ICICI Direct's research report on SKF India
SKF registered a handsome beat for Q3FY21 across all parameters. The company posted highest ever profitability led by improvement in topline and highest ever gross margins. Revenue for the quarter came in at Rs 818.7 crore, up 15.7% YoY (vs. I-direct estimate of Rs 781 crore). We anticipate a strong performance across the auto and industrial segment. Gross margins came in at 46.7%, an expansion of ~ 1230 bps. The significant jump in margins was on account of a reduction in purchase price of traded goods from group companies (in line with the transfer pricing mechanism that has been followed consistently). Following suit, EBIDTA margins came in at 22% in Q3 vs. 13.1% QoQ & 10.3% YoY. Absolute EBIDTA grew 148.6% YoY to Rs 180.4 crore. Employee cost improved 16.6% YoY to Rs 67.2 crore whereas other expenses registered an increase of 19.1% YoY to Rs 134.8 crore. Consequent to the huge expansion in margins SKF reported highest every bottomline ending the quarter with a PAT of Rs 128.1 crore, up 150.3% YoY. Tax rate for the quarter was 26.2%.
Outlook
We upgrade the stock from HOLD to BUY valuing the stock at 33x FY23E earnings with a target price of Rs 2890/share (earlier Rs 1615).
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