The quarter's results revealed a concerning trend: whilst net sales grew 2.02% QoQ to ₹1,309.06 crores, operating margins contracted sharply, falling to 12.66% from 13.04% in the previous quarter. Year-on-year, however, the picture brightened somewhat, with net profit advancing 12.00% and revenue expanding 5.21%, suggesting underlying business resilience despite near-term margin headwinds.
| Quarter | Net Sales (₹ Cr) | QoQ Growth | Net Profit (₹ Cr) | QoQ Growth | Operating Margin |
|---|---|---|---|---|---|
| Sep'25 | 1,309.06 | +2.02% | 105.49 | -10.76% | 12.66% |
| Jun'25 | 1,283.15 | +5.75% | 118.21 | -41.85% | 13.04% |
| Mar'25 | 1,213.37 | -3.40% | 203.28 | +85.64% | 23.45% |
| Dec'24 | 1,256.10 | +0.95% | 109.50 | +16.25% | 9.65% |
| Sep'24 | 1,244.23 | +3.15% | 94.19 | -40.73% | 9.95% |
| Jun'24 | 1,206.22 | +0.23% | 158.93 | -9.30% | 16.06% |
| Mar'24 | 1,203.40 | — | 175.23 | — | 17.73% |
Financial Performance: Revenue Growth Masks Margin Erosion
SKF India's Q2 FY26 performance presented a tale of two narratives. On the topline, net sales reached ₹1,309.06 crores, marking the highest quarterly revenue on record and representing a 2.02% sequential improvement. Year-on-year, the 5.21% growth demonstrated resilience in an otherwise challenging industrial environment, with the company serving both automotive and industrial segments across its manufacturing facilities in Pune, Bangalore, and Haridwar.
However, the bottom line told a different story. Net profit of ₹105.49 crores represented a 10.76% decline from the previous quarter's ₹118.21 crores, primarily driven by margin compression. The operating margin (excluding other income) contracted to 12.66% from 13.04% in Q1 FY26, a 38 basis point erosion that reflected cost pressures in the manufacturing environment. More concerning was the comparison with the exceptionally strong Q4 FY25, which had delivered a 23.45% operating margin—nearly double the current quarter's performance.
The profit after tax margin similarly declined to 8.06% from 9.21% in the previous quarter, though it remained ahead of the 7.57% recorded in the year-ago period. This pattern suggested that whilst the company maintained pricing power on a year-on-year basis, sequential cost management challenges emerged during the quarter.
Other income provided some cushion, rising to ₹23.85 crores in Q2 FY26 from ₹15.12 crores in the previous quarter, contributing positively to overall profitability. The company's interest burden remained negligible at ₹0.14 crores, reflecting its debt-free status—a significant competitive advantage in the current interest rate environment.
Margin Volatility: A Persistent Challenge
SKF India's operating margins have exhibited significant volatility over the past seven quarters, ranging from a low of 9.65% in Dec'24 to a high of 23.45% in Mar'25. This 1,380 basis point swing highlights the company's vulnerability to input cost fluctuations, capacity utilisation levels, and product mix changes. The current quarter's 12.66% margin, whilst ahead of the lows, remains substantially below the company's demonstrated peak performance, suggesting room for improvement through better cost management and operational efficiency.
Operational Excellence: Strong ROE Amidst Challenging Trends
Despite the near-term margin pressures, SKF India continues to demonstrate strong capital efficiency metrics that distinguish it within the industrial products sector. The company's return on equity (ROE) stood at 20.18% in the latest period, comfortably above the 15% threshold that typically separates quality franchises from mediocre performers. Over a five-year average, the ROE remained robust at 21.42%, reflecting consistent profitability and efficient capital allocation.
The return on capital employed (ROCE) painted an even more impressive picture at 33.26% for the latest period, with a five-year average of 38.59%. These elevated returns stem from the company's asset-light model, minimal debt burden, and strong competitive positioning in the bearings market. With an average EBIT-to-interest coverage ratio of 100 times and net debt-to-equity of negative 0.27 (indicating a net cash position), SKF India operates with one of the strongest balance sheets in its peer group.
