Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- SKF India Ltd (BOM:500472, Financial) reported net sales of INR11.8 billion for Q1 FY 2024-25, with a balanced revenue mix across industrial (50%), automotive (41%), and exports (8-9%).
- The company has a strong localization strategy, with 60% of its products manufactured locally, aiming to increase this to 65% in the next two to three years.
- The automotive segment is highly localized at 95%, contributing to a stable supply chain and cost efficiency.
- The company is focusing on high-growth segments such as heavy industries, metals, two-wheelers, cars, and tractors, which have shown strong performance.
- SKF India Ltd (BOM:500472) is actively managing its portfolio by pruning less profitable customers and focusing on profitable growth, which is expected to improve margins.
Negative Points
- The wind and rail segments have faced pricing pressures, leading to selective participation and a decline in top-line growth for the wind segment.
- The company experienced a dip in margins in Q2 FY24 due to challenges in the distribution and automotive businesses.
- There is a significant reliance on the unlisted sister company for railway products, with 80% sourced from it, which may impact margins and operational efficiency.
- Global inflation and pricing actions have stabilized, leading to relatively flat margins despite an increase in the manufacturing mix.
- The company faces competitive pressures in the wind and rail segments, which could impact future growth and profitability.
Q & A Highlights
Q: Could you provide details on the revenue mix for different segments like auto, industrial, and exports?
A: This quarter's revenue was INR11.8 billion, with 50% from industrial business, 41% from automotive, and 8-9% from exports. Key growth segments included heavy industries and metals within industrial, and two-wheelers, cars, and tractors within automotive.
Q: What is the strategy for localization, especially in the industrial segment?
A: Currently, we are 60% localized, with automotive at 95% and industrial at 40-45%. We aim to increase industrial localization to 65% in the next 2-3 years. Despite global CapEx reductions, investments will continue where it makes sense for regional growth.
Q: Why didn't margins increase despite higher manufacturing of products?
A: In FY23, we were impacted by global inflation and took significant pricing actions. In FY24, pricing actions stabilized, and margins on traded products were higher in FY23. Despite a 60% manufacturing mix in FY24, overall margins remained stable.
Q: How is the demand outlook for auto replacement and industrial segments?
A: Automotive demand is mixed, with growth in two-wheelers and tractors but flat in passenger and commercial vehicles. Industrial demand is strong in infrastructure-led segments like heavy metals and cement. We are cautious in wind and railways due to price pressures.
Q: What are the margin levers available to the company?
A: Key margin levers include increased localization, strategic pricing, portfolio cleanup, and continuous improvement in manufacturing and procurement. These initiatives will support margin improvement while maintaining or slightly improving margins.
Q: What is the impact of transitioning business from Korea to India?
A: The transition from Korea to India has started but is not yet fully completed. The value of these transitions is included in our CapEx spend.
Q: How do you plan to achieve the goal of doubling revenues by FY30?
A: We aim to grow in high-potential segments like EVs, high-speed trains, and semiconductors. We will also focus on expanding our product range and increasing localization to become more competitive.
Q: What is the outlook for the wind and railway segments?
A: Wind business is down due to customer pruning but is expected to grow again. Railway business is lumpy but should see growth with ongoing projects like Train 18 and freight corridors.
Q: What is the CapEx guidance for FY25?
A: We expect CapEx to remain around INR140 crores, similar to FY24, with INR30 crores for maintenance and the rest for growth initiatives.
Q: How is the company addressing pricing pressures in the wind and railway segments?
A: In wind, price pressures start from end-user pricing and trickle down. We selectively participate in projects where we have a competitive edge. In railways, we focus on high-speed trains and metros, while facing competitive pressures in freight.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
