Following Schaeffler India's March quarter performance, domestic brokerage firm Sharekhan has retained its 'buy' rating on the stock. The firm has kept the target price unchanged at Rs. 3,328 apiece, indicating an upside potential of 20%.
The company, which is a leading manufacturer of ball and rolling bearings, reported a marginal increase of 5.79% YoY in its consolidated net profit at ₹219 crore for Q1CY23 on Wednesday. However, the net profit fell by 5.19% sequentially.
The revenue from operations declined 5.6% QoQ to ₹1,694 crore when compared to the year-ago quarter revenues were up by 8.03%.
The aftermarket segment has registered a 13.4% QoQ decline in revenue and contributed 8.6% to the total revenue as compared to 9.4% in Q4CY22. The revenue contribution from exports has come down to 17.7% in Q1CY23 from 18.5% in Q4CY22.
The company follows the January–December financial year in its accounting system. During the quarter, the operating profit came in at ₹315 crore, reflecting a 2.22% increase YoY and an 8.70% decrease QoQ, while the operating profit margin remained flat at 19%.
Sharekhan said that the operating performance of the company was below their estimates. The decline was attributed to a lack of operating leverage, as both domestic and export revenue decreased on a QoQ basis.
With the exception of the domestic automotive technology segment, all other segments experienced a sequential decline during the period, as per Sharekhan's observations.
However, management has guided for a healthy uptick in export revenue in the coming period, backed by a strong order book, robust order book in auto aftermarket, continued steady performance in the railway segment and infra-related industries, and increased penetration in the high-value e-mobility segment.
The company aims to generate 20% of its revenue from exports in the coming years and has allocated 30% of its capex to benefit from the relocation of capacities, the brokerage stated.
Going forward, the global slowdown would have a limited impact on its export revenue growth as its export revenue would be built up by the relocation strategy, followed by the Schaeffler Group.
Schaeffler India appears to be a key beneficiary of the Europe Plus One strategy and has been making efforts to utilise the opportunity, backed by its engineering expertise, it highlighted.
Further, the company has been enjoying a strong order book in the aftermarket segment and is looking to expand its overall product portfolio and reach on a pan-India basis. It has reported steady business in the railway segment, and has been actively seeking business opportunities in the freight segment, it said.
The company continues to drive on localisation and increased penetration in the high-value EV space. While the soft raw-material cost benefit has yet to reflect in its financials, the brokerage firm believes a benign raw-material cost trend would be a tailwind.
Sharekhan maintained its bullish outlook on the stock in expectation of an uptick in export revenue in the coming period, successful entry into the high-value EV business, and continued traction.
Schaeffler India is engaged in the development, manufacturing, and distribution of high-precision roller and ball bearings, engine systems and transmission components, chassis applications, clutch systems, and related machine-building manufacturing activities.
06 analysts polled by MintGenie on average have a 'hold' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.