ICICIdirect.com is bullish on SKF India and has recommended buy rating on the stock with a target price of Rs 1568, in its research report dated December 23, 2014.
"SKF India (SKF) has surprised positively on the margin front with 13.4% operating margins in Q3CY14 (12.9% in 9MCY14) led by cost rationalisation and better utilisation levels. We highlight that overall auto sector volume growth is expected to recover to ~18% and 14%, in CY15E and CY16E, respectively, led by a pick-up in the PV and CV segments. Furthermore, we also expect industrial capex to recover meaningfully from H2CY15E. These factors are expected to boost SKF both in terms of revenue pick-up as well margin expansion led by operating leverage."
"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 (Rs 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 Rs 1568/share with a BUY recommendation", says ICICIdirect.com research report.
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