Why did analysts downgrade SKF India to Reduce? Here's what drove the call

While revenue growth remained resilient, weaker margins, demerger-linked costs and stretched valuations have clouded the near-term view for SKF India, analysts said.

Nuvama on SKF India: Analysts at domestic brokerage Nuvama Institutional Equities (Nuvama) have turned cautious on SKF India’s automotive business after the company’s September quarter (Q2FY26) performance fell short of expectations, prompting a cut in earnings forecasts and a rating downgrade to ‘Reduce’ from ‘Buy’.

 

A key driver of the downgrade is limited upside at current valuations. Nuvama has revised SKF India’s target price to ₹1,950 from the earlier implied ₹2,000, applying a 35x price-to-earnings (PE) multiple to September 2027 earnings. With the stock trading at steep valuations of 38.5x/46.7x/38.5x on FY25/26/27 estimates, analysts see little valuation comfort even as fundamental momentum remains steady.

 

“Applying 35x PE to Sep-27E earnings per share (EPS), we arrive at a target price (TP) of ₹1,950 (earlier implied TP was ₹2,000). The stock is trading at FY25A/26E/27E PE of 38.5x/46.7x/38.5x. Given limited upside potential, we are downgrading the stock to ‘Reduce’ (from ‘Buy’),” Raghunandhan NL, Rahul Kumar and Manav Shah of Nuvama said in a note dated November 17, 2025.

 

That said, while revenue growth remained resilient, weaker margins, demerger-linked costs and stretched valuations have clouded the near-term view.

Revenue beat offset by margin woes

 

In the September quarter, SKF-Auto reported a revenue of ₹500 crore, ahead of the anticipated ₹470 crore, aided by stronger domestic demand. However, the revenue beat was offset by margin pressures. Gross margin slipped to 44 per cent due to inventory losses – a seasonal trend in second quarters. Ebitda came in at ₹57.8 crore, missing the ₹66.3 crore estimate as lower margins and demerger-related expenses weighed on operating performance. Adjusted PAT stood at ₹38.4 crore, also below the projected ₹41.7 crore.

 

The earnings miss has led analysts to cut Ebitda estimates for FY26-28 by 3-5 per cent. Revenue is still expected to grow at an 8 per cent compound annual growth rate (CAGR) over FY25-28 – supported by 8 per cent domestic growth and 5 per cent exports growth – but earnings growth will lag, with Ebitda now projected to rise at a more moderate 4 per cent CAGR, partly due to a high FY25 base and additional costs tied to the demerger, including consulting fees and new software systems such as SAP for the standalone Auto business.

 

Another factor weighing on sentiment is SKF’s relative performance versus peers. The company, which historically outpaced the broader auto industry, has in recent years trailed competitors like Schaeffler India and Timken India.

 

Despite these near-term pressures, analysts note that SKF continues to invest for long-term growth. The company is strengthening its partnerships with original equipment makers (OEMs) through application-specific solutions that boost content per vehicle. It is also building capabilities in emerging technologies, including ABS systems and high-stiffness bearings, in response to tightening safety norms.

 

On the aftermarket side, SKF is broadening its product portfolio beyond bearings and expanding its reach into Tier-2, Tier-3 and rural markets, supported by a strong digital infrastructure.

 

To meet growing demand, the company is undertaking major capacity expansions – increasing capacity by 10 per cent in Bangalore, 30 per cent in Pune, and 50 per cent in Haridwar – with a planned capex of ₹400-500 crore over FY25-30.

 

While these initiatives bolster long-term prospects, analysts believe the combination of margin pressures, elevated costs and expensive valuations justifies a more cautious stance for now.

SKF India share price history, MCap

 

SKF India’s share price has declined 0.89 per cent over the past five days, dropped 6.85 per cent in the last month, and is down 1.65 per cent over the past six months. On a one-year basis, the stock has fallen 2.56 per cent.

 

On Monday, November 17, SKF India shares closed 0.98 per cent higher at ₹2,065.20. In comparison, the BSE Sensex ended 0.46 per cent higher at 84,950.95.

 

Last checked, SKF India’s market capitalisation stood at 10,209.93 crore, BSE data shows.