Auto component sector: Listed bearings makers have a strong outlook

The three stocks have generated higher returns than their peer/broader indices over the last three months with Timken leading the chart with gains of 23.5 per cent

Bearings outperformed other segments in the auto component sector in the fourth quarter of 2024-25 (Q4FY25). Three major listed bearing biggies — Schaeffler India, SKF India, and Timken India (Timken) — saw their earnings get upgraded for FY26 and FY27 given the Q4 show, and the prospects for the sector going ahead. 

The three stocks have generated higher returns than their peer/broader indices over the last three months, with Timken leading the chart, registering gains of 23.5 per cent. The average returns for the bearing companies over this period has been 20 per cent, which is twice that of BSE 200 and BSE 500. The BSE Auto index, too, has lagged behind with returns of 12.7 per cent. 

Aggregate revenues of bearing companies grew 9 per cent year-on-year (Y-o-Y), driven by strong growth in the railway segment (Timken), an uptick in the aftermarket division (Schaeffler and Timken), robust growth in two-wheeler production volumes (SKF), and a recovery in export revenue (Schaeffler), says Kotak Research. 

 

Revenue growth for the bearing majors was led by Schaeffler, which posted an uptick of 16 per cent Y-o-Y. While SKF put up a flattish performance, Timken’s sales were up 5 per cent over the year-ago quarter. Schaeffler’s growth was driven by a 13 per cent increase in the automotive technologies business. Other growth contributors for the company were exports, which grew 23 per cent on a low base, vehicle lifetime solutions (up 12 per cent), and a 12 per cent increase in the bearing business.

 

SKF disappointed on the revenue front with a 2 per cent growth in the industrial segment, and 1 per cent growth in the automotive segment. What dragged the overall show was a 13 per cent decline in the export segment due to weak demand trends in the European Union (EU) and the Americas. In addition to one-time gains, Timken’s revenue growth was on account of a high single-digit increase in the railway and process industries segment while replacement, commercial vehicles, and export segments saw a low single-digit growth.

 

Centrum Research highlights that domestic bearing demand remained strong across companies, driven by healthy momentum in railways, automotive (especially tractors, small commercial vehicles, and sports utility vehicles), and industrial segments like food & beverage, and infrastructure. While Timken and Schaeffler saw strong domestic traction, export demand stayed weak for Timken and SKF due to global macro headwinds, though Schaeffler saw a rebound led by the Asian markets, says Amit Dhameja of the brokerage.

 

The operating performance of the bearing majors was also healthy. The operating profit of the trio was up 20 per cent Y-o-Y due to favourable transfer pricing, and a richer product mix, points out Rishi Vora of Kotak Research. As a result, net profit grew 20 per cent Y-o-Y. 

 

Centrum Research points out that bearing companies saw stable-to-improving margins despite input cost pressures and an unfavourable product mix. Margin resilience was driven by localisation, backward integration, operating leverage, and pricing actions while select one-offs and disciplined cost control further supported profitability. While operating profit margin of SKF was up 573 basis points (bps) Y-o-Y to 23.5 per cent, it expanded 89 bps for Schaeffler to 19 per cent, and 19 bps to 22.3 per cent for Timken.

 

Underlying sector growth, strong order book, and localisation are expected to help bearing companies grow and improve margins going ahead. The top picks for Centrum Research are Timken and Schaeffler led by growth in sectors like railways, wind, and steel, in addition to focus on localisation. For Kotak Research, Timken and SKF are top picks. For SKF, growth in the medium term should be driven by an increase in bearing content in the railway segment, a pickup in the industrial segment, and a steady performance in the automotive segment. For Timken, the triggers are domestic railways market, exports, and the upcoming new manufacturing plant for spherical and cylindrical roller bearings.