SKF India Research Report By ICICI-Direct

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December 23, 2014 at 9:50 pm #1443

Vidhi Khanna
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Premium valuations driven by growth prospects, going ahead…

The expected pick-up in automotive volumes as well as industrial capex recovery is now reflected in valuations also with Fag Bearings, SKF’s key peer, now trading at a premium valuation of 25.4x CY16E earnings. Given SKF’s leadership position in the bearing space, strong earnings growth (24% CAGR in CY13-16E), healthy balance sheet with robust cash flow generation (| 675 crore over CY14E-16E) and core RoEs in excess of 30%, we believe SKF would be the key beneficiary of the automotive segment pick-up as well as industrial capex recovery. Consequently, we now assign a higher multiple of 26x (vs. 24x earlier) on CY16 earnings and revise our target price to | 1568/share with a BUY recommendation.

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