Edelweiss Financial Services has a buy call on SKF India with a target price of Rs 2,142.
The current market price of SKF India is Rs 1,667.75.
Time period given by the brokerage is one year when SKF India price can reach the defined target.
Investment rationale by Edelweiss Financial Services:
Adjusted revenue grew nearly 17 per cent YoY led by strong domestic demand in both the industrial and automotive segments. Automotive grew nearly 22 per cent YoY driven by a strong performance in both aftermarket (up nearly 29 per cent) and OEM (nearly 20 per cent growth in 2W and nearly 34 per cent growth in trucks). Industrial reported revenue grew nearly 14 per cent YoY (nearly 22 per cent YoY growth, adjusted for CVD) driven by healthy aftermarket growth (nearly 21 per cent). Furthermore, industrial OEM indicates a revival with an uptick of nearly 7 per cent YoY versus a decline last year. Management has positive outlook across industries, particularly material handling, construction, steel, cement and off-highway equipment. Exports de-grew nearly 21 per cent YoY due to a big one-off order in the base quarter as well as capacity constraint due to robust domestic demand.
Going ahead, sales growth is likely to be led by: 1) sustained momentum in auto supported by a pick-up in four wheelers and commercialisation of Hub 3 by Q3FY19; 2) anticipated recovery in industrial on sustained momentum in aftermarket and pickup in OEM (drivers: turnaround in wind sector by H2FY19, broad-based recovery across other sectors and healthy growth in railways); and 3) higher capex of Rs 1.0bn/Rs 1.5bn in FY19E/20E (doubling from the five-year run rate).
Healthy prospects; maintain BUY In light of SKFs strong position fortified by product development and demand uptick, we estimate a PAT CAGR of 15 per cent and ROCE expansion of 230bps to 26.9 per cent over FY18–20E. Maintain “BUY” with a TP of Rs 2,142. At CMP, the stock trades at 21.5 FY20E EPS.