SKF India (SKFIND) | 1560content.icicidirect.com/mailimages/IDirect_SKFIndia_Q1FY18.pdf · square feet, India Distribution Centre (IDC) will reduce delivery lead times and provide

August 2, 2017

ICICI Securities Ltd | Retail Equity Research

Result Update

Moving to growth trajectory…

SKF India (SKF) reported decent Q1FY18 results, which were

marginally below our estimates. Revenues came in at | 666.5 crore

up 2.3% YoY

However, EBITDA grew 11.9% YoY to | 93.6 crore. This was due to

higher gross margins of 40.6% in Q1FY18 from 36.9% in Q1FY17.

Higher gross margins were on account of higher realisations / better

product-mix. Decline in revenue from low margin ‘traded goods’

(13% YoY) also contributed to higher gross margins

Accordingly, EBITDA margins came in at 14% in Q1FY18 vs. 12.8%

in Q1FY17. We estimated EBITDA margins of 12.9% for the quarter.

PAT came in at | 64.3 crore, up 6.4% YoY primarily due to decline in

other income. We estimated PAT of | 66.7 crore for the quarter

New growth avenues: Import substitution in industrial segment, railways

We expect import substitution of industrial bearings, through ramp up in

SKF Technologies, to be a key revenue driver of revenues and margin

expansion as SKF is expected to improve its turnaround time while

resultant cost saving would lead to market share gains. Furthermore, the

company has also forayed into the railway freight segment that has a

market size of ~| 1000 crore. The same is also seeing traction. In Q1FY18,

railways contributed 9% to the topline. The management is optimistic on

growth of the railway segment, going forward, on account of projects like

Dedicated Freight Corridor (DFC) project and expansion of metro rail

network in a number of cities. Thus, we expect the industrial segment to

exhibit a 9.1% CAGR over FY17-19E.

New products in auto segment to be margin accretive

In the auto segment, the company is witnessing improved demand in

HUB-3 bearings with Indian auto industry moving from first generation

bearing to third generation bearing. As per the management, over the

next five years, one in every two car is likely to use the third generation

bearing. Currently, the same ratio is at 1:10 (i.e. one in every 10 car uses

third generation bearing). Offtake of these newer products is likely to be

margin accretive for the company. Also, SKF being the largest bearings

player in the industry, commands scalability bandwidth and, hence, is

well placed to capture the opportunity arising from demand revival in the

automotive segment. With a pick-up in auto sales, we expect SKF’s

manufactured product (auto) sales to exhibit 11.2% CAGR till FY19E on

account of higher growth coming from newer products like pinion

bearing, HUB-3 bearings and improving utilisation of existing capacity.

Thus, we expect overall EBITDA margins to improve to 13.9% in FY19E

vs. 12.8% in FY17.

Maintain BUY on strong capex plans, healthy revenue visibility

With an improving outlook, the company now has strong capex plans of

| 80-100 crore over FY17-20. SKF’s strong past track record in executing

capex projects give us reasonable confidence about the continued stable

performance of the company over the next few years. Accordingly, we

expect SKF to deliver sales and PAT CAGR of 10.6% and 13.9%,

respectively, in FY17-19E. Accordingly, we value the company at 29x P/E

on FY19E EPS of | 61.7 to arrive at a target price of | 1800 per share. We

continue to maintain BUY recommendation on the stock.

SKF India (SKFIND) | 1560 Rating matrix

Rating : Buy

Target : | 1800

Target Period : 12 months

Potential Upside : 15%

What’s changed?

Target Changed from | 1585 to | 1800

EPS FY18E Changed from | 51.1 to | 53

EPS FY19E Changed from | 56.6 to | 61.7

Rating Unchanged

Quarterly performance

Q1FY18 Q1FY17 YoY (%) Q4FY17 QoQ (%)

