Indian Bearings Industry

Automobile Sector Report
Indian Bearings Industry
Engineering prowess at play
Institutional Research Top-notch engineering capabilities: Indian Bearing Industry has reported a robust
growth over the past decade riding on the surge in the automobile demand and robust
capex in the Indian industry. Indian Bearing demand is ~Rs 100bn in CY19 and has
Top-notch engineering grown at a CAGR of 5.3% over the past 10 years. Further, led by consolidation of the
capabilities: Indian market and declining imports, growth. India is becoming a low cost manufacturing hub for
Bearing industry size is at the global OEMs both in the automobile and other Industries which augurs well for the
Rs 100 bn (10 years CAGR
bearing industry. Owing to the diverse application both in mobility and Industrial space,
of 5.3%) is expected to
grow to Rs 128bn (19-24E we feel that Indian Bearing sector is well placed to capitalize on the recovery in the
CAGR of 4.9%). domestic capex cycle and automotive demand. Growing exports, higher Content per
Vehicles (due to rising premiumization and migration to better emission efficiency norms),
under-penetrated Industrial segment and strong investment pipeline in railways are key
demand drivers for the domestic Bearing manufacturers. Rising localization will further
strengthen the MNC players like Timken India, SKF India and Schaeffler India.
We prefer Timken India, given a rich product mix, higher contribution from
Railway & exports, low dependence on Automobile sector and higher localization.
We expect the industry size to grow to Rs 128bn by FY25 E with a CAGR of 4.9%
over 20-25E.
We initiate coverage on the sector with BUY rating on SKF, Timken and
Schaeffler.
SKF India-Initiating Coverage with BUY, Target Price- Rs2084
SKF India is the market leader in the Wheel End Bearings market in India and known for
its innovative Ball Bearing technologies. More than half of its revenue comes from diverse
Industrial sectors, which includes Wind, Railways, Materials and Cement sector. SKF India
has a strong presence in the after-market both in the Automobile as well as Industrial
segments. It has 22.7% market share in the domestic Bearing market. Late entry into the
Freight Wagon segment and large dependence on automobiles resulted in a relative
underperformance by SKF India viz-a-viz its peers over the past decade. However, the
company has started supplying to the Freight Wagon and has 40% market share in the
Conventional Passenger Coaches. It expects to get preference in getting orders for LHB
Coaches. SKF India is strongly placed to regain its lost sheen. We initiate coverage on the
stock with BUY rating at a target price of Rs 2084 (30xFY23E).
Timken India-Initiating Coverage with BUY, Target Price-Rs1333: Timken India is

the market leader in the Tapered Roller Bearing and has successfully localized not only its
finished goods but also the technologies and RM sourcing, making it less dependent on
imports. Among the top MNC players, Timken India has the highest contribution of
exports. The company is the largest supplier to the Freight Wagons and High Speed
Passenger Coaches for Indian Railways and is a likely beneficiary of transition of Indian
railway from Conventional Coaches to LBH Coaches, where Spherical and Cylindrical
bearings are being replaced with Tapered Roller Bearing.
Md Shaukat Ali
shaukat.ali@amsec.in
+91 98992 30857
Refer Disclosures & Disclaimer at the end of the report. Our reports are available on Bloomberg ASNM <GO>, ThomsonReuters, Factset and Capital IQ September 23, 2020
Indian Bearings-Sector Update
Indian
SKF Bearings-Sector
India Update
Ltd. – Initiating Coverage
Timken India is strong play on Dedicated Freight Corridor, modernization of Railways and
exports. We initiate coverage on the stock with BUY rating at a target price of Rs 1333
(33xFY23E).
Schaeffler India-Initiating Coverage with BUY, Target Price-Rs4388
Schaeffler India has a diversified product portfolio of which Bearings account for ~60% of
the revenues, while the balance comes from Engine, Chassis and Transmission
components. The company has a rich portfolio of drives for the Electric and Hybrid Vehicles.
Schaeffler India is the market leader in the domestic Bearing market, with ~23.2% market
share. After the amalgamation of the two group companies owned by its parent Company,
its dependence on domestic automobile, particularly the PV segment has significantly
increased and is a likely beneficiary of demand revival in the domestic PV segment. Its
synergetic product offering augurs well with the ongoing premiumization in PV segment
and rising Content per Vehicle due to robust demand for SUVs. We initiate coverage on the
stock with BUY rating at a target price of Rs 4388 (33xCY22E).
FY19 was the best year for the bearing industry in terms of profitability led by
robust growth in automotive sales and healthy demand from industrial segment.
Going forward, all the three bearing companies: SKF, Timken and Schaeffler are
expected to report improved performance on a low base of FY21. However, as per
our analysis and forecast, only Timken will be able to log significantly higher
profitability compared to the peak achieved in FY19 led by its structural business
realignment viz. aggressive localization, export thrust and lower dependence on
automobiles. In that context, Timken also seem to face less disruption that may
potentially be caused due to advent of electric vehicles.
Exhibit 1: Peer Comparison: Key Financials
Rev. CAGR PAT CAGR
MCAP Net Rev.(Rs mn) PAT (Rs mn)
Companies (%) (%)
(Rs mn)
FY20 FY21E FY22E FY23E (FY21-23) FY20 FY21E FY22E FY23E (FY21-23)
SKF India 77077 28416 22542 25453 27836 11.1 2890 2003 2952 3435 31.0
Timken India 82440 16178 14205 16329 18248 13.3 2461 1557 2483 3037 39.7
Schaeffler India 121917 43606 33702 38838 43572 13.7 3676 1823 3344 4157 51.0
Exhibit 2: Peer Comparison: Key Ratios

EBITDA Margin (%) RoE (%) RoCE (%) RoIC (%) Net D/E P/E (x)
Companies
FY20 FY21E FY22E FY23E FY23E FY23E FY23E FY23E FY21E FY22E FY23E
SKF India 12.3 10.4 14.2 15.3 14.7 15.3 29.4 -0.48 38.5 26.1 22.4
Timken India 22.5 17.0 22.4 23.6 14.4 15.9 29.8 -0.5 53.0 33.2 27.1
Schaeffler India 14.5 11.0 15.0 16.4 12.5 14.1 21.9 -0.37 66.9 36.5 29.3
Source: AMSEC Research
Note: For Schaeffler India, CY21E and CY22E are used in place of FY22E and FY23E respectively
Exhibit 3: One Year Forward PE Chart-Superior PE Multiple Commanded by Timken
90.0
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
03-May-11
03-May-12
03-May-13
03-May-14
03-May-15
03-May-16
03-May-17
03-May-18
03-May-19
03-May-20
03-Jan-11
03-Sep-11
03-Jan-12
03-Sep-12
03-Jan-13
03-Sep-13
03-Jan-14
03-Sep-14
03-Jan-15
03-Sep-15
03-Jan-16
03-Sep-16
03-Jan-17
03-Sep-17
03-Jan-18
03-Sep-18
03-Jan-19
03-Sep-19
03-Jan-20
03-Sep-20
Schaeffler Timkn SKF
Source: Company Reports, AMSEC Research
September 23, 2020 2

Indian
SKF Bearings-Sector
India Update
Index
Sr. No Particulars Page No.

1 Bearing Companies at a glance 4
2 Executive summary 5
3 Indian Bearing Industry 8
4 Global Bearing Industry: A Primer 11
5 Railway remains a key area of growth for domestic Bearing Companies… 14
6 Localization plays key role in margin improvement… 22
7 Market characteristics 23
8 EV Disruption: Positioning of Bearing Companies 24
10 Company Section 25
11 SKF India Ltd. 26
 Numbers that speak 27
 Investment Rationale 28
 Financial Overview 35
 Quarterly financial performance 38
 Financial Snapshot 39
 Outlook and valuation 40
 Key Risks 41
 Company Overview 42
 Financials 46
12 Timken India Ltd. 47
 Financial Performance 59
 Financials 69
13 Schaeffler India Ltd. 70
 Few Innovative Product Offerings by Schaeffler India 81
 Quarterly financial performance 86
 Key Risks 89
 Financials 98

SKF India
Indian Ltd. – Initiating
Bearings-Sector Coverage
Update
Bearing Companies at a glance

Exhibit 4: Revenue Exhibit 5: EBIDTA
(Rs mn) (Rs mn)
50000 8000
45000
7000
40000
35000 6000
30000 5000
25000 4000
20000 3000
15000 2000
10000 1000
5000
0
0
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
SKF India Timken India Schaefller India SKF India Timken India Schaefller India
Exhibit 6: EBIDTAM% Exhibit 7:Net Earnings

(%) (Rs mn)
4500
25.0
4000
20.0 3500
3000
15.0 2500
2000
10.0 1500
1000
5.0
500
0.0 0 FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Exhibit 8: ROCE % Exhibit 9: ROE%

(%) (%)
30.0 40.0
25.0 35.0
30.0
20.0 25.0
15.0 20.0
15.0
10.0
10.0
5.0 5.0
0.0
0.0
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
FY21E
FY22E
FY23E
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
SKF India Timken India Schaefller India

SKF India Timken India Schaefller India
Exhibit 10: Gross Asset turn x Exhibit 11: Free Cash flow
(x) (Rs mn)
8.0 4000
7.0 3500
6.0 3000
5.0 2500
4.0 2000
3.0 1500
2.0 1000
1.0 500
0.0 0
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
-500
FY21E
FY22E
FY23E
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
-1000
Source: Company, AMSEC Research

SKF India
Update
Executive summary
Cumulative Revenue of Bearing Companies: grew at a CAGR of 10% during the last
decade. However, the growth was non-linear due to cyclicality of the user industries
viz. automobile, industry, and infrastructure. FY 19 was the best year for the
bearing industry in terms of profitability led by robust growth in automotive sales
and healthy demand from industrial segment.
Exhibit12: Cumulative Bearing Industry Revenue Trend (For 3 Companies)

(Rs mn) (%)
36.9%
80,000 40%
70,000 35%
27.1% 27.1%
30%
60,000
25%
50,000 17.4% 16.0% 20%
12.4%
40,000 15%
30,000 10%
0.6% 5%
20,000 -3.8% -3.0%
-4.8% 0%
10,000 -5%
0 -10%
CY09
CY10
CY11
CY12
CY13
CY14
FY16
FY17
FY18
FY19
FY20
Bearing Companies Revenue YoY Change

