Schaeffler India Ltd Upgraded to Hold on Technical and Financial Improvements

Quality Assessment: Strong Operational Metrics and Management Efficiency

Schaeffler India continues to demonstrate high operational quality, underpinned by its impressive return on equity (ROE) of 18.67%, signalling effective utilisation of shareholder capital. The company’s return on capital employed (ROCE) for the half-year period stands at a robust 25.69%, highlighting efficient capital deployment. Additionally, Schaeffler India maintains a low debt-to-equity ratio averaging zero, indicating a conservative capital structure with minimal financial leverage risk.

Management’s consistent delivery is evident from the company’s positive results across the last four consecutive quarters. Net sales for the latest quarter reached a record ₹2,724.20 crores, while PBDIT hit a quarterly high of ₹484.12 crores. Institutional investors hold a significant 20.57% stake, reflecting confidence from sophisticated market participants who typically conduct thorough fundamental analysis before investing.

These factors collectively contribute to the company’s Mojo Grade of Hold with a Mojo Score of 54.0, an improvement from the previous Sell rating. The Market Cap Grade remains modest at 2, reflecting its mid-cap status within the auto components sector.

Valuation: Expensive Yet Justified by Market-Beating Returns

Despite the positive operational metrics, Schaeffler India’s valuation remains on the higher side. The stock trades at a price-to-book (P/B) ratio of 11.7, which is considered very expensive relative to typical industry standards. This elevated valuation is partly justified by the company’s strong return ratios and consistent earnings growth.

Over the past year, the stock has delivered a remarkable 32.32% return, significantly outperforming the BSE500 index’s 13.47% gain. Over longer horizons, the stock’s performance is even more impressive, with a five-year return of 294.51% compared to the Sensex’s 61.92%, and a ten-year return of 426.11% versus the Sensex’s 256.13%. However, the price-to-earnings-to-growth (PEG) ratio stands at 3.6, indicating that the stock’s price growth is outpacing its earnings growth, which has averaged 16.5% over the last year.

While the valuation is rich, it remains in line with the company’s historical peer group valuations, suggesting that the market is pricing in Schaeffler India’s leadership position and growth prospects within the auto components sector.

Financial Trend: Positive Quarterly Results and Steady Growth

The company’s recent quarterly financials have been a key driver behind the upgrade. Schaeffler India reported its highest-ever quarterly net sales of ₹2,724.20 crores and PBDIT of ₹484.12 crores in Q3 FY25-26. This marks the fourth consecutive quarter of positive results, underscoring a stable and improving financial trend.

However, the long-term operating profit growth rate remains modest at 8.21% annually over the past five years, which is a concern for investors seeking rapid expansion. Nonetheless, the company’s high ROE and ROCE figures indicate that it is generating strong returns on the capital it deploys, which supports sustainable profitability.

Institutional holdings at 20.57% further reinforce confidence in the company’s financial trajectory, as these investors typically have the resources to analyse fundamentals deeply and back companies with solid growth and earnings visibility.

Technicals: Shift from Mildly Bearish to Sideways Momentum

The upgrade in Schaeffler India’s rating was significantly influenced by a positive shift in technical indicators. The technical trend has moved from mildly bearish to sideways, signalling a stabilisation in price action after a period of weakness. Key technical metrics present a mixed but improving picture:

• MACD on a weekly basis is mildly bullish, although monthly remains mildly bearish.
• Relative Strength Index (RSI) shows no clear signal on both weekly and monthly charts, indicating consolidation.
• Bollinger Bands are bullish on both weekly and monthly timeframes, suggesting potential for upward price movement.
• Daily moving averages remain mildly bearish, reflecting some short-term caution.
• KST indicator is bearish weekly but bullish monthly, indicating a divergence between short- and long-term momentum.
• Dow Theory signals mildly bullish weekly but mildly bearish monthly, reinforcing the mixed momentum environment.
• On-Balance Volume (OBV) is mildly bearish weekly but bullish monthly, suggesting accumulation over the longer term despite short-term selling pressure.

Price action supports this technical improvement, with the stock closing at ₹4,081.20, up 3.33% from the previous close of ₹3,949.60. The stock’s 52-week high stands at ₹4,392.85, while the low is ₹2,851.00, indicating a strong recovery from lows and a potential base for further gains.

Comparative Market Performance

Schaeffler India’s stock returns have consistently outpaced the Sensex across multiple time frames, reinforcing the company’s market-beating credentials. Over the last week, the stock surged 7.85% while the Sensex declined 1.47%. Over one month, the stock gained 12.82% compared to the Sensex’s 0.84%. Year-to-date, the stock is up 5.04% while the Sensex is down 3.51%. Even over three and five years, Schaeffler India has delivered returns of 39.11% and 294.51%, respectively, compared to the Sensex’s 38.28% and 61.92%. This outperformance highlights the company’s resilience and growth potential within the auto components sector.

Outlook and Investment Implications

The upgrade to Hold reflects a balanced view of Schaeffler India’s prospects. The company’s strong operational metrics, high management efficiency, and positive quarterly financial trends provide a solid foundation for future growth. The technical indicators suggest that the stock has stabilised and may be poised for further gains, although some mixed signals warrant cautious optimism.

Valuation remains a concern, with the stock trading at a premium relative to book value and a high PEG ratio, indicating that investors are paying for growth expectations that must be met to justify current prices. The modest long-term operating profit growth rate of 8.21% also tempers enthusiasm for rapid expansion.

Investors should weigh the company’s strong returns and institutional backing against its expensive valuation and mixed technical signals. The Hold rating suggests that while the stock is no longer a sell, it may not yet be a compelling buy without further confirmation of sustained growth and technical strength.

Overall, Schaeffler India remains a key player in the auto components sector with a track record of market-beating returns and solid fundamentals, making it a stock to watch closely in the coming quarters.

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