Schaeffler IN - Q1CY18 Strong Topline; Margins Tad Lower, Mgt. Guidance for Strong Med.-Term Growth

Schaeffler India: In-Line Consol Results in Q2-CY18. Maintain Buy

Sector Capsule - Indian Bearings Industry

Independent Research Analyst

Mamta Verma

DC India Research

DC India Research LLP (DCIR) is based out of Mumbai, India.

We specialize in providing customized, independent research across listed and unlisted companies in India across equities and credit including sectoral research. Our customers include India focussed PE funds, special situation funds, domestic AMCs, Wealth Advisory& PMS firms, Rating Agencies & Investment Advisors. 

The DCIR board consists of prominent names from the industry as well as CIO’s of Hedge funds.

Equity Bottom-Up

Schaeffler India completed its merger with INA and Luk in Oct-2018. We believe that Schaeffer’s growth profile will continue to remain strong from structural and cyclical uptick in both its end user segments of automotive and industrial components. Also, we believe the merger will improve growth of the combined entity with higher exposure to fast‐growing auto industry, focus on new product development, cost synergies, localization benefits and higher Capex resulting in higher capacities to support the growth.At this juncture we are of the opinion that Gross margins in the merged entity will show some improvement QoQ as the management has indicated of price hikes to take on the raw material inflation. This along with a favourable sales mix, operating leverage and cost rationalisation should bode well for operating margins.Given the strong management pedigree, industry opportunity and benefits from merger we continue to have a favorable medium to long term view on the stock.

Schaeffler India completed its merger with INA and Luk in Oct-2018. We believe that Schaeffer’s growth profile will continue to remain strong from structural and cyclical uptick in both its end user segments of automotive and industrial components. Also, we believe the merger will improve growth of the combined entity with higher exposure to fast‐growing auto industry, focus on new product development, cost synergies, localization benefits and higher Capex resulting in higher capacities to support the growth.At this juncture we are of the opinion that Gross margins in the merged entity will show some improvement QoQ as the management has indicated of price hikes to take on the raw material inflation. This along with a favourable sales mix, operating leverage and cost rationalisation should bode well for operating margins.Given the strong management pedigree, industry opportunity and benefits from merger we continue to have a favorable medium to long term view on the stock.

Schaeffler In: In-Line Q3-CY18, Maintain Buy