However, operational challenges have emerged in recent quarters. The company's financial trend turned negative in Q2 FY26, driven by several concerning factors. Operating cash flow for FY25 declined sharply to ₹203.09 crores—the lowest in recent years—compared to ₹624 crores in FY24. This 67.5% year-on-year contraction in cash generation raised questions about working capital management and the sustainability of reported profits.
Cash Flow Concerns: The dramatic decline in operating cash flow to ₹203 crores in FY25 from ₹624 crores in FY24 represents a significant red flag. This deterioration, despite growing revenues, suggests increased working capital requirements or potential quality of earnings issues. The company's debtors turnover ratio on a half-yearly basis fell to 5.31 times—the lowest in recent periods—indicating slower collection cycles and potentially stretched customer credit terms. Investors should monitor whether this trend reverses in subsequent quarters or represents a structural shift in the business model.
The company's balance sheet remained healthy with shareholder funds of ₹2,597.97 crores as of March 2025, though this marked a 3.16% decline from ₹2,682.75 crores in the previous year. The reduction stemmed from higher dividend payouts, with the company distributing ₹650 crores in cash during FY25 compared to ₹203 crores in FY24. The dividend payout ratio of 116.48% exceeded net profits, funded partly by accumulated reserves—a generous but potentially unsustainable policy if earnings don't recover.
Industry Context: Navigating a Challenging Manufacturing Environment
SKF India operates within the industrial products sector, supplying critical components—bearings, seals, mechatronics, and lubrication systems—to both automotive and industrial customers. The company's performance must be viewed against the backdrop of a moderating industrial cycle in India, with manufacturing growth showing signs of deceleration after the post-pandemic recovery.
The automotive sector, a key end-market for SKF India, has experienced mixed trends. Whilst passenger vehicle demand remained resilient, commercial vehicle sales moderated, and the two-wheeler segment faced headwinds. Industrial customers, meanwhile, have been cautious with capital expenditure, impacting demand for bearings and related products. These sector-specific challenges explain some of the margin pressure witnessed in recent quarters.
SKF India's positioning as part of the global AB SKF group provides both advantages and constraints. On one hand, the company benefits from technology transfer, global best practices, and brand recognition. On the other, it faces transfer pricing considerations and potentially limited autonomy in strategic decisions. The parent company's 52.58% stake ensures alignment but also means minority shareholders must trust the promoter's long-term vision.
| Company | P/E Ratio (TTM) | P/BV Ratio | ROE (%) | Dividend Yield (%) |
|---|---|---|---|---|
| SKF India | 18.37 | 3.71 | 21.42 | 0.73 |
| Timken India | 51.55 | 8.47 | 17.37 | 1.04 |
| Grindwell Norton | 47.20 | 7.87 | 19.36 | 1.05 |
| Carborundum Universal | 57.18 | 4.71 | 13.11 | 0.46 |
| Precision Wires | 43.24 | 7.27 | 15.81 | 0.43 |
Peer Comparison: Attractive Valuation Despite Operational Challenges
When benchmarked against industrial products peers, SKF India presents a compelling valuation case despite its recent operational challenges. Trading at a price-to-earnings ratio of 18.37 times, the stock commands a significant discount to peers like Timken India (51.55x), Grindwell Norton (47.20x), and Carborundum Universal (57.18x). This valuation gap appears unjustified given SKF India's superior return on equity of 21.42%, which exceeds all major peers except Grindwell Norton.
The price-to-book value ratio of 3.71 times similarly positions SKF India at the lower end of the peer spectrum, with most competitors trading between 4.71x and 8.47x. This metric becomes particularly relevant given the company's strong balance sheet and net cash position. Investors are essentially paying less for each rupee of book value whilst obtaining higher returns on that equity—a classic value proposition.
