANCIAL SERVICES (-1.5%), AUTO (-1.4%), and PRIVATE BANK(-1.1%) were the top losing sectors.
Don’t expect CV cycle turn for another 12-18 months– SKF India
Excerpts of an interview with Mr. Manish Bhatnagar, MD, SKF India, aired on CNBC-TV18 on 12thFebruary 2021:
- SKF reported strong 3QFY21 results where the Revenue/ EBITDA/ PAT growth was 16%/ 152%/ 151% respectively on a YoY basis.
- EBITDA margins reported in 3QFY21 were 22.0% vs. 10.1% in 3QFY20. A quarter of the PBT delivered in 3QFY21 came from a one-time benefit; rest of the improvement is sustainable.
- SKF was a front runner in opening up operations as early as end of April 2020. Come July-August 2020, SKF was the only company that could supply bearings to the customers when they began to ramp up production. This led to market share gain and significant growth for SKF.
- SKF caters to 2 main segments, automotive and other industries, and is diversified in terms of type of industries.
- On automotive, SKF is bullish on rural economy linked sub-segments which includes tractors and 2-wheelers. SKF is also positive on PVs on back of new model launches. SKF is conservative on CVs and management doesn’t expect the CV cycle to pick up for another 12-18 months.
- On the Industrial side, SKF expects industrials to pick up soon after having lagged automotive in last 6 months. Management is bullish on everything related to infrastructure- cement, steel, and construction equipment.
- Rise in steel and metal prices is concerning and if it continues, will impact everyone across the economy and could negatively impact the demand recovery scenario.
- SKF’s benchmark going forward is FY19 performance and they expect to grow in double digits across all segments.
Asset Multiplier Comments:
- CV OEMs have seen growth on back of e-commerce, industrial production, infrastructure projects, mining. Most sub-segments of CVs expect buses are now showing signs of revival.
- OEMs commentary has been positive on the future CV demand on back of indicators like fleet utilizations almost near pre-covid levels, consumer sentiment index trending up, and improvement in financing availability.
- While there are green shoots visible in the last few months, it is still early to be certain of a turn in the CV cycle. The demand situation is still fragile and can deteriorate in face of any disruption ranging from a second wave of Covid-19 in India, any further lockdowns, material cost inflation, or price hikes.
Consensus Estimate (Source: investing. com and market screener websites)
- The closing price of SKFINDIAwas ₹ 2,344 as of 18-February-2021. It traded at 40x/ 36x/ 30x the consensus EPS estimate of ₹58.0/65.5/78.1 for FY21E/ FY22E/ FY23E respectively.
- The consensus target price of ₹ 1,948/- implies a PE multiple of 25x on FY23E EPS of ₹78.1/-.
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”