SKF India Limited (500472) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to SKF India Limited Q1 and FY '27 Earnings Conference Call. [Operator Instructions] I now hand the conference over to Ms. Cilvina Pereira, Head Marketing and Communications at SKF. Thank you, and over to you, ma'am.

Good afternoon, everyone. Thank you for joining us today for SKF India Limited Investor Call for Quarter 1 FY 2026, '27. With us, we have Mr. Shailesh Sharma, our Managing Director; our CFO, Mr. Mayank Holani; our Head, Strategy, Business and Business Development, Mr. Girish Kumar; and our Company Secretary and Compliance Officer, Ms. Mayuri Kulkarni. The purpose of today's call is to share our Q1 results, talk about our performance during the quarter and answer your questions, if any. Please note that the financial information for corresponding period of previous year as reported in the presentation shared has been extracted from the financial statements erstwhile combined entity and may involve some assumptions by the management pertaining to the demerged industrial undertaking. These were prepared in accordance with the Appendix C of IND AS 103 Business Combination by using the financial information maintained by SKF India Limited. Before I turn over the call to the management, I would like to remind you that in this call, some of the remarks contain forward-looking statements which are subject to risks and uncertainties, and actual results may differ materially. Such statements are based on management beliefs as well as assumptions made by and on the information currently available to the management. The audience is cautioned not to place any undue reliance on these forward-looking statements and make any investment decisions. The purpose of today's call is to purely educate and bring awareness about company's fundamental business and the financial quarter under review. Let me now turn over the call to Mr. Shailesh Sharma. Over to you.

Thank you, Cilvina. Hello, everyone, and welcome to the Q1 of 2026-'27 financial year Investor Call. I'm Shailesh Sharma, Managing Director of SKF India Limited. Let me start with the presentation with the agenda, which is on Slide #3. We will first cover key macro indicators, followed by quarterly results and analysis. And at last, some success stories, and then we will take your questions. Moving ahead to the key macro indicators, which is Slide #5. Talking about key macro indicators, IIP growth since last couple of quarters has been stable and was 4.8% for Q1 FY '27. Manufacturing PMI growth stood at 54.4 for June '26. Automotive production has been an upward trend during last quarter for 2- and 3-wheelers. However, passenger and commercial vehicle declined marginally. Iron and steel production declined during the quarter. Now I'll talk about the results of company. Just go to Slide #7. We are glad to inform our investors that we had a strong year-on-year revenue growth during the last quarter, while quarter-on-quarter, it was almost flat. We have a revenue growth of 27% year-over-year with INR 5.9 billion revenue, while it was minus 1% quarter-over-quarter. EBITDA improved by 7 bps year-over-year, while it improved by 540 bps quarter-on-quarter. Profit before tax is up by 61 bps year-over-year, while it's higher by 527 bps quarter-on-quarter without exceptional items. For detail now, I would like to hand over to our CFO, Mr. Mayank Holani, to take us through the detailed financial performance.

Thank you, Shailesh, and good afternoon, everyone. It's good to be connecting to all of you after the quarter. So now we move to sales performance on Slide 8. We achieved a quarterly sales of INR 5.5 billion for Q1 FY '27 with Y-o-Y growth of about 22% and marginal drop of 0.7% quarter-on-quarter. Since last couple of quarters between October to March, we have seen a very high sales growth following GST reforms. Year-on-year sales growth as you see is driven by 22% higher volumes, while when we look at quarter-on-quarter volumes, volumes were at 6.3% while price mix has positive impacted sales by 5.6%. And just to clarify, you will see a note below the slide that these sales figures are purely of the products and does not include the other operating income items. So that's why you see a difference between revenue and the sales. Now moving on to Slide 9. In terms of mix, owings accounted for about 62% of our sales for the quarter, distribution or vehicle aftermarket was about 20%, exports 8% and SKF Industrials about 10%. So that's how our mix was. Next slide, Slide #10 now. Here, you will see total P&L summary for the quarter. Our gross margin for the quarter is about 1% lower year-on-year while quarter-on-quarter is higher by about 6.5%. This variance in gross margin from previous year has a engineered composite impact of price, mix and inflation, while we have been able to quite significantly maintain our margins from last year and improve the EBITDA level. EBITDA for the quarter is almost flat, 7 basis points improvement, while from last quarter, it's about 540 bps higher. And as mentioned during the investor call for last quarter, profitability for Q4 FY '26 was impacted by certain one-off factors, including those related to demerger and this has now returned to a very normal level largely. Profit before tax for the quarter is 14.3%, which is around 60 bps higher year-on-year and about 650 bps higher quarter-on-quarter. Though if you exclude the exceptional items in previous quarter P&L, profit before tax increase is about 5 to 27 bps versus March quarter. This brings us to the end of financial part of the presentation. And I'll now request Mr. Shailesh Sharma to talk about some of our success stories during the quarter. Over to you, Shailesh. Thank you.