Note: Bearing revenues of Schaeffler India, Timken India and SKF India have been considered
Macro View: Medium term headwind to persist, long-term opportunity intact
Bearing industry has strong correlation with automobiles, infrastructure and

manufacturing sector and benign macro trend to weigh on the industry growth over
the medium term, though structural long-term opportunity is intact
1. Automotive sales trend is benign though FY22 will mark gradual recovery
Exhibit 13: Auto volume on a downtrend
YOY
Units Sales in Mn FY11 FY19 CAGR FY11-19 FY20
Chg%
PV 2.9 4.1 3.9% 3.5 -14.6%
CV 0.8 1.1 4.2% 0.8 -29.3%
2W 13.3 24.5 7.0% 20.9 -14.7%
3W 0.8 1.3 6.0% 1.1 -10.3%
TRACTORS 0.6 0.9 5.4% 0.8 -10.6%
Total 18.3 31.9 7.2% 27.1 -15.0%
 Two Wheelers - On recovery path post COVID-19 impact: On India 2 wheeler industry
sold 24.5 Mn two-wheelers, the highest ever in the year FY19. However, the sales
marked sharp decline in FY20 due to factors such as change in norms due to BS-VI
transition, increased cost of insurance and sluggish economy. COVID-19 further
aggravated the situation and likely to impact the sales volume in FY21. Nevertheless, the
2-wheeler is poised for demand recovery over in FY22 led by domestic and export
demand.
 Passenger Vehicles - Slowly reviving: Indian passenger vehicle sales grew at CAGR of
3.9% over FY14-19. However, sales declined by 15% in FY20 and the demand is
expected to remain weak through FY21. The penetration of cars in India is very low at 22
per thousand people compared to developed western countries (upwards of 500 cars)
and even in comparison to China (164 vehicles). In absolute terms, India‘s PV sales at 3.5
Mn units is way below China‘s annual sales of 21 Mn vehicles.
 Commercial Vehicles – Weak trend to persist: Indian CV market witnessed sharp decline
of 30% in FY20. The industry witnessed prolonged downturn through FY12-14 followed
by recovery through FY15-19. The demand is highly cyclical and the current downturn
which started in FY20 is likely to take longer time to recover due to sharp contraction in
GDP growth and overall sluggish economy.

SKF India
Update
 Tractor –Steady growth ahead: India tractor market size was at 8.78 lakh units in FY19
(including exports). The Indian tractor industry witnessed a double digit growth for three
consecutive years through FY17-19 though the domestic demand declined by 10% in
FY20 to 7.09 lakh units. However, with expectation of a good monsoon during 2020, the
demand for tractor is likely to witness improving trend going forward.
On recovery path: Going by the historic trend over the last ten years, at 7.2% CAGR,
India‘s total automobile industry will grow from 27 Mn units to 32 Mn units in five years and
39-40 Mn unit in ten years. This will not only expand demand for bearings from OEM but will
also fuel replacement demand.
2. Railways Investments: On strong capex binge
Exhibit 14: Growing Investment in Railways

(Rs in bn)
1,800
1,563 1,610
1,600
1,333
1,400
1,200 1,083 1,085
1,000
800
600
400
200
0
FY17 FY18 FY19 FY20 FY21P
 The government‘s investment in Railway sector is consistently on the rise (CAGR of 13%
over FY17-20) and is expected to be see quantum jump over the next decade going by
the pipeline.
 Nearly 14% of the Rs 102.5 trillion of National Infrastructure Project pipeline, ie Rs 13.68
trillion would be assigned for railway projects.
 Dedicated freight corridors a major thrust area. The ongoing Eastern and Western
Dedicated Freight corridors are expected to see investments to the tune of Rs 815Bn and
will be commissioned by 2022. Additionally, the Railways is planning four more
dedicated freight corridors of combined length of 4,000 km at a cost of Rs 1.8 trillion.
 Metro rail networks stretching over 1,500 km, including rapid rail transit system (RRTS)
projects, are being proposed to be laid over the next 5 years across various cities at a
total outlay of Rs 3-trillion.
3. India’s Infrastructure Investment, IIP, Core Infrastructure, and manufacturing

GDP growth: Benign trend to persist over the medium term, impacting the
landscape of the domestic Bearing market.

Indian
SKF Bearings-Sector
India Update
Exhibit 15: Gross fixed Capital Formation Exhibit 16: Core Infrastructure Index
(Rs bn) (%) (%)
50,000 40% 140 10%
33% 5% 5% 4% 4%
45,000 31% 31% 32% 35% 3% 3%
30% 29% 30% 120 5%
40,000 28% 0%
30%
35,000 22% 100 0%
30,000 25%
80 -5%
25,000 20%
20,000 15% 60 -10%
-21%
15,000
10% 40 -15%
31458
31949
32781
34482
37979
40611
44609
43340
10,000
5992
103.8
106.5
111.7
115.1
120.5
125.7
131.2
131.6
105.9
5,000 5% 20 -20%
0 0%
0 -25%
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Aor-July FY21
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Aor-July FY21
GFCF GFCF/ GDP%
Core Infrastructure Index YoY%
Exhibit 17: Index of Industrial Production Exhibit 18: India’s Mfg. GDP to Total GDP remains weak
(%)
(%)
140 3% 4% 3% 5% 4% 4% 10%
19 17.8 18.1 18.1 18.1
120 -1% 5%
17.4 17.4
0% 18
100
-5% 17
15.8
80 -10% 16 14.9
60 -15%
-29% 15 13.8
-20%
40 14
103.3
106.7
111.0
114.7
120.0
125.3
130.1
129.0
-25%
92.6
20 -30% 13
0 -35% 12
11
Aor-July FY21
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
10
1QFY21
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
IIP YoY%

SKF India
Bearings-Sector UpdateCoverage
Indian Bearing Industry

Top-notch engineering capabilities like Intricate Tribology, superior metallurgical
and patented case hardening processes keep the entry barrier high…
Bearings are "parts that assist objects' rotation". They support the shaft that rotates inside the
Indian Bearing industry machinery. They fulfill the following two major functions : 1) Reduce friction and make
has come-of age with rotation more smooth and 2) protect the part that supports the rotation, and maintain the
strong manufacturing
correct position for the rotating shaft. Machines that use bearings include automobiles,
capabilities and growing
exports airplanes, electric generators, industrial machinery, household appliances such as fans,
refrigerators, vacuum cleaners, air-conditioners and so on.
Simple mechanical component in appearance, Bearings are complex in terms of design and
tribology and it requires superior metallurgy to support a sustained frictionless transmission
of motion. The bearing has to absorb high radial and axial loads depending upon the
application and inferior design can lead to significant loss of power. Superior technology,
patented processes for surface treatment and complex design renders a high entry barrier
and hence the industry is dominated by a handful of players both in global and domestic
market.
Types of Anti-Friction Bearing:
Anti-Friction Bearings are broadly of five types- Ball Bearings, Tapered Roller Bearings,
Spherical Roller Bearings, Cylindrical Roller Bearings and Needle Roller Bearings.
Exhibit 19: Types of Anti-Friction Bearings

Types of Anti friction Bearings Market Leader Applications
Railways, Heavy Engineering Application, MHCV, Mining,
Tapered Roller Bearings Timken India
Earthmoving and Construction Equipments
Ball Bearings SKF India 2W, 4W, 3W, Fans, Pumps, Power Generators, Alternators etc
Cylindrical Roller Bearings Schaeffler India Railways, Gearboxes, Mining equipments, Compressors etc
suspension systems, heavy Industrial Conveyors, Industrial Fans,
Spherical Roller Bearings Schaeffler India
Construction Equipment etc
Needle Roller Bearings NRB 2W, 3W, PVs etc

Indian
SKF Bearings-Sector
India Update
Exhibit 20: Types of Ball and Roller Bearing & Applications

Category Subcategory Characteristics Image
Utilizes balls as rolling elements; Characterized by point contact between the balls and the raceways; Rotate quickly but cannot
support substantial radial loads. Modification lead to moderate axial load carrying ability.
They are easy to maintain and not as sensitive to operating conditions

thus are used in a wide range of applications. In addition to radial forces,
Deep Groove
they absorb small axial forces in both directions. Suitable for low torque
Bearing
high speed.
Application: Industrial Machines, Off Highway Vehicles, ICE etc.
Characterized by a contact angle. This means that forces are transferred

from one raceway to the other at a particular angle. They are therefore
Angular Contact
suitable for combined loads, where high axial forces have to be
Bearing
Ball Bearing transferred in addition to radial forces.
Application: Machine Tools, Pumps, Wind Gear Box, MHE
These include a double row of balls guided by a cage and double row
inner ring raceway but have the special feature of a continuous spherical
outer ring raceway allowing the inner ring / ball complement to swivel
within the outer ring. This is what enables a degree of self-alignment in
Self Aligning
the application. Recommended when alignment of the shaft and
Bearing
the housing can deflect shaft. Self-aligning ball bearings are most suitable
for absorbing radial forces.
Application: Textile, Mining, Power, Heavy Machines, Agri
Machines
Consist of two bearing discs with raceways for the balls. They were
developed solely for absorbing axial forces in one direction, meaning they
Thrust Bearings can locate the shaft axially in one direction.
Application: Ships, Wagon Axle Box, etc.Auto Bear Box, Textile,
Centrifuge, Passenger Coaches
Characterized by line contact. Line contact offers higher load rating than ball bearings of the same size; however the speed
ability is lower than a ball bearing due to the increased friction of a contact line.
Work on the same principle as Self-aligning bearings with the exception

that they use spherical rollers instead of ball rollers allowing higher loads
to be supported. This can compensate for misalignments between the
Spherical
shaft and the housing. They are suitable for absorbing high radial loads
Bearing
and moderate axial loads.
Application: Heavy Machines, Turbines, Gear Box, Cons Equip,
Mining, Drilling, Heavy Machines etc.
Roller Bearing
Have tapered raceways in the inner and outer rings with conical rollers
arranged between them. Due to the contact angle, they can absorb high
radial and axial forces in one direction. They are often combined in pairs
Tapered Bearing
to support axial forces in both directions.
Application: Freight, Passenger Coaches, Auto, Agri, Const Equip,
Mining, Wind Turbines etc.
They use line contact between the rolling elements and the raceways,
which optimizes the distribution of stress factors at the point of contact.
Cylindrical This arrangement means that they have a very high radial load rating.
Bearing Depending on the design, they may also be able to transmit limited
amounts of axial loads.
Application: Textile, Mining, Power, Cement, Rotary Machines etc.
Contain long, thin rolling elements, known as needle rollers. The ratio of
diameter to length is between 1:3 and 1:10. Have a high load rating and
are only suitable for radial forces. Have a high load rating and are only
Needle Bearing
suitable for radial forces.
Application: U Joint, Planetary Gears, Pumps, Hydraulic Machines
etc.

