 "Schaeffler India")
The Street is cautious on the outlook for Schaeffler India, despite outperforming the BSE 500 on the returns front and posting a robust show in the December quarter. While the company delivered a double-digit year-on-year (Y-o-Y) growth in the quarter, brokerages have cut the earnings estimates for CY25 and CY26 by up to 10 per cent each on the near-term demand worries and the target prices over high valuations. As the markets corrected across the board, the stock has fallen 12 per cent over the last month as compared to the BSE 500, which is down over 18 per cent.
The company reported a 14 per cent Y-o-Y increase in revenues aided for growth across the key verticals. While bearings and the industrial segment (mobility and industrial bearings) grew by 12 per cent, automotive technologies rose by 14 per cent. Bearings accounted for 44 per cent of sales, followed by automotive technologies, which accounted for 34 per cent of the top line. Exports, which account for 13 per cent of revenues, reported a jump of 23.5 per cent Y-o-Y in the quarter on a favourable base.
The company continues to add new products and expand its market. In the automotive technologies segment, it announced new business in passenger vehicles for planetary gear shafts, clutches and damper systems and continued orders for clutches in commercial vehicles. In the aftermarket segment, the gains include chassis parts, wipers and lubricants. Business gains in the bearings and industrial segment include wins in the industrial automation, off-road, two-wheelers and railways.
What should help expand its market is the global merger of Shaeffler and Vitesco Technologies to form the Schaeffler Group. After the merger, the company will have access to a larger portfolio of electrification solutions, thermal management modules, battery management systems and sensors.
“This expansion presents a significant opportunity for Schaeffler India to operate at a higher level - from a bearings player to system level mobility player. Sustained growth in underlying sectors like power transmission, wind, two-wheelers, passenger and commercial vehicles and railways is likely to help grow the top line, going ahead,” said Amit Dhameja of Centrum Research.
The acquisition of the B2B e-commerce platform Koovers will also help the company expand its presence. “While the company’s automotive aftermarket business remains on a strong footing, we expect the growth momentum to continue further, led by network expansion of Koovers and product additions,” said Rishi Vora and Praveen Poreddy of Kotak Research.
Brokerages are also positive on the recovery in the export markets, especially in the EU region, which accounts for 60 per cent of export sales. In addition to the EU, the company has an eye on the Asian and American markets. Nuvama Research believes that focusing on localisation and favourable cost structure will help Schaeffler India gain orders from across the globe. While localisation for the quarter stood at 76 per cent, the company aims to improve it to 80 per cent over the medium term.
While Kotak Research is positive in the medium term, it has cut its CY25-26 earnings per share (EPS) estimates by 2-6 per cent due to lower revenues from newer segments (e-mobility) and margin assumptions. The brokerage expects the near-term growth in the passenger and commercial vehicle segments to remain weak, weighing on the company’s overall revenue growth.
Analysts led by Souvik Mohanty of Nuvama Research believe that a muted demand environment, coupled with sombre commentary from management, has led them to cut CY25 and CY26 EPS by 10 per cent each.
Centrum Research is positive on the company and expects further headroom for growth. The brokerage remains optimistic about the operating performance on a healthy order book, consistent domestic performance and strong show from wind, passenger vehicles and power transmission. Added positives are a focus on localisation and integration of Vitesco globally, aiding portfolio expansion.