Revenue 666.5 651.2 2.3 653.7 1.9

EBITDA 93.6 83.7 11.9 79.5 17.7

EBITDA (%) 14.0 12.8 119 bps 12.2 188 bps

PAT 64.3 60.4 6.4 57.9 11.0

Key financials

| Crore FY16 FY17 FY18E FY19E

Revenue 2,998 2,631 2,869 3,218

EBITDA 364 336 377 447

Net Profit 257 244 272 317

EPS (|) 48.8 46.3 53.0 61.7

Valuation summary

FY16 FY17 FY18E FY19E

P/E 32.0 33.7 29.4 25.3

Target P/E 36.9 38.9 34.0 29.2

EV / EBITDA 20.7 22.7 20.9 17.4

P/BV 4.9 4.5 4.5 3.9

RoNW (%) 12.4 13.5 15.1 15.6

RoCE (%) 19.0 20.7 23.1 23.8

Stock data

Particular Amount

Market Capitalization 8,226

Total Debt 0

Cash and Investments (FY17) 591

EV 7,635

52 week H/L (|) 1864 /1243

Equity capital (FY17) | 52.7 Crore

Face value | 10

Price performance

1M 3M 6M 12M

SKF (0.6) (8.8) 21.2 13.9

Schaeffler 2.1 (6.4) 14.5 11.4

NRB 7.7 (0.5) 11.5 19.9

Timken (3.1) 3.0 18.5 8.7

Research Analyst

Chirag J Shah

[email protected]

Sagar K Gandhi

[email protected]

ICICI Securities Ltd | Retail Equity Research Page 2

Variance analysis

Year Q1FY18 Q1FY18E Q1FY17 YoY (%) Q4FY17 QoQ(%) Comments

Income from Operation 666.5 745.7 651.2 2.3 653.7 1.9 Muted topline growth due to slow offtake for 10 days for June (GST

impact)

Other Income 17.1 23.0 21.8 (21.5) 19.6 (12.7)

Cost of material consumed 158.2 167.4 146.7 7.8 152.0 4.0

Purchases of stock in trade 239.1 315.5 275.4 (13.2) 253.9 (5.9)

Change in inventories -1.4 -11.2 -11.2 -4.9 (70.6)

Employee cost 58.1 62.6 54.8 6.1 55.1 5.4

Other expenditure 119.0 115.6 101.9 16.8 118.0 0.8

EBITDA 93.6 95.8 83.7 11.9 79.5 17.7

EBITDA Margin (%) 14.0 12.9 12.8 119 bps 12.2 188 bps Margin improvement due to higher gross margins of 40.6% in Q1FY18 from

36.9% in Q1FY17.

Depreciation 11.5 13.8 12.3 (5.9) 11.5 0.0

Interest 0.0 0.0 0.0 0.0

PBT 99.2 105.0 93.2 6.4 87.6 13.2

Taxes 34.9 37.0 32.8 6.3 29.7 17.5

PAT 64.3 68.1 60.4 6.4 57.9 11.0

Source: Company, ICICIdirect.com Research

Change in estimates

(| Crore) Actual Old New % Change Old New % Change

Revenue 2,631.4 2,918.7 2,868.7 (1.7) 3,150.5 3,218.0 2.1

EBITDA 336.2 377.5 376.8 (0.2) 417.4 446.8 7.1

EBITDA Margin (%) 12.8 12.9 13.1 23 bps 13.2 13.9 69 bps Revised estimates upwards due to higher offtake of

better margin products (HUB3 bearings)