Indian Bearings-Sector
SKF India Update
The domestic Bearing market is still dominated by the Ball Bearings and it accounts for 53%
of the total domestic Bearings market. Further, Roller Bearings, which account for 47% of the
Because of versatility of
total market is dominated by Tapered Bearings.
Tapered Roller Bearing, it is
gradually replacing the Exhibit 21: Domestic Bearing Industry- Type of Bearings
Spherical Roller Bearing in
high Load high speed
applications like Railway 9.4%
Passenger Wagons, Wind
6.6%
Turbines etc.
12.2%
53%
18.8%
Ball Bearings Tapered Roller Bearings Cylindrical Roller Bearings
Spherical Roller Bearings Needle Roller Bearings
Source: Timken India Presentation, Reports, AMSEC Research
Exhibit 22: Load Carrying Capacity

Types of Anti friction Bearings Surface Contact Load Carrying Capacity
Ball Bearings Point Contact Moderate Axial and Radial Load
Spherical Roller Bearings Line Contact Moderate Axial but High Radial Loads
Cylindrical Roller Bearings Line Contact Moderate Axial but very High Radial Loads
Tapered Roller Bearings Line Contact High Radial and Axial Loads
Needle Roller Bearings Line Contact High Load rating but only suitable for Radial Loads
Source: NSK Website, AMSEC Research
Because of versatility of the Tapered Roller Bearing, it is gradually replacing the

Spherical/Cylindrical Roller Bearing in high load high speed applications like
Railway Wagons, Wind Turbines etc. Although majority of the Bearing market is
dominated by these four types of bearing, the new types of bearing have also been in use
like Precision Bearing, Thrust Bearing etc with the evolving need and varied applications.
Global Bearing Industry is
dominated by six key players Both domestic and global bearing industry is dominated by handful of players
namely SKF AB, Schaeffler AG,
Timken, NSK, NTN and JTEKT Having high product differentiation owing to technologies involved in the Bearing
Corp (under the brand Koyo manufacturing, the industry remains oligopolistic in nature and dominated by a handful of
Bearings) and these players players both in the domestic as well as global arena. Global Bearing Industry is dominated
account for 60% of the global
by six key players namely SKF AB, Schaeffler AG, Timken Co, NSK, NTN and JTEKT Corp
Bearing market
(under the brand Koyo Bearings) and these players account for 60% of the global
Bearing market (Source: AB SKF Annual Report 2019).

SKF India Update
Global Bearing Industry: A Primer
Global Bearing Industry, which has a market size of $43-48bn declined by 1-3% in 2019.
Asia Pacific region, which accounted for 40% in FY01 has grown rapidly and accounted for
50% of total Global Bearing market.
Exhibit 23: Global Bearing Market

2019 market
Key Regions Share of Global Bearing Market Market Size in $bn
development
Asia Pacific ~50% (China alone is 30% of Global Bearing Market) 21.8-24 Slight growth
Europe ~22% of which Germany accounts for ~33% 9.8-10.9 Slight decline
North America ~22% 9.3-10.4 Slight decline
LATAM ~3% of which Brazil accounts for ~50% 0.9-1.3 Flat
Middle East and Africa ~3% 0.9-1.3 Slight decline
Global Market Size 43-48bn
Source: AB SKF
Exhibit 24: Global Bearing Market Mix Exhibit 25: Global Bearing Market-Geographical Mix
3% 3%
30%
40% 22%
50%
22%
40%
Asia Pacific Europe
Automobile OEMs Industrial OEMs Distribution (Auto & Industrial) North America LATAM
Middle East and Africa
Source: AB SKF
Domestic Bearing Market Structure
Domestic Bearing market is ~Rs100 bn. Almost Rs65-70bn of the Bearing demand in India
comes from domestic automobile industry, while the balance comes from various industries
like Materials, Energy, Process, Textile, etc. This is opposite to global Bearing Industry, where
more than half of the demand comes from Industries. We feel that modernization of
domestic manufacturing sector will lead to high penetration of bearing in the Industrial
segment going forward.
Similar to Global Bearing market structure, the Indian Bearings market also is dominated by
five key players -SKF India, Timken India, Schaeffler India, NRB and NBC. Top five players
account for more than 3/4th of the total domestic Bearing market. The industry consolidation
over the years has further strengthened the position of top players in the domestic Bearing
market. SKF India had been the market leader till recently, though it has been now toppled
by Schaeffler India, which holds 23.2% market share, while SKF India is the close second at
22.7% market share.

SKF India
Update
Exhibit 26: Domestic Bearing Industry- Market share of leading players
22.2% 23.2%
7.2%
22.7%
13.4%
11.3%
Schaeffler SKF Timken NRB NBC Others

Note: Based on the value terms of only the Bearing revenue. Non Bearing revenues have been excluded from
the calculations.
Exhibit 27: Key Players profile

SKF India Schaeffler India Timken India NRB NBC
Schaeffler AG/
Parent Company / Country AB SKF/Sweden Timken Co./US Domestic Domestic
Germany
No of Mfg Plants in India 3 4 3 4 6
Revenue FY20 (Rs mn) 28,416 43,606 16,178 7,760 27,690
Revenue CAGR (FY10-20) 5.4% 18.2% 17.7% 7.3%* 7.2%**
Exports/ Revenue 11.9% 10.5% 24.6% 4.0% 12.7%
Import / Revenue 41.7% 36.9% 22.6% 19.1% 13.1%
No .of Employees 1716 2846 1269 1,456 2,800
*over FY10-19; **over FY10-18
India forms a very minuscule part of the global Bearings Industry, through is among
the fastest growing markets…
Global Bearing Industry is worth ~$45bn, with Asia Pacific accounting for over half of the
demand. Despite a robust growth in the Indian Bearing industry, India still accounts for just
~3% of the global bearing market.
Exhibit 28: India forms a small part of global Bearing demand
3%
97%
India RoW

Indian
SKF Bearings-Sector
India Update
Analyzing the key industrialized countries like China, Germany Brazil etc, India has
a lower penetration of Bearing, compared to that of Germany and China and we
feel that Industry can show significant growth with rising capex cycle in India,
Premerization of automobiles and modernization of Indian Railways.
Exhibit 29: Key comparable markets and Bearing penetration

Key Country Bearing Market Size ($ bn) % of GDP
China 13.6 0.09%
Germany 3.5 0.09%
Brazil 0.6 0.03%
India 1.4 0.05%
Diverse application keeps the demand relatively stable…
Despite Mobility (Automobile industry, Railways and Off-Highway Machines) is the largest
user of the bearings, Bearing has diverse non-mobility Industrial application, ranging from
Cement, Textile, Infrastructure, Process Industry, Wind and Power sector etc. Mobility
continues to account for about 2/3rd of the domestic Bearing market, while the balance goes
to the Industrial application.
Exhibit 30: Domestic Application Mix
12%
53%
35%
Automobile Industrial Railway
Exhibit 31: Application Mix of Top MNC Bearing Companies

SKF India Timken India Schaeffler India
5%
5%
10%
10.5%
10% 29% 25% 25% 35.2%
6%
15.0%
8%
13%
9% 7.7%
16% 17% 21.6%
22%
Automobile OEMs Automobile OEMs
Automobile After Markets 11% Automobile After Market
Other Industrial
Other Industrial OEMs
Industrial After Market
Automobile Distribution Process Indsutrial After Market
Railway
Wind Railway Exports Exports
Materials Railways

SKF India Update
Railway remains a key area of growth for domestic Bearing Companies…
Railway offers a market Indian railway is one of the key end user of the domestic bearing industry and accounts for
opportunity of Rs 10-12bn significant part of the revenue of the key Bearing manufacturers. Timken remains the largest
which is likely to grow to supplier of the Bearings to the Indian Railways and it account for 22% of its revenue. Indian
8-10% over the next five Railways accounts for ~12% of total domestic Bearing demand.
years
Exhibit 32: Railway Business Mix
20%
40%
40%
Freight Wagon Passenger Wagon Locomotive
Railways business has three major areas where bearings are used-Freight Wagons,
Passenger Coaches and Locomotives, which account for 40%, 40% and 20% respectively of
bearing consumption by Railways. Timken India remains market leader in the Fright
Wagons and high Speed Passenger Coaches segment, with 50% share. SKF India is
the largest bearing supplier to the Conventional Coaches and has a market share of
~40%.
Exhibit 33: Railway Business Segments

Major Segment Leader with Market Share
Freight Wagon Timken India, 50%
Conventional Coaches SKF India, 40%
High Speed Passenger Coaches Timken, 50%
Locomotives Diverse Players
Exhibit 34: Railway Contribution to Key Bearing Companies

Major Player Revenue from Railway (Rs mn) Revenue Contribution from Railway
Timken India 3,883 24%
SKF India 1,989 7%
Schaeffler India 2,180 5%
Railway Market Size ~Rs10-12bn 100%
Source: Companies, AMSEC Research
India Railway offers a market opportunity of Rs 10-12bn for the Bearings

companies and Timken is the market leader in this segment with ~38-39% market
share.