Thank you, Mayank. So acquiring new business is always exciting story, and I'm glad to inform that we have got a very good wheel-end business from one of the customers which we were working since last couple of years after so many audits. Finally, we have been rewarded the business, which is a large passenger vehicle manufacturer who is looking for a localization of their bearings. And SKF went through the customer engagement and value-based selling and provided entire techno commercial proposal during the program. And we got this business, which will start from Q4 2028, but the nomination was important to get it now to prepare ourselves. It will definitely benefit SKF because it's a first -- it is a wheel-end offering. So this is the very first business which we have won with this customer, which is laying a strong foundation for our long-term engagement. And for customer, it's a win-win because customer was looking for a localized content, and it is a global supplier, which will eventually benefit SKF also going forward. Next. Getting recognition from customers always excite us, and we got these 2 good recognition in the last quarter from our 2 customers. One is Suzuki Motorcycle, it is for Best Delivery Award and another from Degree Torque Transfer Solution for our technical supplier partnership. We are delighted to receive these 2 prestigious awards. In our CSR initiative, we engaged with a Special Olympics Bharat to identify talent in India from different part of India who are intellectually -- the boys who are intellectually challenged and we sent them to Sweden for Gothia Cup, and I'm very glad to inform that our this team won bronze medal after defeating Finland. And before that, they played 6 matches in different -- with different European countries. So that was a good moment of thought for us. Another success story is related to decarbonization. Now our all the 3 plants have been achieved more than 98% renewable energy sourcing. And group has given the certificate as decarbonized plant for all the 3 plants of SK India Limited, Pune, Bangalore and Haridwar. Same our green initiative and our green manufacturing strategy, we are working on water neutralization, where Bangalore site has achieved water positivity by 2x. That means we are giving 2x water to Mother Earth than what we are consuming. And similarly, Haridwar site has also achieved same thing by 2.57. Pune plant, we are working on it, and we will inform when we achieve water positivity. We had a good customer engagement at Maruti Suzuki Limited in the form of tech show, where 400-plus -- where we displayed both our wheel-end and driveline solutions. 400-plus people came and visited our stall there and for both ICE and EV applications. And we saw a lot of interest on our low-friction hub bearing units and e-drive conductive brush ring solution. And this has given a good opportunity for us to engage and look for some better opportunities for business going forward. With that, we end our presentation, and we can start question and answers.

[Operator Instructions] The first question comes from the line of Mumuksh Mandlesha with Anand Rathi Institutional Equities.

Congrats on a good set of results. Firstly, just want to understand how the gross margin movement sequentially. So this quarter it's 51%, in Q4 quarter it's 42.5%. Can you just help understand what are factors that drive the gross margin? And on the commodity inflation and price hike, if you can update how much was the inflation and price hike in Q1? And how much can we expect in the Q2 quarter as well?

Okay, thanks for your question. You see gross margin evolution, if you see from March to June quarter, it has been -- one is the mix factor which plays the role significantly. So that has been there. And second thing on the inventory revaluation also had an impact on the gross margin. right? So if you mix sometimes also moves in terms of the seasonal impact also quarter-on-quarter, you see certain movement. But largely, it was the mix as well as the inventory revaluation impact, which -- because we follow the FIFO method of inventory, which has an impact. On -- what was your second question? Can you repeat?

Yes. On the commodity inflation, what we witnessed this quarter, how much price hikes we have taken? And for the Q2 quarter, how do you see this?

Yes. So price and commodity inflation, if you see our OEM contracts usually have a clause around the commodity inflation linked to the index in which we keep working along with the OEMs. And even currently, it's the work in progress for the recent round of commodity inflation. I mean I can't disclose the exact number of it, but that's a work in progress. We see certain effect of that even in the current quarter as well as we move forward. I hope I answered your question.

And just on the gross margin, just to clarify, what -- current Q1 quarter, is that the range one should assume for the full year range. Or is that...