PAT 243.9 269.7 272.1 0.9 298.7 316.6 6.0

EPS (|) 46.3 51.1 53.0 3.7 56.6 61.7 9.0

FY17 FY18E FY19E


Assumptions

| crore FY17 FY18E FY19E FY18E FY19E

Auto Segment Sales 1,307 1,437 1,617 1,358 1,467

Industrial Segment Sales 1,250 1,375 1,541 1,309 1,439

Current Earlier



FY17 annual report takeaways

The Indian bearings market did not witness any major structural

changes and is estimated at about | 9000-9500 crore

The bearings industry is readying to usher in a revolution - Industry

4.0 - Smart manufacturing enabled through big data analytics &

Internet of Things (IoT). Accordingly, SKF has geared up to capture

these opportunities by focusing on value creation. For realising the

potential of unfolding Industry 4.0, SKF has inaugurated Remote

Diagnostic Centre (RDC) at Pune. RDC will enable delivery of rotating

equipment performance (REP) programmes, which will enable its

customers to implement a world-class predictive maintenance of its

critical assets

As a significant proportion of SKF’s customers depend on imported

bearings to meet their needs, the company is putting significant

efforts on localising them. Meanwhile, the company has decided to

take the uncertainties and long lead times associated with importing

out of the equation for its customers by establishing a world-class

Centralized Distribution Centre at Chakan, Pune. Spread over 64,000

square feet, India Distribution Centre (IDC) will reduce delivery lead

times and provide a wider range of products to its customers and

distributors

In the auto segment, SKF is likely to develop solutions for electric

vehicles, driverless vehicles and other hybrid technologies backed

by strong parental technology base coupled with local capabilities in

R&D and a strong manufacturing base

In the railways segment, SKF is likely to provide solutions for key

developmental projects, which include commissioning of new lines,

automation, passenger safety, and refurbishment of existing

infrastructure

On the industrial side, solutions for segment like road, energy are

likely to act as key growth drives for the company


Company Analysis

Automotive segment

OEM growth - Key to revival for growth in auto segment

SKF manufactures automotive bearings in India and calls it manufactured

goods while industrial bearings are imported from the parent & SKF

Technologies and is termed as traded goods. The auto segment is highly

correlated to auto sector sales volumes as OEMs form two-third (~67%)

of the segment for SKF. For FY17, the share of OEMs in auto segment

was at ~66%. Within the OEM segment, 2W and 4W contribute equally to

this segment.

Exhibit 1: Auto segment as percentage of sales

55 55

50

51 51 51

46

48

50

52

54

56

CY13 CY14 FY16 FY17 FY18E FY19E

(%

)

Auto Segment share in Overall reveneus


Exhibit 2: OEMs with ~68% share dominate auto segment

67 66 68 68

33 34 33 32

0

20

40

60

80

100

FY16

FY17

FY18E

FY19E

(%

)

Auto OEMS Auto aftermarkets


SKF’s auto segment growth outpaces auto industry sales volumes growth…

Historically, auto segment sales growth of SKF has outperformed auto

sales volumes growth. We believe the same will continue for FY17-19E.

Accordingly, we estimate 11.2% CAGR for SKF’s auto segment sales,

while assuming 8% CAGR for domestic auto industry growth for FY16-

19E. We derive comfort of 8% industry growth in the auto segment over

FY17-19E on the back of ‘new launch’ pipeline in the four wheelers (over

20 launches/refreshes in the next two years) and two-wheelers space

(over 30 launches/refreshes in the next two years). We believe that SKF,

with leadership in the bearing space, commands scalability bandwidth

coupled with a lean balance sheet and is poised to capture the

opportunity arising from the revival of demand in the automotive

segment.


Industrial segment – economy linked recovery to aid growth…

Industrial segment sales correlated to IIP growth…

For SKF Bearings, industrial bearings are mainly sourced from the parents

through imports (~90% of the requirement) and SKF Technologies, which

has a plant in Ahmedabad. The share of industrial segment revenues in

total revenues has been 40-45% over CY10-FY17. For Q1FY18, the

contribution was at 41%. However, we expect the same to stabilise at

~49% by FY19E.

Exhibit 3: Manufactured goods sales trend

1311

1477

1307

1437

1617

5.4

12.7

-11.5

10.012.5

300

700

1100

1500

1900

CY14 FY16 FY17 FY18E FY19E

| c

rore

-20

-12

-4

4

12

20

28

(%

)

Manufactured goods YoY Growth (%) RHS


Industrial segment to grow at 11% CAGR during FY17-19E

As per management commentary, in H1FY18, the company is witnessing

a substantial up-tick in the industrial segment. Within this space, all

verticals like railways, commercial and off highway vehicles (except

renewable energy) registered substantial growth. Accordingly, we have

revised our industrial segment growth estimates in FY17-19E. We now

expect SKF’s industrial (traded) sales to grow at 11% CAGR in FY17-

FY19E to | 1540.5 crore.