SKF India Update
Exhibit 35: Market share in Railway
19%
39%
22%
20%
Timken SKF India Schaeffler India Others
Growth Drivers for Domestic Railway Business:
1. Complete shift from Conventional Coaches to Linke Hoffman Busch (LHB)

Coaches- This offers a great opportunity for the Tapered Roller Bearing (TRB) as
the new coaches will phase out from Spherical Roller Bearings (SRB) and
employ Tapered Roller Bearings.
2. Privatization of Passenger Trains
3. High penetration of High Speed Passenger Coaches like Vande Bharat,
Rajdhani and Shatabdi, where Bearing Component per Coaches are
significantly higher
4. Dedicated Freight Corridor: High Speed Dedicated Fright Corridor will
revolutionize the movement of goods. This will lead to increase in the market
share of Railways in the domestic movement of goods. Companies like Timken
will be the key beneficiary, which enjoys the leadership position in the supply of
Tapered Bearing to the Railways, while has relatively lower share of revenue
from Automobiles.
5. Metro, though still a small segment comprising of annual Bearing demand of
~Rs400-400mn now is growing at a fast pace given the replacement demand
from the existing network of 10 metros in various cities as well as expansion
many new cities. Annual bearing demand can go up to Rs 800-1000mn in the
next few years, almost doubling the existing demand.
6. Many global OEMs like GE is setting Electric Locomotive manufacturing base in
India. Timken India has already supplying GE and SKF India has entered into
agreement to supply Bearings for 10 years to GE Electric Locomotives. Although
Electric Locomotives employs less number of Bearings than the conventional
Locomotives, This will aid the bearing demand growth going forward.

SKF India
Update
Exhibit 36: Railway Business Growth Drivers
Shift to Linke-Hoffman Busch (LHB) Coaches
Higher Penetration of High Speed Passenger Coaches

Railway
Growth
Drivers
Privatization of Passenger Trains
Dedicated Freight Corridor
Robust growth in the domestic automobile demand aided in the past bearing
growth…
Automotive OEM, a high- India has witnessed a robust growth in the domestic Automobile manufacturing driven by
growth market got
burgeoning domestic demand as well as rising exports of automobile. This has led to a
impacted due to sharp
decline in demand since robust growth in the domestic Bearing industry. Automobile OEMs and after-markets
2019. It is poised to grow account for almost two-third of the domestic Bearing demand.
at CAGR of 4-5% over
FY20-23. Exhibit 37: Correlation of growth of Automobile sales and Revenue of key Bearing
Co
(%)
26.8 36.9
26.3 14.5
8.2
17.4 6.5
14.0 4.1 5.1 16.0
12.4 3.5
1.9
0.6
-3.8
-3.0 -4.8
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Bearing Co Revenue growth Automoble Sales growth

Note: Revenue of Bearing Co includes that of Schaeffler India, SKF India and Timken India
Exhibit 38: Contribution of Domestic Automobile to key Bearing companies

Companies Automobile Revenue/Sales
Timken India 25%
Schaeffler India 43%
SKF India 37%
Premierization of domestic automobile demand to play a key role
Apart from growth in domestic demand, rapid premiumization across the industry has been
driving the content per vehicle (CPV) of Bearing higher. For example, a Hatchback
Passenger Car uses 60 Bearings, while the content rises to more than 80 Bearings in
Compact SUVs. Similarly, CPV for LCV has seen significant rise from 70-80 bearings per
vehicle to ~110 bearings per vehicle due to transition to the new BS-VI emission norms.
Ideally it can go up to 140 for LCV. We believe that after a short down-trading in PV
demand, the premiumization will pick up again. Further, other automobile segments such as
3W, MHCV etc are still at the early stages of premiumization.

SKF India
Update
Exhibit 39: PV Sales (Domestic+Exports) Exhibit 40: CV Sales (Domestic+Exports)

(mn) (%)
(Units) (%)
5 25.6 30
12,00,000 21.3 30
4 25
16.0 16.1
4 20 10,00,000 12.4 20
10.6 15 18.8
3 -1.1 4.2 10
4.0 6.8 6.1 10 8,00,000
3 2.7 -3.2
0.4 5 0
2 6.5 -3.9 6,00,000
0 -18.7 -10
2 -5 4,00,000
1 -14.8 -10 -29.7 -20
1 -15 2,00,000 -30
0 -20
0 -40
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Passenger Vehicle Sales Growth Y-o-Y %
CV Sales Growth Y-o-Y %
Exhibit 41: 3W Sales (Domestic+Exports) Exhibit 42: 2W Sales (Domestic+Exports)
(Units) (%) (mn) (%)

(%)
26.5
14,00,000 40 30 30
29.7 29.7 25
12,00,000 24.8 30 25 15.5 20
10,00,000 9.1 15
12.8 20 20 15.7 7.2 6.3
8,00,000 5.2 10
2.4 2.7
10 15 5
6,00,000 9.9 -0.9 0.3 0
-3.8
0 10 -5
4,00,000 -10.2
-14.4 -10
2,00,000 -16.9 -10 5
-15
0 -20 0 -20
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
3W Sales Growth Y-o-Y % 2W Sales Growth Y-o-Y %
Apart from robust domestic demand for automobiles, India is gradually emanating as a
manufacturing hub for the global markets.
Exhibit 43: Contribution of Automobile to Key Bearing Companies

Timken India 25%
SKF India 37%
India’s wind power Domestic automobile business accounts for 25%, 43% and 37% of revenue of Timken India,
capacity to grow at a Schaeffler India and SKF India respectively. Further, almost the entire export of SKF India
CAGR of 16.8% over (~10.7% of net sales) is for the global automotive segment, taking the contribution of
FY20-23 from 37.7 GW
Automobile for SKF India to ~48% of its revenue.
to 60GW.
Wind Power remains a dark horse for the domestic Bearing manufacturers…
India is one top 5 countries in the world in terms of Wind Power installation. The country
currently 37.7GW installed capacity. Wind power in India has seen stupendous growth of
12.8% over the past 13 years. The installed grew at CAGR of 15.3% over FY07-17, though it
slowed down in last three years due to sharp decline in price of wind power and grew
modestly by 5.3%.

Indian
SKF Bearings-Sector
India Update
Exhibit 44: Wind Power Capacity Addition in India
(GW) (%)
CAGR: 5.2%
40 CAGR: 15.2% 6
5.5
35
5
30
3.0 3.3 4
25
20 2.1 2.3 2.3 3
2.0
15 1.7 1.8 1.6
1.3 2
10 1.0
1.7
1
5
0 0
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Cumulative Wind Power Installation (GW) Annual Addition (GW)
Source: National; Institute of Wind Energy, AMSEC Research
Apart from robust domestic demand, India is turning into an export hub by the
major Wind Turbine manufacturers like Siemens Gamesa, GE, Vestas etc.
Bearings find multiple uses in the Wind Energy Sector
Modular wind-turbine designs commonly use Spherical Roller Bearings (SRB) units in main-
shaft that are more than 1m in diameter. A Tapered Roller Bearing (TRB) can also improve
the power train performance. TRBs help ensure system stability and rigidity, load sharing
between rows, and predictable roller-to-race interactions.
Schaeffler India has a sizeable share in Spherical Roller Bearings space. Being a
world leader in terms of Spherical Roller Bearings, they provide a comprehensive portfolio for
products suited for use in the Wind Energy Cluster. Their bearings are used in the Rotor shaft,
Gearbox, Generator, and in Wind Tracking and Blade adjustment. However, Timken India
can become a significant player, being a leader in the large diameter Tapered Roller
Bearing. SKF India is present in the Alternators and Gear Box bearings and wind power
accounts for ~5% of its revenue.
Localization of Wind Turbine Manufacturing by Global OEMs to play role…
India is becoming an export hub as all the Wind-Mill manufacturers like Siemens Gamesa,
GE, Vestas are using India as a base for global markets. Growth in this segment is will be
aided by both growing domestic demand and exports.

Indian
SKF Bearings-Sector
India Update
Exhibit 45: A primer on Wind Power opportunity
Source: National; Institute of Wind Energy, AMSEC Research
Low cost production offers a huge opportunity for exports…
India continues to remain a low-cost manufacturing base for all the MNC players and offers
Exports continue to a large opportunity for the global Bearing manufacturers to localize the production for the
remain key growth global supply. Exports for Schaeffler India, SKF India and Timken India have grown at CAGR
driver for Indian
of 23.8%, 11.1% and 23.8% respectively over the last 10 years. Manufacturing of products
bearing companies.
from the parent portfolio in India, increased focus on new product development and
sustained focus of the government continue to offer a large opportunity for exports for these
companies.
Exhibit 46: Exports Growth

Companies Exports 10 Yr CAGR
Timken India 17.6%
Schaeffler India 23.8%
SKF India 11.1%
NBC 31.2%
NRB 21.7%
Note: CAGR for NBC and NRB are for FY10-18 and FY10-19 respectively
Source: Ace Equity, Company Annual Reports, AMSEC Research
Timken India leads in terms of contribution of exports to its revenue at ~25% while in case of
Schaeffler India and SKF India, exports account for mere 10% and 12% of revenues. Timken,
with large available capacity of over 60% for Wheel-end Bearings at ABC Bearing‘s plants
has a medium target of 50% of revenue accruing from exports.

SKF India
Update
Exhibit 47: Contribution of Exports to Revenue

(%)
36.8%
33.5% 34.0%
31.1%
29.5%
26.6% 27.7%
25.0% 24.6%
23.6%
17.9% 11.9%
17.2% 10.7%
15.8%
8.9% 8.6% 11.8%
7.7% 8.1% 8.1% 15.2%
7.5% 7.9%
13.9%
12.0% 5.7%
9.5% 10.2% 10.5%
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Schaeffler NBC NRB SKF Timken

Note: Comparable CY figures have been used for various companies.
Localization: key to higher revenue and profitability…
All three major Bearings have a substantial part of revenue coming from the goods
purchased from their parents and sold in India. However, gradually these companies started
localizing the production of these products in India. Localization played a key role in
evolution of domestic bearing companies in India.
Exhibit 48: Localization of the complete supply chain in the Bearing Industry underway
Localization of Finished Goods Manufacturing

Localization
Localization of Bearing Components
Localization of High Carbon Steel
Localization of Technologies and Product Development
Most of the bearing companies have already reached ~70% localization of the finished
goods. Also, these companies are localizing the Steel and component sourcing, leading to
higher steel yield. Further, the next level of localization i.e., technology localization is
underway, which can lead to development of new products for the global as well as Indian
market. This will lead to significant increase in exports.
However, these companies will continue to rely on imports of bearing for certain
areas like Cement, Steel etc, where the demand does not have the requisite
economies of scale to justify local manufacturing.

