SKF India - Tepid Sales; Provisioning Dents Margin; Result Update Q4CY14 :Edelweiss

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->

SKF India’s (SKF) Q4CY14 sales growth came in 6% below and EBITDA growth was 34% below estimates. Key positives were: (1) industrial sales jumped 7.5% YoY; and (2) first order win in railway bearings (freight). Key negatives were: (1) tepid growth in the auto OEM business (in 4W segment), as a result of which the company cut production 7.5%; and (2) operating margin plummeted 307bps YoY to 8.5% due to repricing of employee liabilities, production cuts and inferior sales mix. With the economy anticipated to turn around, we estimate SKF’s auto and industrial OEMs to be strong beneficiaries being the largest bearings player in India (28% share), current utilization facilitating 15% higher production. While we prune CY15 EPS estimates to factor in slow pick up in automotive OEM sales, we estimate the company’s CY16 profit to rise ~33% led by benefits of cyclical uptick in OEMs and localisation.

Industrial, auto aftermarket sales up; production cut in auto OEM 

SKF’s revenue grew a mere 3% YoY due to slower-than-expected rise in auto OEM sales, which led the company to cut production 7.5%. Within automotive OEMs, the company reported decline of 2.5% YoY in 4W sales and 2.0% YoY in 2W sales. On the other hand, industrial and auto aftermarkets jumped 7.5% and 11% YoY, respectively. Industrials growth was led by machine tools and renewable energy. Exports fell 26% YoY. For CY14, sales grew 6% YoY, with auto OEM sales rising 1% YoY, after market growing 7% YoY, industrial 8% YoY and exports 3% YoY.

Revaluation of employee liabilities led to EBIDTA margin dip

While gross margin catapulted 45bps YoY to 36.2%, SKF’s operating profit declined 24% YoY with margin plummeting 307bps YoY and 490bps QoQ to 8.6%. This was  owing to repricing of employee liabilities at a lower discount rate of 8.1% (8.9% last year) leading to expense of INR120mn, production cut and inferior mix in industrials.

LINK
https://www.edelweiss.in/research/SKF-India--Tepid-Sales;-Provisioning-Dents-Margin;-Result-Update-Q4CY14/28453.html