Exhibit 4: Industrial share as percentage of sales

44 44

49

48 48 48

40

42

44

46

48

50

CY13 CY14 FY16 FY17 FY18E FY19E

(%

)


Exhibit 5: Industrial sales growth

1041

1454

1250

1375

1541

39.7

-14.0

10.0

5.9

23.2

0

500

1000

1500

2000


(|

crore)

-20

-10

0

10

20

30

40

50

(%

)

Traded goods sales YoY (RHS)


The IIP and industrial bearings sales growth have a strong

correlation given the industry linked demand structure


Revise revenue, earning estimates upwards to factor in improved outlook

SKF’s revenues grew at 4.3% CAGR in CY12-FY17. Revenue growth,

going ahead, is likely to gain traction due to improved demand in

industrial and automotive segment. Accordingly, we anticipate higher

revenue CAGR of 11.2% for FY17-19E.

Exhibit 6: Consolidated revenue growth

2,415.6

2,997.9

2,631.4

2,868.7

3,218.0

5.6

24.6

(12.0)

9.1

12.3

-

500

1,000

1,500

2,000

2,500

3,000

3,500


(|

crore)

(15.0)

(5.0)

5.0

15.0

25.0

35.0

(%

)

Net Sales YoY (RHS)

Source: Company, ICICIdirect.com Research;

Please Note: Decline in FY17E reflects higher FY16 base effect which includes five quarter numbers

EBITDA expected to grow at 11% CAGR for FY17-19E

EBITDA margins of SKF have come down to 11.7% in CY14 vs. 13.3% in

CY10 given the lower utilisation levels on account of muted revenues.

However, the same improved to 12.8% in FY17 on account of better

outlook and improved utilisations. Going ahead, we have revised our

EBITDA estimates upwards to factor in operating leverage due to

improved demand and commissioning of new facilities. Accordingly, we

expect EBITDA margins to improve to 13.9% in FY19E from 12.8% in

FY17.

Exhibit 7: EBITDA growth trend

376.8

446.8

336.2

363.9

283.2

11.7

12.1

13.1

13.9

12.8

140

180

220

260

300

340

380

420

460


(|

crore)

8

9

10

11

12

13

14

(%

)

EBITDA Margin (RHS)

Source: Company, ICICIdirect.com Research, * decline in FY17E reflects higher FY16 base effect which includes five

quarter numbers


PAT to grow at 13.9% CAGR over FY17-19E

SKF, being a leader, is a major beneficiary of a demand cycle pick-up.

This was visible during business up-cycles like CY08-11. During this

period, the bottomline had grown at 17.8% CAGR while the topline was

up 14.3%. Going ahead, PAT is expected to grow at a CAGR of 13.9% in

FY17-19E driven by a pick-up in the auto segment and better performance

in the industrial segment.

Exhibit 8: PAT & PAT margin trend

202.8

257.1243.9

272.1

316.6

8.48.6

9.3 9.59.8

-

50

100

150

200

250

300

350


(|

crore)

-

2

4

6

8

10

12

14

(%

)

PAT Margin (RHS)

Source: Company, ICICIdirect.com Research; * decline in FY17E reflects higher FY16 base effect which includes five

quarter numbers

Return ratios to improve led by earnings growth

Historically, SKF has enjoyed an average RoE and RoCE of 20%+ and

25%+, respectively. However, given the lower capacity utilisation and

decline in earnings during the challenging economic scenario, return

ratios have slipped below 20%. However, going ahead, with revenue

CAGR of 10.6%, margin expansion of 210 bps (over FY17 margins of

12.8%) coupled with 13.9% PAT CAGR over FY17-19E is expected to lead

to RoE recovery. We now expect RoEs to improve to 15.6% in FY19E

from 13.5% in FY17.

Exhibit 9: Return ratios to improve

14.3

12.4

13.5

15.1 15.6

21.619.0

20.7

23.123.8

-

5

10

15

20

25


(%

)

RoE RoCE



Outlook and valuation

SKF has delivered high quality solutions in most of the technology area

the company operates in: bearings and units, seals, services, lubrication

systems and mechatronics. The company has created new products,

solutions and services that leverage cutting edge technology to create

optimised asset performance across applications and industries. Thus, a

wide range of industries - from automotive to aerospace, from renewable

energy to railways and from mining to marine rely upon it. Revenues have

remained muted over the last three years, given the overall slowdown in

the economy impacting the industrial as well as automotive segments.