SKF India
Update
Exhibit 49: Localization of finished goods manufacturing by the major players

(%)
93.0%
83.2%
79.6%
75.9% 76.7%
74.0% 71.2%
67.7% 67.5% 66.5%
64.6%
73.3% 72.4%
68.3% 68.9% 69.7% 70.5% 68.7%
67.5% 67.3%
62.3% 59.6% 61.3%
57.7% 59.4% 58.7% 58.4%
55.6% 56.1% 54.3%
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Schaeffler India Timken India SKF India

Although Schaeffler India leads in finished goods localization at 72.4% and Timken
India is close second at 71.2%. SKF India has relatively lower finished goods
localization at 54.3% in FY20. However, Timken India leads the pack in overall
localization and its imports as a percentage of net sales stands lowest at 21.3%,
while the same for SKF India and Schaeffler are at 41.7% and 36.9% respectively.
This has resulted in a sharper improvement in the EBITDA margin of Timken India
compared to other two players.
Exhibit 50: Imports as a percentage of net sales for key players

(%)
41.7%
34.7% 35.8% 35.6% 35.7%

34.4% 34.4%
33.2%
30.6% 36.9%
36.4%
35.0%
32.6% 33.3% 33.2% 33.0% 27.4% 33.5%
30.9%
26.7%
22.3% 22.9% 22.6%
21.4% 21.6%
19.2% 20.1% 19.7%
18.1%
8.7%
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Schaeffler India SKF India Timken India


SKF India Update
Localization plays key role in margin improvement…
Gross margin of the traded goods and manufactured goods varies sharply and localization
will play a key role in the improvement of margin for the MNC players. Gross margin of
traded goods varies between 15-20%, while the same for the manufactured goods is much
higher at 50-60%. Further, these companies import key raw materials and components.
Localization of raw materials and technology too will play key role in evolution of higher
margins for domestic bearing industry.
Exhibit 51: Gross Margin of Traded Goods Exhibit 52: Gross Margin of Manufactured Goods
68%
64% 62%
59% 60% 60% 59%
14% 29% 55%
27% 54%
19% 62% 48%
17% 15% 58% 56%
14% 14% 56% 51%
14% 20% 12% 47% 49% 49%
11% 43% 45%
16% 18% 17%
16% 8% 7%
10%
2%
CY10
CY11
CY12
CY13
CY14
FY16
FY17
FY18
FY19
FY20
CY10
CY11
CY12
CY13
CY14
FY16
FY17
FY18
FY19
FY20
Schaeffler India Timken India SKF India Schaeffler India Timken India SKF India

Indian
SKF Bearings-Sector
India Update
Market characteristics
Large number of SKUs
Bearing Industry is characterized by a large of SKUs of Bearings and allied accessories, as
high as 4000-4500. Number of SKUs varies from 1450 for NRB to over 4000 for Schaeffler
India. Within one design of bearings, the company has to manufacture and maintain the
inventory of numerous SKUs of varied diameters. The company has to manufacture and
maintain a very large number of SKUs and it is critical to control the ballooning inventory as
they cater a diverse application ranging from automobiles to Industrials.
Diverse product application
Bearing finds application in diverse products ranging from home appliances, Power, Energy,
Materials and Wind Power to mobility, which include automobile, Railway, Tractors and off
Highway vehicles. Varying application requires different design of the bearings, depending
upon the intensity of axial and radial loads. Schaeffler India manufactures and sells products
for over 40,000 applications in Industrial segment alone. Within the Automobile, the
bearings are used in the engine, transmission, Chassis as well as at the Wheel end. Bearing
Content per vehicle varies from 60 (Hatchback Cars) to 140 (LCV). With more stringent
emission norms, designs of Bearings are also evolving, offering less and less friction. Further,
advent of Hybrid and Electric vehicles has led to much lighter bearings, made up of lighter
alloys.
High entry barriers
Manufacturing of Bearings involves intricate design to carry different loads as well as
superior surface hardness. Surface hardness is a complicated process to achieve a high
Hardness (measured in terms of Brinell Index) and superior tribology, which lessen the
mechanical power loss. As the diameter of the bearing increases, technology plays a key
entry barrier. In smaller diameter, there is more competition, while number of player
decreases sharply as the diameter and Load carrying capacity increases. Consequently, both
the global and domestic Bearing Industry is dominated by handful of players, having
technological edge.
Risks and concerns
Spurious products / imports
Low quality imports from countries like China and counterfeit bearing from unorganized
players put a significant pricing pressure on the smaller diameter bearings. However, the
penetration of such bearings is not present in the large diameter bearing. Further, imports
accounted for as high as 45% of total Indian bearing market in 2010, though it has declined
to below 40% over the past decade on account increasing localization by the MNC players.
Low quality spurious and counterfeit bearings accounted for 20-25% of the total Bearing
market in 2010, though it has declined off late to be below 10% of which low quality
Chinese imports account for ~Rs 4.5-5bn (~4.5-5% of the total bearing market) SKF alone
reported a sales loss of ~Rs 1.5bn in India and $244mn globally on account of counterfeit
bearings. As per AB SKF, counterfeit bearings accounts for 2.5% of total global Bearings
market.
Cyclicality of demand from auto/ capex investments
Bearing demand largely comes from two areas –Mobility and Industrial. Both are cyclical in
nature, making the Bearing demand highly dependent on economic cycles. In case of rising
economy, both capacity addition by the industrial segment and higher automobile demand
results in higher Bearing demand.
Steel prices volatility
Although it operates at significantly higher gross margin 50-60%, a significant fluctuation in
the Steel prices can severely impact the margin either way.

Indian
SKF Bearings-Sector
India Update
EV Disruption: Positioning of Bearing Companies

Compared to IC Engine Vehicles, Electric Vehicles are marked by an absence of Engine and
associated transmission components like Crankshaft, Cam etc. These will be replaced by
Electric drive. Further, the rest of Powertrain, including the Wheel End will also evolve into
lighter, simpler and smarter Powertrain. This will lead to lesser content of bearing per vehicle
in case of EVs.
Low dependence on Auto OEMs, Auto Aftermarket of ICE Vehicles to persists longer
Most of the Bearing companies in our coverage universe have low dependence on the
automobile segment and over half of the revenue comes from the Industrial segment. Within
the coverage universe, Timken India has the least dependence of Auto OEMs (25% of
revenue), while Schaeffler India has the highest dependence on Auto OEMs. Further,
Schaefller India has a large offering in the Engine and Transmission segment, which is likely
to see the pressure.
Exhibit 53: Dependence on Automobile segment

Timken India 25%
SKF India 37%
Note: Excluding Exports
Further, these companies have a large share of revenue coming from Auto Aftermarket,
which will be dominated by ICE vehicles for a longer time than the OEM space.
Preparing for the disruption
For EVs to work efficiently, the motors that drive them must run at very high speeds. This
places enormous strain on the bearings they employ. The companies are testing various
alloys and polymers for EVs to sustain the speed and temperature, with lower friction.
SKF India: Majority of Automobile Bearing portfolio of SKF India fall under the Wheel End
category, which is agnostic to the type of engine used in the vehicle. SKF is also
developing designs for Bearings and associated Polymer Cages and Lubricants that
will ensure that they can withstand the higher speeds, acceleration and
temperatures generated by EV motors.
Timken India: Auto OEMs account for 25% of its revenue, part of which is from the Wheel
End portfolio. Further, acquisition of ABC Bearings has strengthened its position in the Wheel
End segment.
Schaeffler India: Schaeffler India has a large portfolio (Bearing as well as non-Bearings) in
the engine and associated transmission segment, which is likely to see pressure from EV
penetration. However, the company has already launched EV/Hybrid Drives, which will partly
off-set the impact. Further, the company has Ceramic Racer Bearings in its portfolio, which
can be used in the EVs, with some modification.
Overall, we believe the evolution of EV vehicles in India will be gradual and may
significant penetration may happen over the long-term, may be over a decade
primarily led by Two-wheelers, public-transport vehicles (buses) and followed by
cars. As such, the bearing industry, having a diversified demand across cross-section
of market segments, will see limited disruption. The industry players have strong
visibility of a double-digit growth over the next three to five years.

Indian
SKF Bearings-Sector
India Update
Company Section

SKF India Ltd. – Initiating Coverage
Bearings Initiating Coverage
SKF India Ltd. BUY
Gearing up to regain the lost sheen…