However, the dividend yield of 0.73% lags behind Timken India (1.04%) and Grindwell Norton (1.05%), reflecting SKF India's recent reduction in dividend per share to ₹6.66 in FY25 from higher levels in prior years. This moderation in shareholder returns, combined with the elevated payout ratio exceeding 100%, suggests management may be recalibrating its capital allocation strategy in response to cash flow pressures.
"SKF India's 18.37x P/E multiple appears attractive relative to its 21.42% ROE and debt-free balance sheet, but investors must weigh this valuation discount against concerning cash flow trends and margin volatility."
Valuation Analysis: Attractive Entry Point or Value Trap?
At the current market price of ₹2,065.20, SKF India trades at valuations that appear compelling on traditional metrics but warrant careful scrutiny given operational headwinds. The stock has delivered exceptional returns over the long term—122.28% over one year, 537.87% over five years, and a staggering 736.99% over ten years—vastly outperforming the Sensex across all timeframes. This track record establishes credibility for the business model and management execution.
The recent price correction from the 52-week high of ₹2,395.85 has created a 13.80% discount, bringing valuations into more reasonable territory. The enterprise value-to-EBITDA multiple of 12.74x sits below the typical 15-20x range for quality industrial franchises, whilst the EV-to-sales ratio of 1.86x reflects the capital-intensive nature of the manufacturing business.
The company's proprietary Mojo score of 67 out of 100 translates to a "HOLD" rating, reflecting mixed signals across key parameters. Whilst valuation grades as "Very Attractive" and quality remains "Good", the negative financial trend and only mildly bullish technical outlook temper enthusiasm. The fair value estimate, based on normalised earnings and peer multiples, suggests limited upside from current levels, with the stock trading close to intrinsic value.
The PEG ratio of 0.05 appears anomalously low, suggesting either significant undervaluation or concerns about growth sustainability. Given the company's modest 7.46% five-year sales growth and 2.53% EBIT growth, the latter interpretation seems more plausible. Investors seeking high-growth industrial plays may find limited appeal, whilst value investors might appreciate the quality franchise at reasonable valuations.
Shareholding Pattern: Stable Base with Marginal Institutional Shifts
SKF India's shareholding structure has remained remarkably stable, with promoter holding steady at 52.58% across the past five quarters. This unwavering stake from parent company AB SKF and its affiliates provides strategic stability and long-term commitment, though it also limits free float and potentially constrains liquidity.
| Shareholder Category | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|
| Promoter | 52.58% | 52.58% | 52.58% | 0.00% |
| Foreign Institutional Investors | 6.98% | 7.55% | 8.22% | -0.57% |
| Mutual Funds | 23.83% | 23.33% | 23.10% | +0.50% |
| Insurance Companies | 3.05% | 3.14% | 3.30% | -0.09% |
| Other DII | 0.14% | 0.14% | 0.12% | 0.00% |
| Non-Institutional | 13.42% | 13.26% | 12.68% | +0.16% |
Institutional shareholding patterns reveal nuanced shifts in sentiment. Foreign institutional investors reduced their stake from 7.55% in Jun'25 to 6.98% in Sep'25, a 57 basis point decline that continued a three-quarter downward trend from 8.33% in Dec'24. This gradual exit by FIIs might reflect concerns about near-term growth prospects or reallocation towards higher-momentum opportunities in the broader market.
Conversely, mutual funds increased their holding marginally from 23.33% to 23.83% during the same period, suggesting domestic institutional investors viewed the recent weakness as a buying opportunity. With 25 mutual fund schemes holding positions, the stock enjoys reasonably broad domestic institutional support. Insurance companies, however, continued trimming exposure, declining from 3.14% to 3.05%.
The rise in non-institutional shareholding to 13.42% from 12.68% over two quarters indicates retail and high-net-worth individual interest, possibly attracted by the stock's strong long-term track record and recent price correction. Combined institutional holding of 34% remains healthy, providing a quality shareholder base alongside the promoter stake.