However, the company has remained prudent enough not to have any

major capex plan, thereby keeping the balance sheet lean with healthy

cash flows. It should also be noted that during the good demand cycle,

revenues grew at 14.3% CAGR in CY08-11, clearly signifying that SKF,

being a leader, is a major beneficiary of a demand cycle pick-up.

With an improving outlook, the company now has strong capex plans of

| 80-100 crore over FY17-20. SKF’s strong past track record in executing

large projects give us reasonable confidence about the continued stable

performance of the company over the next few years. Accordingly, we

expect SKF to deliver sales and PAT CAGR of 10.6% and 13.9%,

respectively, in FY17-19E. Accordingly, we value the company at 29x P/E

on FY19E EPS of | 61.7 to arrive at a target price of | 1800 per share and

continue to maintain BUY recommendation on the stock.

We value the company at 29x FY19E EPS of 61.7 to arrive

at a target price of | 1800. We have a BUY

recommendation on SKF


Recommendation history vs. consensus

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

0

500

1,000

1,500

2,000

Aug-17May-17Mar-17Dec-16Oct-16Jul-16May-16Mar-16Dec-15Oct-15Jul-15

(%

)

(|)

Series1 Idirect target Consensus Target Mean % Consensus with BUY

Source: Bloomberg, Company, ICICIdirect.com Research, Initiated coverage on 24th September 2014

Key events

Date Event

March, 2010 Fellow subsidiary SKF Bearings commences production of industrial bearings

CY10 Haridwar factory starts production catering to two-wheeler OEM and replacement market

CY11 Adds two new bearing channels in Bangalore

CY12 Launches low friction hub bearing unit, an energy efficient wheel end for cars; installation of two new product channels in Pune

CY13 The company provides for | 22.1 crore as VRS compensation, leading to a decline in bottomline by 12.3% YoY during CY13

CY14 Margins marginally improve to 11.7% despite one-time employee cost, given the cost optimisation & moderate pick-up in topline

FY16 SKF India inaugurates 3rd Factory at Jamshedpur in June 2015 to cater to the eastern parts of the country


Top 10 Shareholders Shareholding Pattern

Rank Name Latest Filing Date O/S Position Change

1 AB SKF 30-06-2017 45.63% 23.42M -1.22M

2 Franklin Templeton Asset Management (India) Pvt. Ltd. 31-03-2017 7.40% 3.80M +0.05M

3 SKF UK, Ltd. 30-06-2017 6.30% 3.23M -0.17M

4 HDFC Asset Management Co., Ltd. 31-03-2017 5.30% 2.72M +0.76M

5 UTI Asset Management Co. Ltd. 31-03-2017 2.59% 1.33M 0

6 PineBridge Investments Asia Limited 31-03-2017 2.33% 1.19M +0.12M

7 SBI Funds Management Pvt. Ltd. 31-03-2017 2.06% 1.06M -0.92M

8 Franklin Advisers, Inc. 30-06-2017 2.05% 1.05M 0

9 Stewart Investors 30-06-2017 1.83% 0.94M 0

10 The New India Assurance Co. Ltd. 31-03-2017 1.13% 0.58M 0

(in %) Jun-16 Sep-16 Dec-16 Mar-17 Jun-17

Promoter 53.6 53.6 53.6 53.6 52.3

FII 12.3 12.4 12.6 11.9 12.0

DII 20.2 20.1 20.0 20.2 21.2

Others 13.9 14.0 13.8 14.4 14.5

Source: Reuters, ICICIdirect.com Research

Recent Activity

Investor name Value Shares Investor name Value Shares

HDFC Asset Management Co., Ltd. +18.70M +0.76M AB SKF -29.45M -1.22M

PineBridge Investments Asia Limited +2.96M +0.12M SBI Funds Management Pvt. Ltd. -22.79M -0.92M

Birla Sun Life Asset Management Company Ltd. +1.96M +0.08M SKF UK, Ltd. -4.07M -0.17M

Caisse de Depot et Placement du Quebec +1.24M +0.07M L&T Investment Management Limited -1.32M -0.07M

Franklin Templeton Asset Management (India) Pvt. Ltd. +1.23M +0.05M BlackRock Institutional Trust Company, N.A. -0.25M -0.01M