Institutional Research Having a strong pedigree of AB SKF, SKF India has been the largest bearing
manufacturer in India, though it lost some ground off-late due to delay in entering the
CMP (Rs) 1485 Freight segment. OEMs faced teething issue in transition to the Hub-3 bearing, supplied
by other companies, which led to delay in the pickup of Hub-3 portfolio of SKF India.
Target (Rs) 2084
The Company has strong presence in the Industrial segment, which accounts for over half
Upside (%) 40%
of the revenue (52-53%). It is also strongly positioned in both the Industrial and
Automobile Aftermarket. The Company is now focusing to localize the products
Nifty: 11,154 Sensex: 37,734
particularly in the Industrial segment to regain the market share. The company has
already localized the Class K bearings for the Freight Wagons. The Company will be a
Key Stock Data big beneficiary of the recovery in the domestic automobile industry, particularly 2W.
Bloomberg SKF IN Further, Wind and Railway account for 5% and 7% of the revenue respectively, making it
Shares O/s Mn(FV INR10) 49.4 a good play in the burgeoning capex in the domestic Railway and Wind Turbine
Mkt Cap (USD Bn/INR Bn) 1/73.4 manufacturers increased thrust on Make-In-India for their global requirement.
52-week high/low 2313/1237 Having its entire automobile product portfolio focused on Wheel-end, the Company will
be least impacted by the EV disruption. Robust Balance Sheet, strong presence in the
6m daily avg vol(INR Mn) 85
Aftermarket, diversified revenue mix and superior RoIC profile augur well with a long-
Free Float % 50
term investment thesis. We initiate coverage on SKF India with BUY rating at a price
target of Rs 2084 (30x FY23E EEPS).
Stock Performance
(%) 1m 3m 12m Market Leader in the automobile Wheel End and Industrial Aftermarket
SKF (1.2) (24.4) 1.2
SKF India is one of the largest manufacturers of Bearings in India with leadership in the domestic
NIFTY 8.9 0.4 5.3 Automobile Wheel-End and Industrial Aftermarket. The Company has a diversified revenue mix
NSE500 9.1 1.2 3.1 with Auto OEMs, Auto Aftermarket, Industrial OEMs, Industrial Aftermarket contributing 26.3%,
BSEMidcap 9.1 1.2 (1.9) 11.3%, 25.9%, 25.9% and 10.7% respectively to the overall revenue.
With Class K Bearing in its kitty, SKF India to gain in Railway Business
2yr 3yr 5yr
Avg.PER (x) 35.6 32.6 30.5 Although SKF India has 60% market share in Conventional Coach segment of the Indian Railway,
it entered the freight segment late. With Class K Bearing in its product offering, the Company has
Shareholding Pattern started gaining traction in the Freight business as well.
(%) Dec19 Mar20 Jun20
Application based offering in the Industrial segment to help SKF India gain more
Promoter 52.3 52.3 52.3
traction…
FII 18.4 18.3 17.1
DII 11.6 11.3 11.3 SKF India has been focusing on application based product offering to gain traction in both the
Others 17.7 18.1 19.3 domestic Industrial segment as well as exports. This is likely to be both growth and margin
accretive for the company.
Md Shaukat Ali The Company will witness lower revenue (-21%) in FY21 due to COVID-19 impact though
shaukat.ali@amsec.in will see gradual revival in demand FY22 onwards. We forecast double-digit revenue
+91 98992 30857
growth and strong revival in earnings over FY22-23. With robust Balance Sheet, strong
product portfolio and diversified revenue-mix, SKF India remains a strong play on the
domestic automobile and industrial markets. We initiate coverage on SKF India with BUY
rating.
Exhibit 1: Key Financials Exhibit 2: Key Indicators
Y/E Mar (Rs mn) FY19 FY20 FY21E FY22E FY23E Y/E Mar FY19 FY20 FY21E FY22E FY23E
Sales 30,345 28,416 22,542 25,453 27,836 Equity 494 494 494 494 494
yoy (%) 8.2 -6.4 -20.7 12.9 9.4 RoE (%) 19.0 16.0 10.2 13.9 14.7
EBITDA 4,859 3,495 2,346 3,603 4,253 RoCE (%) 24.0 16.0 9.4 14.2 15.3
yoy (%) 11.7 -28.1 -32.9 53.6 18.0 RoIC (%) 27.1 18.4 14.0 27.4 29.4
Reported PAT 3,358 2,890 2,003 2,952 3,435 D:E (x) 0.0 -0.2 -0.5 -0.5 -0.5
yoy (%) 13.5 -13.9 -30.7 47.4 16.4 PER (x) 21.9 25.4 36.7 24.9 21.4
EBITDAM (%) 16.0 12.3 10.4 14.2 15.3 P/BV (x) 4.3 3.9 3.6 3.3 3.0
NPM (%) 11.1 10.2 8.9 11.6 12.3 EV/Sales (x) 2.4 2.5 -0.4 -0.4 -0.4
EPS 65.7 58.5 40.5 59.7 69.5 EV/EBITDA (x) 14.0 18.7 27.2 17.5 14.5

Numbers that speak

Exhibit 3: Revenue Trend Exhibit 4: Exports Trend
(Rs mn) (%) (Rs mn) (%)
35,000 31.7 40 3,500 80
61.5
25.8 3,000
30,000 30 60
35.4 37.0 36.5
25,000 12.9 20 2,500
5.4 8.2 9.4 40
20,000 17.0 10 2,000 18.0
1.6 12.0 10.0
-1.1 2.0 20
-7.3 -6.4 1,500 21.9
15,000 0
-12.1 -11.3 -17.3 -15.0 0
10,000 -10 1,000
-20.7
500 -35.0 -20
5,000 -20
0 -30 0 -40
CY10
CY11
CY12
CY13
CY14
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
CY10
CY11
CY12
CY13
CY14
FY21E
FY22E
FY23E
FY16
FY17
FY18
FY19
Revenues (Rs mn) FY20

Growth y-o-y Exports Growth y-o-y
Exhibit 5: Revenue Mix Exhibit 6:Automobile Revenue Mix
10.7%
30.0%
37.5% 38.5%
51.8%
31.5%
Automobile Industrial Exports

2W OEMs 4W OEMs Auto After Market
Exhibit 7: EBITDA Trend Exhibit 8: Earnings Trend

(Rs mn) (%) (Rs mn) (%)
87.8
6,000 15.8 16.0 15.3 18 4,000 100
14.2 16 3,500
5,000 13.0 12.2 12.8 80
11.6 11.5 11.7 12.1 12.3 14 47.4
3,000 60
10.4
4,000 12 2,500
10 17.8 21.6 26.8 21.3 16.4 40
3,000 2,000 13.5
8 -5.2 20
1,500 -8.8 -12.3
2,000 6 -13.9 0
1,000
4 -30.7
1,000 500 -20
2
0 0 0 -40
CY10
CY11
CY12
CY13
CY14
FY21E
FY22E
FY23E
FY16
FY17
FY18
FY19
FY20
CY10
CY11
CY12
CY13
CY14
FY21E
FY22E
FY23E
FY16
FY17
FY18
FY19
FY20
PAT Growth y-o-y

EBITDA EBITDA Margin
Exhibit 9: Return Ratios Exhibit 10: Fixed Asset Turnover

(%) (x)
7.1 6.8
30.3 27.8 6.5
24.0
20.8 5.4
22.6 19.7 19.9 4.6 4.8
17.3 16.9 17.0 4.4 4.5
16.0 4.1 3.9
22.4 14.2 15.3 3.5 3.5
3.1
17.5 19.0 9.4
17.2 16.2 16.0
13.7 15.1 14.4 13.9 14.7
10.2
CY10
CY11
CY12
CY13
CY14
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
CY10
CY11
CY12
CY13
CY14
CY15
CY16
CY17
CY18
CY19
CY20E
CY21E
CY22E
Fixed Asset Turnover

RoE RoCE

Investment Rationale
Strong Parentage: AB SKF, a global leader in the bearings
SKF India is a 52% subsidiary of AB SKF; a Sweden based publicly listed bearing
company, known for its excellence in the Ball Bearings across the globe.
The SKF group is a global giant in the field of Engineering Bearings and Mechanical
Powertarins and it caters to more than 40 industries across the globe. The group is
known for anti friction solution globally. Established in 1907, AB SKF is one of the
world leaders in the bearing manufacturing and have been present in all the five
continents within 14 year of establishment. AB SKF has operations in 130 countries
with 103 manufacturing units worldwide, 15 Technologies Centers and a workforce of
43,360 employees.
Exhibit 11: The SKF Group: A snapshot

Particulars
Year of Establishment 1907
Revenue SEK 86.6 billion
Employees Strength 43,360
Presence 130 Countries
R&D Centre 15
Production Facility 103
No. of Locations 170
Source: AB SKF, AMSEC Research
Exhibit 12: AB SKF-Business Segment Exhibit 13: AB SKF -Geographical Reach
5.4% 2.6%
28%
24.0% 39.0%
72%
28.9%
Europe Asia Pacific North America
Indsutrial Automobile
Latin America Middle East & Africa
Exhibit 14: AB SKF Geographical Presence

No. of Mfg
Geographies Revenue ( SEK bn) Rev. Contribution Employees
Units
Europe 33.6 39.0% 54 20,835
Asia Pacific 24.9 28.9% 25 11,452
North America 20.6 24.0% 20 5,904
Latin America 4.7 5.4% 4 2,916
Middle East & Africa 2.3 2.6% 0 452
Total 86.6 100.0% 103 43,360
An erstwhile market leader working on regaining the lost ground

Entry to the Freight Wagons,
launch of HUB 3 (Gen-3) SKF India is one of the oldest Bearing companies in India and maintained its
Bearings for Automobiles and leadership position in the Bearing till recently, only lose some ground to Schaeffler
shift from conventional to LHB India off-late. The Company continues to remain the second largest bearing company
will help SKF India gain its lost in India.
ground.

The Company has been a technology leader in the Ball Bearing with a very diverse
portfolio of Ball Bearings ranging from High Precision Ball Bearings to Deep Groove
Ball Bearing, suitable for various applications.
SKF India has grown at a relatively slower CAGR of 4.9% over the last decade in the
domestic market, compared to significantly higher growth reported by the competitors
like Schaeffler India and Timken India. The lower growth on two accounts: Lower
presence in railways and export markets and secondly, both Schaeffler and Timken‘s
higher growth led by inorganic growth through merger and acquisition.
Consequently, SKF‘s market share has come down from ~28% in FY15-16 to 22.7%
in FY20. Late entry into the burgeoning Railway‘s Freight Wagon business and muted
demand of domestic automobile business, where it enjoyed leadership position
resulted in erosion of its market share. However, the Company has made an entry to
the Freight Wagon side and is gaining momentum, with the launch of Class K
Bearings, which are replacing the Class E Bearings. The Company is a leader in the
conventional wagon business, which is now being replaced by LBH Coaches and SKF
India is hopeful of getting preference as it has over 60% market share in the
Conventional Coaches. Launch of Hub-3 for PV will lead to recovery in its lost
prominence in the automotive Wheel-end business.
Exhibit 15: A dominant player in Domestic Bearing Industry
22.2% 23.2%
7.2%
22.7%
13.4%
11.3%
Source: Company Annual reports, AMSEC Research
Leadership in the Ball Bearing and Wheel-end Bearings

Owing to strong parentage, SKF India enjoys leadership in the Ball Bearings
technologies and it manufactures a large variety of Ball Bearings with varied
applications. The Company enjoys leadership position in the Automobile Wheel End
Bearings, although it also manufactures Cylindrical, Spherical and Tapered Roller
Bearings. As Roller Bearings gained traction due to its superior load carrying capacity,
the Company has lagged in growth. However, it leveraged superior research
capabilities to match its peers and it is gradually gaining traction in high-load
applications like Freight Wagons. Further, the Company has a strong presence in the
Industrial space, with varied applications and caters to over 40 Industries.
The Company has a diverse product offering Deep Groove Ball Bearings, High
precision Ball Bearings, Self-aligning Bearings, Thrust Bearing etc.
Known for its leadership in the Wheel-end Bearings, though revenue is fairly
diversified
SKF India has a fairly diversified revenue-mix in term of the sectors and Industries it
caters. The company‘s dependence on the domestic Automobile has marginally
declined over the past five from 43% to ~37-38% now, while contribution of the
Industrial segment has gone up from 49% to 52-53% over the same period.