Stock Performance: Spectacular Long-Term Returns, Recent Consolidation
SKF India's stock price trajectory exemplifies the wealth-creation potential of quality industrial franchises held over extended periods. The shares have delivered a remarkable 736.99% return over ten years, translating to a compound annual growth rate of approximately 23.5%—far exceeding the Sensex's 228.45% gain over the same period. This 508.54 percentage point alpha generation underscores the company's fundamental strength and market recognition.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -0.40% | +1.69% | -2.09% |
| 1 Month | -6.86% | +1.19% | -8.05% |
| 3 Months | +125.73% | +5.40% | +120.33% |
| 6 Months | +119.67% | +3.18% | +116.49% |
| Year-to-Date | +123.26% | +8.72% | +114.54% |
| 1 Year | +122.28% | +9.50% | +112.78% |
| 3 Years | +102.74% | +37.57% | +65.17% |
| 5 Years | +537.87% | +93.28% | +444.59% |
The stock's performance over the past year has been particularly striking, with a 122.28% gain that dramatically outpaced the industrial products sector's 1.45% decline. This 123.73 percentage point outperformance relative to sector peers reflects either company-specific positive developments or a significant re-rating of valuation multiples. The three-month and six-month returns of 125.73% and 119.67% respectively indicate the bulk of gains materialised recently, possibly driven by improved earnings expectations or sector rotation.
However, recent price action suggests momentum has stalled. The stock declined 0.40% over the past week and 6.86% over the past month, underperforming the Sensex in both periods. This short-term weakness, following the spectacular run-up, appears to be a healthy consolidation rather than a trend reversal. The stock currently trades below its 5-day, 20-day, 50-day, 100-day, and 200-day moving averages, indicating technical weakness that may persist until operational metrics improve.
The high volatility of 123.31% over the past year places SKF India in the "high risk, high return" category. The risk-adjusted return of 0.99 compares favourably to the Sensex's 0.77, suggesting the elevated returns more than compensated for the additional volatility. The stock's beta of 1.04 indicates it moves largely in line with the broader market, though with slightly amplified swings during periods of market stress or euphoria.
Investment Thesis: Quality Franchise at Crossroads
SKF India presents a nuanced investment case that balances undeniable quality attributes against near-term operational challenges and valuation considerations. The company's core strengths—high return on equity, debt-free balance sheet, market leadership in bearings, and association with a global technology leader—provide a solid foundation for long-term value creation. These characteristics typically command premium valuations and attract patient, quality-focused investors.
The current valuation of 18.37 times trailing earnings appears reasonable—neither obviously cheap nor expensive—for a company generating 20% return on equity. The 3.71 times price-to-book multiple similarly reflects fair value for a quality industrial franchise. Compared to peers trading at 40-50 times earnings, SKF India offers relative value, though this discount exists for valid reasons including slower growth and recent operational challenges.
The negative financial trend designation, driven by declining operating cash flow and margin compression, represents the primary concern for prospective investors. Whilst quarterly profits remain healthy on a year-on-year basis, the sequential deterioration and cash flow weakness suggest underlying business pressures that management must address. The company's modest 7.46% five-year sales growth and 2.53% EBIT growth further temper expectations for aggressive expansion.