Investor name Investor name

Source: Reuters, ICICIdirect.com Research


Financial summary

Profit and loss statement | Crore

(| Crore) FY16 FY17 FY18E FY19E

Net Sales 2,955.5 2,601.7 2,837.5 3,185.2

Other Operating Income 42.4 29.7 31.2 32.8

Total Operating Income 2,997.9 2,631.4 2,868.7 3,218.0

Growth YoY (%) -12.2% 9.0% 12.2%

Other Income 100.9 87.3 96.1 105.7

Total Revenue 3,098.8 2,718.7 2,964.8 3,323.6

Cost of materials consumed 720.7 603.3 661.2 743.8

Purchase of stock-in-trade 1,192.3 1,089.3 1,155.4 1,286.4

Change in inventories (41.3) (67.3) (55.0) (60.0)

Employee cost 252.1 222.2 242.2 264.0

Other Expenses 510.1 447.8 488.1 537.0

Total expenditure 2,634.0 2,295.3 2,491.9 2,771.1

EBITDA 363.9 336.2 376.8 446.8

Growth YoY (%) -7.6% 12.1% 18.6%

Interest - - - -

PBDT 464.8 423.5 472.9 552.5

Depreciation 68.4 47.9 57.5 69.1

Profit Before Tax 396.4 375.6 415.4 483.4

Tax 139.3 131.7 143.3 166.8

PAT 257.1 243.9 272.1 316.6

Growth YoY (%) -5.1% 11.6% 16.4%

EPS 48.8 46.3 53.0 61.7

Source: Company, ICICIdirect.com Research, * Financial year to be changed from

December to March, thus FY16 figures includes five quarter numbers

Cash flow statement | Crore


Profit after Tax 257.1 243.9 272.1 316.6

Depreciation 68.4 47.9 57.5 69.1

Interest - - - -

Other income (100.9) (87.3) (96.1) (105.7)

Prov for Taxation 139.3 131.7 143.3 166.8

Cash Flow before WC changes 363.9 336.2 376.8 446.8

Change in Working Capital 65.1 (155.3) (202.5) (76.5)

Taxes Paid (139.3) (131.7) (143.3) (166.8)

Cashflow from Operating Activities 289.7 49.2 31.0 203.6

(Purchase)/Sale of Fixed Assets 6.7 (53.7) (89.8) (100.0)

(Purchase)/Sale of Investments (226.0) (91.4) - -

Other Income 100.9 87.3 96.1 105.7

Cashflow from Investing Activities (118.4) (57.8) 6.3 5.7

Issue/(Repayment of Debt) - - - -

Changes in Minority Interest - - - -

Changes in Networth 90.4 (24.5) (209.2) (0.0)

Interest - - - -

Dividend paid (99.1) (72.7) (76.5) (81.6)

Cashflow from Financing Activities (8.7) (97.3) (285.7) (81.6)

Changes in Cash 162.6 (105.9) (248.4) 127.6

Opening Cash/Cash Equivalent 534.8 697.3 591.5 343.1

Closing Cash/ Cash Equivalent 697.3 591.5 343.1 470.7



Balance sheet | Crore


Share Capital 52.7 52.7 51.3 51.3

Reserves & Surplus 1,611.9 1,758.5 1,746.3 1,981.3

Networth 1,664.6 1,811.2 1,797.6 2,032.6

Total Debt - - - -

Deferred tax liability (net) - - - -

Total Liabilities 1,664.6 1,811.2 1,797.6 2,032.6

Gross Block 377.6 405.6 495.6 595.6

Acc: Depreciation 79.7 125.2 182.7 251.8

Net Block 297.9 280.4 312.9 343.9

Capital WIP 12.0 35.2 35.0 35.0

Investments 226.0 317.4 317.4 317.4

Inventory 335.0 416.6 458.7 514.9

Sundry debtors 482.9 514.3 550.4 617.9

Cash and bank balances 697.3 591.5 343.1 470.7

Loans and advances 60.8 100.2 297.7 313.3

Other current assets 36.7 48.4 10.9 12.2

Total Current Assets 1,612.7 1,671.0 1,660.7 1,929.1

CL& Prov. 484.0 492.8 528.4 592.6

Net Current Assets 1,128.8 1,178.2 1,132.3 1,336.4

Total Assets 1,664.6 1,811.2 1,797.6 2,032.6



Key ratios

(Year-end March) FY16 FY17 FY18E FY19E

Per share data (|)