Exhibit 16: Diversified Revenue Mix

10.7%
37.5%
51.8%
Automobile Industrial Exports

Further, exports account for 10.7% of the revenue, which comprises of

Automotive Bearings. Including exports, Automotive components account for
~48-49% of the revenue, while the balance comes from Industrials.
Within the Automobile segment, the Company caters both the OEMs as well as
Aftermarket. Aftermarket accounts for ~30% of the Automobile revenue, while the
balance 70% comes from the OEMs. 2W and 4W OEMs account for 39% and 32% of
revenue respectively. PV and CV have almost equal contribution to 4W OEMs revenue
of the company.
Similarly, OEMs and Aftermarket account for 50% each of the Industrial revenue of
SKF India, showing its strong positioning in the Industrial Aftermarket. Strong
presence in the Aftermarket makes SKF India uniquely placed in the domestic
bearing space.
Exhibit 17: Revenue Mix in the Industrial segment Exhibit 18: Revenue Mix in the Automobile segment
30%
39%
50% 50%
32%
Indsutrial OEMs Indsutial After Msrket 2W OEMs 4W OEMs Auto After Market
Higher dependence on the domestic Automobile space: a short term

headwind, though a key beneficiary of recovery in the domestic Automobile
demand
SKF India is a market leader in the wheel End Bearing market and over half of its
Hub 3 Bearing capacity will be revenue comes from the automobile segment, including exports. Though, its
fully utilized over the next two dependence on domestic automobile market has gradually declined from ~43% in
year, bring incremental revenue FY15 to 37-38% now. Slower pick-up in the Gen-3 bearing in the automobile
of Rs 500mn to SKF India. bearings and muted demand in the domestic automobile resulted in the decline of
the Automobile contribution.

Exhibit 19: Contribution of domestic Automobile to Key Bearing companies

Timken India 25%
SKF India 37%*
*Excluding exports
SKF India is a likely beneficiary of recovery in the domestic automobile demand,

particularly the 2W which accounts for ~39% of the Automobile revenue, while 30%
of revenue comes from 4W segment, almost equally divided between PV and Heavy
Vehicles (CV and Tractors) segments. The Company is well entrenched in the domestic
Automobile Aftermarket, with ~30% of the automobile revenue.
SKF India reported laggard growth in the automobile partly because of delay in the
pickup of Hub-3 Bearings. Supply to the OEMs got delayed due to technical snag in
the Hub-3 bearings supplied by other vendor. As the issue has been resolved and the
supply has started picking up, we feel that the company is likely to see recovery in its
Automobile revenue.
Presence in Wheel End Bearings makes SKF India least vulnerable by the EV
disruption
Majority of Automobile Bearing portfolio of SKF India fall under Wheel End category.
Adoption and penetration of Electric Vehicles in the domestic market will result in
adoption of lighter and simpler transmission systems. Bearings used in the engines
will become obsolete in case of EVs and will be replaced by lighter and lesser number
of Bearings in the electric drives. Further, the Wheel End Bearing will still be is use,
albeit it will evolve into lighter and low friction Bearings, employing lighter alloys than
carbon steel. Consequently, SKF India will be least impacted by the EV disruption.
Exhibit 20: SKF’s upcoming Polymer Caged based Bearings for EV Drives
During 2019, SKF group has been working to develop low-friction Tapered Roller
Bearings. These are being tested on specific applications and have shown to reduce
power losses by up to 50% in comparison with conventional bearings. For EVs to work
efficiently, the motors that drive them must run at very high speeds. This places
enormous strain on the bearings they employ. SKF is developing designs for
Bearings and associated Polymer Cages and Lubricants that will ensure that
they can withstand the higher speeds, acceleration and temperatures
generated by these motors.
SKF India is a leader in the Conventional Passenger coaches in Railways, late

entry in Freight resulted in underperformance...

SKF India is among the top three bearing suppliers to the Indian Railways, with a
strong presence in the Conventional Coach segment. Over the past four years, the
Company’s Railway business has grown at CAGR of 11.4% in the railways
business and it now accounts for ~7% of the overall revenue. The Railway
business of SKF has unperformed that of its peers like Schaeffler India and Timken
India due its late entry to the Freight segment, which takes three years to start
bidding for the entire business. Also, the Conventional passenger Coaches are being
converted to LHB coaches and the disruption can cause other players like Schaeffler
India and Timken to enter the business in a big way. However, the management
expects to get preference over the other player, given its presence in the
Conventional Coaches.
Conventional Passenger Coaches & Metro: SKF India is the largest supplier of
Bearings for the Conventional Coaches of the Indian Railways and it has a market
share of 60% in this segment. The segment accounts for just 40% of the total
addressable Railway business.
Freight Wagons: SKF India entered in this segment late and got registered in 2015.
Over the next three the company was allowed to bid just 10% of the business. The
company‘s launch of Class K Bearings has given it an opportunity to ramp up the
supply to Freight wagon and had reached 10% of share of business by FY17. The
company is expected to benefit from DFC, with Class K Bearing in its portfolio.
Locomotive: Locomotive business is showing ramp up on account of localization of

production of Electric Locomotive in India by the global OEMs like GE, Siemens etc.
The company has already entered into an agreement to supply Bearing to GE for 10
years. The annual revenue run rate for the contract is ~Rs 300mn.
Exhibit 21: SKF India a dominant player in the domestic Railway Business
19%
39%
22%
20%
Wind Energy is back as a growth driver
SKF India is strong player in the domestic Wind market and supplies bearings for the
gear boxes and the alternators. After showing a sharp decline in FY18 to a mere 1%
of revenue from earlier 5-6% of revenue, the segment has shown a strong comeback
in FY20 to account for 5% of the revenue. Apart from large capacity addition expected
in the domestic market, localization of manufacturing of Wind turbines by global
OEMs like Siemens Gamesa, GE, Vestas etc offer a large opportunity for SKF India.
Innovative product/service offering to focus on Industrial segment…
SKF India identifies Industrial segment as one of its key growth drivers. The Company
currently caters to over 40 industries and is focusing on application based
product/solution to target the systems. The Industrial segment accounts for ~52-53%
of its revenue, which is equally divided between OEMs and Aftermarket.

The parent company, AB SKF acquired RecondOil in June 2019. SKF India also offers
RecondOil lubrication solution to its Industrial customer. Further, the company offers
REP (Rotatory Equipment Performance) Solution, a solution to offer monitoring and
enhancing the Bearings performance for its clients. Further, Remanufacturing is
another service, through which it is targeting the Industrial Aftermarket, under which
a used Bearing is remanufactured/repaired to its original performance, with a
warranty equivalent to, or better than that of a newly manufactured product.
Further, SKF is launching application based products and condition monitoring

products to enhance its footprint in the Industrial segment.
Localization is yet to catch up
SKF India‘s localization of continues to remain low at 54.3% of sales. Part of traded
goods (~25%) is sourced from its sister concern SKF Technologies, while balance is
imported from SKF entities abroad. Consequently, imports continue to remain
Strategy of chasing growth in the elevated at 41.7% of sales. However, SKF India has doubled its investment from Rs
domestic industrial business and 800-900mn to ~Rs 1.5bn over the past few years, to enhance its product localization,
subsequent localization of particularly the products supplied to the Industrial segments. It includes localization of
Industrial bearing will both be Freight Wagon Bearings as well as other Industrial Bearings. We feel that localization
growth and margin accretive… of Industrial products is likely to play out in the coming years and the company is
expected to report significant margin improvement going forward.
Exhibit 22: Localization of finished Goods Manufacturing

Companies Localization of Finished Goods
Timken India 71.2%
SKF India 54.3%
Exhibit 23: Goss Margin of Variation Exhibit 24: EBITDA Margin viz-a-viz Localization
(%) (%) (%)
67.6 18.0 15.8 16.0 15.3 64.0
62.2 64.1
57.9 55.8 59.1 60.3 60.3 59.4 61.9 59.0 60.0 60.0 16.0 14.2 62.0
13.0 12.8 12.3
14.0 62.3 12.2 11.6 11.5 11.7 12.1 60.0
61.3 10.4
12.0 59.6 59.4 58.0
10.0 58.7 58.4 56.0
57.7
8.0 55.6 56.1 56.0 54.0
18.5 55.0
16.0 15.8 18.1 13.8 14.0 14.9 14.0 15.0 15.0 6.0 54.3 52.0
10.6 7.7 4.0 50.0
7.4 52.0
2.0 48.0
0.0 46.0
CY10
CY11
CY12
CY13
CY14
FY16
FY17
FY18
FY19
FY20
2021E
2022E
2023E
CY10
CY11
CY12
CY13
CY14
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Traded Goods Manufactured Goods EBITDAM % Localization %
Blended EBITDA margin has strong correlation with localization. In case of

SKF the margin improvement will be more pronounced, given the majority of
the localization will be in the Industrial segment
Exports have grown at a CAGR
of 11.1% over the past Exports contributor is low though like to pick up
decade…New product launches
SKF India‘s exports have grown at CAGR of 11.1% over the past ten years,
for exports market to lead to
significantly higher than its domestic revenue growth the same period. However, it
spurt in exports going forward.
has been slower than the exports growth of its peers. Exports accounts for 10.7% of its
revenue. The Company exports mostly the Automobile Bearings.

