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SKF India - Company to demerge automotive and industrial businesses

ICICIdirect Research 11 Oct 2024 DISCLAIMER

SKF India's board has approved the demerger of its automotive and industrial businesses. The decision of automotive business separation at a global level was announced last month by its parent company AB SKF. The required disclosures will be notified to the exchanges once they finalize the detailed scheme of arrangement. As of now, the company has incorporated a new wholly-owned subsidiary - SKF India (Industrial) Ltd for the industrial business

On consolidated basis, numbers will remain same but there is a possibility of separate listing of industrial business in future. SKF India’s total revenue stood at Rs 4570 crore in FY24, of which industrial segment contributed ~51% while automotive segment & exports contributed ~40% & ~9% respectively

This development looks largely neutral for SKF India as the margins in automotive segment are relatively better led by high localization of ~90% (vs 40-45% in industrial segment). However, growth has been better in industrial segment (led by strong double-digit growth in railways, heavy industries & metals)

Going ahead, company targets to increase localization in the industrial segments to 60% over the next few years (from 40-45% at present), which will help the company in securing more orders and margin improvement
We also believe that, there can be some value unlocking also in SKF India post demerger considering that industrial businesses generally command better valuations

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