Sorry, carry on.

Basically, this also will keep little movement based on the inventory revaluation.

Yes. See, this is -- even historically, if you see this has been the normal gross margin range, right? It could -- based on the mix or certain timing gaps, there could be certain movements within quarter because even what happens is when you see the commodity inflation realization, it doesn't happen immediately in the same quarter, right? If there is an inflation, the discussions with the customer takes some time and also depending on individual customer contracts, there could be a lag of 1 to 2 quarters. So that's why within quarters, you may see sometimes fluctuation, but this is kind of normal gross margin range, which has been there historically also.

[Operator Instructions] Our next question comes from the line of Raghunandhan N with Nuvama Research Management.

Congratulations, sir, for extremely strong numbers. Your growth is significantly better than peers for the June quarter. Thanks for sharing the segmental sales mix. It is very helpful. Within OEM space, can you indicate how has been the share for 2-wheeler, 4-wheeler, commercial vehicle and powertrain business?

Okay. So our OEM basically, it contributes about 62%, as you have seen it, out of which our 2-wheeler is about 54%, passenger vehicle is around 31% and commercial vehicle is about 15%.

Got it, sir. This is very helpful. Would you have the same numbers for last year? Broadly, I wanted to understand the growth.

It keeps changing. Maybe Girish, can you elaborate if you have previous year number?

Sure. It will be a range bound, Mr. Raghunandhan in the sense that with 2-wheeler will be the largest and it is range bound between 48% to 52%, Passenger vehicle is about 28% to 30%. And similarly, the commercial vehicle is at about 11% to 12%.

Noted, sir. And broadly, the growth will mirror the growth which is there in the underlying OEM production data.

Correct.

Noted. And in terms of export, there has been a strong pickup, Y-o-Y, it is remaining at 8%. But on a Q-o-Q basis from 6%, there has been a jump to 8%. And export is something wherein for us to track also, it is difficult. If you can indicate how you are seeing the outlook for the export market and mainly which regions are driving growth for you? That will be very helpful.

So our main focus is on our domestic demand. Export is not a very big pie of our strategy also as of now. So it will remain in this range only, depending upon how some of the solutions where we are stronger or sometimes even the capacity shortage in other regions and they need some support from us. But by and large, the constant demand will be in this range only.

Noted, sir. And before I fall back to the queue, just a last question.

I'm sorry, sir, but can you please rejoin the queue? Our next question comes from the line of Varun Pinto with Negen Capital.

Congratulations on a good set of numbers. Sir, my first question is around revenue guidance. Sir, in the past, you have guided for about 12% revenue growth. And in Q1 itself, we have done about 27%. So is this something that we are expecting to moderate over the next few quarters?

So thank you, Varun, for asking this question. See, 27% is obviously very good growth, but we expect the revenue growth to be in the range of close to 20%, right, not much better than the 12% guidance we had given earlier, but around 20 something.

Understood, sir. You had also said that like we are somewhere around 93% loading. So like we have enough capacity this year to achieve this 20%.

Yes.

So we are building capacity this quarter 4 also. So 2 ways of increasing capacity. One is by improving our cycle time and efficiency. We have already unlocked about 5 million pieces this year by doing some technological upgradation of our assets, which are in ramping up stage. On top of it, we are also putting channels in our Haridwar factory. So we hope so we can, we will be able to cover it up.

Understood, sir. Out of the INR 500 crore CapEx that we are doing about INR 170 crores or INR 180 crores is going to come online this year itself, right?

Correct. This is what I said just now that we are putting capacity in Haridwar.

Yes, sir. So this is a backward integration CapEx or is this growth CapEx for us?

So it is primary for reducing our dependency on industrial, where we are trading some volume, but it will also be secondary, it's for our growth. But entire thing will not come in 2026. It is only Q4, this new capacity will just start. It will take some time for ramp up. So growth will start next year.

Yes. So next financial year, you will see the revenue impact of that.

Understood. Understood, sir. Lastly, this 17% margin that we are seeing, this is a largely normalized margin, right? This is the range in which we expect the margin to be for the next 2 years or so, right?

Yes, this is what we expect.

Our next question comes from the line of Krupashankar NJ with Avendus Spark.

My first question would be on the electric mobility side. We did highlight in the last conference call that we had won multiple orders on the electric mobility side. When do we see this ramping up over the medium term, sir, if you can give some guidance around that? That will be helpful.