Key Strengths & Risk Factors
Key Strengths
- Exceptional return on equity of 21.42% demonstrates superior capital efficiency and profitability, ranking amongst the best in the industrial products sector
- Completely debt-free balance sheet with net cash position provides financial flexibility and eliminates solvency risks during economic downturns
- Market leadership in bearings segment backed by global technology access from parent AB SKF, creating sustainable competitive advantages
- Strong interest coverage of 100 times and robust ROCE of 38.59% indicate operational excellence and pricing power in core markets
- Attractive valuation at 18.37x P/E compared to peer average of 40-50x, offering relative value despite quality attributes
- Diversified end-market exposure across automotive and industrial segments reduces concentration risk and provides cyclical balance
- Stable promoter holding of 52.58% and healthy institutional participation of 34% ensures quality shareholder base with long-term orientation
Key Concerns
- Operating cash flow declined dramatically to ₹203 crores in FY25 from ₹624 crores in FY24, raising quality of earnings concerns
- Operating margins compressed to 12.66% in Q2 FY26 from 23.45% in Q4 FY25, indicating significant cost pressures and operational challenges
- Modest long-term growth with sales advancing only 7.46% annually and EBIT growing 2.53% over five years limits upside potential
- Debtors turnover ratio deteriorated to 5.31 times on half-yearly basis, suggesting slower collections and potential working capital stress
- Dividend payout ratio of 116.48% exceeds net profits, funded by reserves, raising sustainability questions if earnings don't recover
- Foreign institutional investors reduced stake from 8.33% to 6.98% over three quarters, signalling potential concerns about near-term prospects
- High stock volatility of 123.31% creates challenges for risk-averse investors and complicates entry/exit timing decisions
Outlook: What Lies Ahead
SKF India's near-term trajectory depends critically on management's ability to reverse the negative financial trend and restore margin stability. The company must demonstrate that Q2 FY26's margin compression represents temporary cost headwinds rather than structural deterioration. Improvement in operating cash flow generation would significantly enhance investor confidence and validate the sustainability of reported profits.
Positive Catalysts
- Recovery in operating margins towards 15-17% historical range through better cost management and operational leverage
- Improvement in operating cash flow above ₹500 crores annually, validating earnings quality and working capital efficiency
- Acceleration in revenue growth driven by industrial capex recovery and automotive sector momentum
- Sustained high ROE above 20% demonstrating continued capital efficiency despite challenging environment
Red Flags to Monitor
- Further deterioration in operating margins below 12%, indicating structural cost pressures or pricing power erosion
- Operating cash flow remaining below ₹300 crores, suggesting persistent working capital issues or earnings quality concerns
- Continued decline in debtors turnover ratio, reflecting customer stress or aggressive credit policies to maintain volumes
- Additional foreign institutional investor selling below 6% stake, signalling broader institutional concerns about business outlook
The broader industrial environment will play a crucial role in determining outcomes. A revival in manufacturing activity and capital expenditure would provide tailwinds for bearings demand, whilst continued softness could pressure volumes and margins further. The company's ability to maintain pricing discipline whilst managing input costs will be critical to margin recovery.
From a valuation perspective, the stock appears fairly priced at current levels, offering limited margin of safety for fresh investors. The "Very Attractive" valuation grade must be weighed against the "Negative" financial trend, creating a classic value-versus-momentum dilemma. Existing shareholders who purchased at lower levels continue to enjoy substantial gains and may reasonably hold positions, whilst fresh capital might await clearer signs of operational improvement.
The Verdict: Quality Franchise Requiring Patience
Score: 67/100
For Fresh Investors: Await clearer evidence of margin stabilisation and cash flow improvement before initiating positions. The stock offers quality attributes but lacks near-term catalysts to drive meaningful upside from current valuations. Consider accumulating only on further weakness below ₹1,900 levels, which would provide better risk-reward.
For Existing Holders: Continue holding positions given the company's strong fundamentals, market leadership, and debt-free status. The recent operational challenges appear cyclical rather than structural, and the long-term track record inspires confidence in management's ability to navigate difficulties. Maintain positions with a 12-18 month horizon for margin recovery.
Fair Value Estimate: ₹2,100-2,200 (2-7% upside from current levels), based on normalised earnings of ₹550-600 crores and a 19-20x P/E multiple appropriate for a quality industrial franchise with moderate growth prospects.
Note- ROCE= (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions. Past performance does not guarantee future results. The views expressed are based on information available as of November 17, 2025, and are subject to change.
