Domestic brokerage firm Sharekhan, in its latest research note, reiterated its 'buy' call on Schaeffler India, setting a target price of ₹3928 apiece. The brokerage's bullish outlook stems from the company's strategic focus on localization, traction in the aftermarket segment, export business, and new order wins.
Schaeffler India is engaged in the manufacturing of engine and transmission components for front accessory drive systems, chain drive systems, valve trains, shift systems, and a range of needle roller bearings and elements. It also produces clutch systems and dual mass flywheels for passenger cars, LCVs, heavy commercial vehicles, and tractors.
Entering B2B e-commerce space: On Friday, the company said it had acquired 100% shareholding of KRSV Innovative Auto Solutions ("Koovers"). This acquisition will enable Schaeffler India to double its aftermarket sales by 2030, said Sharekhan.
KRSV engaged in B2B e-commerce spare parts solutions for the Indian automotive aftermarket workshops. It caters to over 7,000 workshops via its app, Koovers DMS. The company offers 1.8 million SKUs and caters to both retail and institutional customers.
The brokerage said this strategic move will enhance Schaeffler India's after-market presence as it has already been an established player in the after-market (physical segment) and it is now looking for an opportunity to strengthen its position via an online platform.
Currently, the e-commerce platform has a 2% penetration in the automotive aftermarket and is expected the penetration to reach 10% by 2030E, it said.
Focus on in-house manufacturing: The company continuously focuses on localization to reduce the trading mix in its overall revenue. The localization rate has reached 76%. Given that the company has been continuing with its ongoing capex program the trading mix is expected to come down to 20% gradually, the brokerage highlighted.
It believes the rise in in-house manufacturing would improve its business potential, quality control and profitability.
New business won continues: The brokerage underscores the company's consistent success in securing new orders across its key operational segments. Specifically, in the automotive sector, the brokerage said the company has secured contracts for wheel bearings in the passenger vehicle segment, LV clutch systems in the commercial vehicle sector, and HD clutch systems in the medium and heavy commercial vehicle categories.
In the industrial domain, Schaeffler has achieved new-order wins for linear motion guides and ultra-precision drives. Additionally, it has secured contracts for bearings in the electric two-wheeler sector and bearings along with axle box housing for railway applications.
In the automotive aftermarket, the company has introduced Tru Power two-wheeler batteries in the aftermarket. The batteries would be manufactured by its manufacturing partners and Schaeffler would sell it as traded items to enhance its product offerings.
Exports - steady growth driver: While the company has been facing headwinds in the export revenue due to macro headwinds, it is continuously focussing on the relocation program and building potential to drive its export performance on the revival of a cycle, given it has been a beneficiary of the shift in production in its overall group from overseas markets to India, the brokerage firm said.
It stated that the company has continued with the investment required to build production expertise for export volumes. In CY2022, exports contributed 16.6% and management foresees export contribution to reach 20% in the coming years.
However, in the immediate near-term, export revenue trends are expected to follow the market trends in the overseas market, it noted.
7 analysts polled by MintGenie on average have a 'hold' call on the stock.
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