The auto ancillary market is poised for growth, with an anticipated CAGR of 8.5% from 2022 to 2027, reaching a value of $522.8 billion by 2027. This growth is driven by increasing vehicle production, technological advancements, and rising demand for electric and autonomous vehicles, particularly in emerging economies.
With a market capitalization of Rs 23,380.94 crore, the shares of SKF India Ltd were trading at Rs 4,729.35 per share, increasing around 0.26 percent as compared to the previous closing price.
Looking into SKF India’s performance, revenue increased by 1 percent from Rs 1,077 crore in Q3 FY23 to Rs 1,092 crore in Q3 FY24. During the same period, net profit increased by 14 percent, from Rs 116 crore to Rs 132 crore.
ICICI Direct, one of the well-known brokerages in India, gave a ‘Buy’ call on the auto ancillary stock with a target price of Rs 6,060 apiece, indicating a potential upside of 28 percent from Friday’s price of Rs 4,729.35 per share.
Here is the rationale behind the bullish potential upside of 28%:
● SKF is strategically focusing on key higher-growth segments such as renewable energy, railways, mining, and e-powertrains in the industrials segment, contributing approximately 56% to total revenues. In the automotive segment, including replacements and after-market, they account for around 34% of revenues.
● The company’s strong emphasis on capturing a larger share of the market in selective key segments like railways, e-powertrains, electric vehicles, metros, and mining reflects its proactive approach to leverage looming growth opportunities. This targeted strategy aims to enhance overall market share and capitalize on the sizable growth potential in these sectors.
● SKF India is prioritizing increasing localization of products, particularly in the industrial segment where local content is comparatively lower. This strategic move aims to strengthen the full value chain, reduce lead time, and improve the overall cost structure, thereby enhancing competitiveness.
● The company is also focusing on expanding its share of the margin-accretive aftermarket segment in both industrial and automotive segments. Currently, the aftermarket segment contributes approximately 38% of total revenues as of FY23, indicating a significant opportunity for revenue growth and margin enhancement.
● The brokerage believes the company’s operational and financial performance to improve considerably in the coming period. They also estimate revenue, EBITDA, and PAT to grow at 10%, 16%, and 17% CAGR respectively over FY24E-26E.
SKF India Limited provides products, solutions, and services for rolling bearings, seals, mechatronics, and lubrication systems. The company operates through the Bearings segment. Its product line includes rolling bearings, mounted bearings, and others.
Written by:- Abhishek Singh
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