EPS 48.8 46.3 53.0 61.7

Cash EPS 61.7 55.3 64.2 75.1

BV 315.7 343.5 350.2 395.9

DPS 18.8 13.8 14.9 15.9

Cash Per Share 15.1 23.7 35.6 49.0

Operating Ratios (%)

EBITDA Margin 12.1 12.8 13.1 13.9

PBT / Net Sales 9.9 11.0 11.1 11.7

PAT Margin 8.6 9.3 9.5 9.8

Inventory days 50.8 57.8 58.4 58.4

Debtor days 73.3 71.3 70.0 70.1

Creditor days 69.8 65.4 64.3 64.3

Return Ratios (%)

RoE 12.4 13.5 15.1 15.6

RoCE 19.0 20.7 23.1 23.8

RoIC 19.9 22.4 21.8 22.4

Valuation Ratios (x)

P/E 32.0 33.7 29.4 25.3

EV / EBITDA 20.7 22.7 20.9 17.4

EV / Net Sales 2.5 2.9 2.7 2.4

Market Cap / Sales 2.7 3.1 2.9 2.6

Price to Book Value 4.9 4.5 4.5 3.9

Solvency Ratios

Debt/EBITDA - - - -

Net Debt / Equity - - - -

Current Ratio 3.2 3.2 2.6 2.7

Quick Ratio 2.5 2.3 1.7 1.9




ICICIdirect.com coverage universe (Capital goods)

CMP M Cap

(|) TP(|) Rating (| Cr) FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E

AIA Engineering 1190 1113 Hold 10948 44.3 42.5 48.4 26.9 28.0 24.6 21.0 17.5 18.0 17.5 15.0 15.1

Thermax (THERMA) 820 814 Hold 9799 25.6 24.0 27.7 32.0 34.2 29.6 15.3 11.6 12.2 14.2 10.5 11.0

KEC International (KECIN) 127 162 Buy 3881 7.3 10.7 11.5 17.4 11.9 11.1 14.6 16.2 16.1 11.9 15.2 14.2

Kalpataru Power(KPP) 260 315 Buy 3991 12.5 18.4 21.2 20.8 14.1 12.3 14.8 14.9 15.5 8.4 11.1 11.5

Greaves Cotton (GREAVE) 139 180 Buy 3392 6.6 7.8 9.7 21.0 17.8 14.3 18.0 12.6 14.5 19.5 20.9 23.3

SKF (SKFIND) 1430 1575 Buy 7435 48.8 48.2 52.5 28.9 29.3 26.9 20.2 22.0 21.9 13.1 14.6 14.4

VaTech Wabag (VATWAB) 553 760 Buy 3204 16.9 33.3 40.0 34.9 17.7 14.7 17.0 23.0 24.2 9.7 17.0 17.6

NRB Bearing (NRBBEA) 127 131 Buy 1115 4.3 5.9 7.3 26.5 19.6 15.8 14.1 16.3 18.1 15.1 18.3 19.7

Timken India (TATTIM) 550 614 Buy 3739 13.5 16.5 19.8 40.7 33.3 27.8 27.9 28.4 29.5 18.2 18.4 19.1

Grindwell Norton (GRINOR) 320 390 Buy 3787 9.3 9.2 11.2 34.3 34.7 28.6 24.1 22.0 24.0 16.8 15.1 16.4

RoE (%)EPS (|) P/E (x) RoCE (%)




RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns

ratings to its stocks according to their notional target price vs. current market price and then categorises them

as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional

target price is defined as the analysts' valuation for a stock.

Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;

Buy: >10%/15% for large caps/midcaps, respectively;

Hold: Up to +/-10%;

Sell: -10% or more;

Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC,

Andheri (East)

Mumbai – 400 093

[email protected]


Disclaimer

ANALYST CERTIFICATION

We /I, Chirag Shah PGDBM; Sagar Gandhi MBA (Finance), Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject

issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

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