Schaeffler India (SCHFL) reported strong Q4CY21 sales growth of 20% y-o-y/2% q-o-q, 17% ahead of estimates, driven by outperformance across domestic segments, strong exports and commodity cost pass-through. This led to Ebitda growth of ~25% y-o-y (35% above estimate) and an uptick of 90bp y-o-y/110bp q-o-q in Ebitda margin to 18.8%.
SCHFL has embarked on capex of Rs 10 bn to be incurred over three years focusing on conventional, hybrid as well as rising localisation, and exports. With parentco making huge strides in E-mobility, SCHFL is well placed as electrification picks up in India. The strong showing impels us to raise CY22/23e EPS by 19%/23%. Retain ‘Buy’ with a revised TP of Rs 2,110 at 42x (14% premium to average, from Rs 1,717 earlier) Q2CY23e EPS.
Strong showing despite underlying headwinds: Overall sales surged 20% y-o-y across segments with mobility up 23% y-o-y and others up 5% y-o-y.
This was led by improvement within automotive (auto aftermarket, up 35% y-o-y, industrials up 33%, exports up 61% y-o-y while tech was up 7% y-o-y led by production slowdown). Within Others, domestic was flat y-o-y while exports were up 57% y-o-y driven by wind and industrial automation.
SCHFL won several orders across automotive technologies in transmission solutions, Gen 3 bearings, hydraulic Cam phaser solution for engines. Management continues to focus on E-mobility in line with parentco’s focus on Emotors, MCU, thermal management systems. Exports remain an integral part of strategy.
Cost-flexing programme drives margin gains: Gross margin expanded 108bp y-o-y/148bp q-o-q to 38.9%. Cost-reduction steps and focus on localisation led to Ebitda margin rise of 90bp y-o-y to 18.8%. Ebitda jumped 25% y-o-y/9% q-o-q. We expect new products, price hikes, rising localisation and rising content per vehicle to help sustain margins.Outlook: Robust bearings –SCHFL is well placed as a play on mobility with rising localisation and exports. We expect a 15% sales CAGR/17% Ebitda CAGR over CY21-23e. Retain ‘Buy’ with TP of Rs 2,110 at 42x Q1CY23e EPS. SCHFL is trading at 34x CY23e EPS.