Exhibit 25: SKF India’s Exports Trend

(Rs mn) (%)
3,500 80
61.5
3,000 60
2,500 35.4 37.0 36.5
40
2,000 18.0
12.0 10.0 20
2.0
1,500 21.9
-11.3 -15.0 0
1,000 -17.3
500 -35.0 -20
0 -40
CY10
CY11
CY12
CY13
CY14
FY16
FY17
FY18
FY19
FY20
2021E
2022E
2023E
Exports Growth y-o-y
SKF India exports products to mostly the developed market, particularly Europe and is
linked to the European OEMs performance. German and Swedish OEMs are the main
customers for its exports. SKF India has made a foray in the North American
Aftermarket recently. The company has been focusing on application based
new products lines for the exports. The company recently launched Housing
for the European OEMs, which has shown good demand. This has led to spurt in
exports in FY20. SKF India has been investing in R&D to indigenize the new
technology. We believe exports to grow at double-digit going forward.

Financial Overview
Underperformed on domestic revenue front, Strategic initiatives in place to

spur growth
Domestic Bearing Industry has grown at a CAGR of 5.3% over the past decade, while
SKF India‘s domestic revenue grew at CAGR of 4.9% over the same period. Slew of
Domestic revenue and exports factors like late entry to the burgeoning Freight Wagon Business, late pick up of Gen
have grown at a CAGR of 4.9% 3 Bearings, delayed entry into the high speed Passenger Coaches led to slower
and 11.1% respectively in CY10-
growth for the Company.
FY20.
Exhibit 26: Revenue Trend
(Rs mn) (%)
35,000 31.7 40
25.8
30,000 30
25,000 12.9 20
5.4 8.2 9.4
20,000 17.0 1.6 10
-1.1
15,000 -7.3 -6.4 0
-12.1
10,000 -10
-20.7
5,000 -20
0 -30
CY10
CY11
CY12
CY13
CY14
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Revenues (Rs mn) Growth y-o-y
Exhibit 27: SKF India-5 Yr. CAGR

Companies 5 Yr Volume CAGR
Domestic Automobile -0.9%
Industrial and exports will be Domestic Industrial 3.1%
the key drivers for future
growth… Exports 10.1%
Overall 3.3%
With Class K bearings in offering, the Company is seeing good pick in the Freight
segment. Further, the company expects the Gen-3 Bearings to incrementally add Rs
500mn revenues going forward. The Company expects to get preference in orders for
LHB Coaches. Due to sizable dependence on automobile segment, the
company’s performance over FY2 is also likely to be weak. We forecast 21%
revenue decline for the year followed by strong double-digit growth over
FY22-23. Overall, we forecast its revenue to de-grow marginally over FY20-
23 at CAGR of -0.7%.
EBITDA margin has seen gradual improvement till FY20, it was hit by slump
in Automobile demand, localization of Industrial Bearings to improve
margins
Increasing share of Railways, Wind etc has resulted in sustained improvement in the
profitability. EBITDA margin has improved from 11.5% in CY13 to 16% in FY19.
However, sharp demand downturn in the domestic Automobile demand resulted in a
decline in the EBITDA margin in FY20.

Exhibit 28: EBITDA margin Trend Exhibit 29: Localization Trend

(%)
(Rs mn) (%) 62.3
6,000 15.8 16.0 15.3 18
14.2 16
5,000 13.0 12.3 61.3
11.6 11.5 11.7 12.1 12.8 14 57.7
10.4 59.6 59.4
4,000 12 58.7 58.4
12.2
10
3,000 56.1 56.0
8 55.6 55.0
2,000 6 54.3
4 52.0
1,000
2
0 0
CY10
CY11
CY12
CY13
CY14
FY21E
FY22E
FY23E
FY16
FY17
FY18
FY19
FY20
2021E
2022E
2023E
CY10
CY11
CY12
CY13
CY14
FY16
FY17
FY18
FY19
FY20
EBITDA EBITDA Margin
Localization %
Till 2016, SKF India had 13 warehouses and five direct delivery hubs. Gradually, it
has cut down on spread-out warehouses to one consolidated big warehouse and six
remote stock locations resulting in cost savings. It also enables SKF India to make
just-in-time deliveries to OEMs.
The company has significantly higher imports (~41.7% of revenue) and

weakening of Rupee also put pressure on margins.
Going forward, operating leverage with better revenue growth, introduction of more
products both for Industrial segment as well as exports and localization of these
product lines, will aid margin improvement over FY22-23E. We expect EBITDA
margin to improve from a low of 10.4% in FY21E to 14.2% and 15.3% in
FY22E and FY23E respectively.
Unlevered Balance Sheet and significant Cash and Investment…

SKF India always remained net debt free over the last ten years. The Company has
generated cumulative Operating Cash Flow and Free Cash Flow of Rs 18.9bn and Rs
13.3bn respectively over the past decade. With annual capex plan of ~Rs1.5bn over
the next few years, the Company will generate robust Free Cash Flow of Rs 3.7bn
over the next three years. The company had Cash and Investment (net of debt) of Rs
8,2bn by the end of March 31, 2020, despite a buyback of 3.3mn shares.
Exhibit 30: Net Debt & Net Debt to Equity

(Rs mn) (x)
FY21E
FY22E
FY23E
CY10
CY11
CY12
CY13
CY14
FY16
FY17
FY18
FY19
FY20
0 0
-2,000 0
-0.1 -0.1 0.0
-4,000 -0.1 -0.1
-0.1 -0.1 0
-0.2
-6,000 -0.2
-0.2 0
-8,000
0
-10,000
-12,000 -1
-0.5 -0.5 -0.5
-14,000 -1
Nett Debt Net D/E (x)
Forecasting 5.9% Earnings CAGR over the next three years
Although we estimate almost no growth in the revenue over the next three years,
localization and higher contribution of Industrial segment will lead to better earning.
We expect its net earnings to grow at a CAGR of 5.9%. Recovery in the automobile
demand, particularly the 2W can lead to significant upside to our earnings estimates.

Exhibit 31: Earnings Trend

(Rs mn) (%)
4,000 87.8 100
3,500 80
3,000 47.4 60
2,500
21.6 26.8 21.3 40
2,000 13.5 16.4
20
1,500 17.8 -8.8 -5.2
-12.3 -13.9 0
1,000
-30.7 -20
500
0 -40
CY10
CY11
CY12
CY13
CY14
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
PAT Growth y-o-y
Superior product portfolio and robust business model accrue superior return
ratios, Asset turnover hit in FY20 due to slump of automotive demand …
SKF has significantly higher asset turnover compared to its peers due to the high-
amount of outsourcing (at 45.7% of revenue) through imports and its sister concern in
India SKF Technologies.
SKF India‘s RoCE improved between CY13-FY19 to a healthy 24%, though it fell to
16% in FY20 due to sharp slowdown in the domestic automobile segment. With
gradual revival in the earnings, we expect return ratios will mark improvement over
FY22-23. Further, the company has Rs 8155mn of Cash and short term Investments,
which will go up to Rs 11,708mn in FY23E. Adjusting the same, we expect the RoIC to
sharply improve from the low of 14% in FY21E to 27.4% and 29.4% in FY22E and
FY23E respectively.
Exhibit 32: Return Ratio Trend Exhibit 33: Fixed Asset Turnover
(%) (%)
30.3 9.6
27.8 8.8 9.0
24.0 8.4
7.7 7.7 7.7
19.7 19.9 20.8 6.7
17.3 16.9 6.3 6.0
17.0 16.0 5.4 5.4 5.3
22.6
22.4 14.2 15.3
17.5 19.0 9.4
17.2 16.2 16.0
13.7 15.1 14.4 13.9 14.7
10.2
CY10
CY11
CY12
CY13
CY14
FY21E
FY22E
FY23E
FY16
FY17
FY18
FY19
FY20
CY10
CY11
CY12
CY13
CY14
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
RoE RoCE Fixed Asset Turnover
Further, a sharper than expected recovery in the Automobile demand,
particularly the 2W demand can aid the RoIC recovery significantly.
Exhibit 34: RoIC Trend
(%) 44.5
33.6
27.1 27.4 29.4
25.1
22.5 22.3
19.1 18.8 19.9 18.4
14.0
CY10
CY11
CY12
CY13
CY14
FY21E
FY22E
FY23E
FY16
FY17
FY18
FY19
FY20
RoIC

Exhibit 35: 1QFY21 Quarterly financial performance
Rs Mn 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 % yoy % qoq FY19 FY20 % yoy
Net sales 7768 7472 7073 6102 3012 -61.2 -50.6 30345 28416 -6.4
Stock adjustment 37 -147 518 -563 -85 -327.2 -85.0 -437 -155 -64.5
Purchase of finished goods 2995 3366 2771 2901 1450 -51.6 -50.0 10859 12032 10.8
Consumption of raw materials 1656 1560 1352 1461 473 -71.4 -67.6 7343 6028 -17.9
Employee cost 643 596 576 581 567 -11.8 -2.4 2583 2397 -7.2
Other expenditure 1237 1147 1132 1104 613 -50.5 -44.5 5139 4620 -10.1
Total expenditure 6568 6522 6348 5483 3019 -54.0 -44.9 25487 24921 -2.2
EBITDA 1200 950 726 619 -6 -100.5 -101.0 4859 3495 -28.1
add: Other income 172 232 171 464 153 -11.0 -67.1 924 1039 12.5
Depreciation 139 141 145 147 145 4.4 -1.3 464 571 23.1
Interest 26 25 25 18 5 -81.0 -72.5 77 95 23.8
Exceptional items 0 0 0 0 0 - - 0 0 -
Profit before tax 1207 1016 727 918 -3 -100.3 -100.4 5242 3868 -26.2
Provision for taxation 427 170 215 165 -1 -100.2 -100.5 1884 978 -48.1
PAT after Minority Interest 779 846 512 753 -2 -100.3 -100.3 3358 2890 -13.9
Equity Capital 494 494 494 494 494 494 494
EPS (Reported) 15.8 17.1 10.4 15.2 -0.1 65.7 58.5
EBIDTA (%) 15.4 12.7 10.3 10.1 -0.2 (1566bp) (1035bp) 16.0 12.3 (371bp)
PAT (%) 10.0 11.3 7.2 12.3 -0.1 (1012bp) (1243bp) 11.1 10.2 (89bp)
Tax / PBT (%) 35.4 16.7 29.6 18.0 24.2 (1117bp) 629bp 35.9 25.3 (1066bp)
Gross Margin (%) 39.7 36.0 34.4 37.8 39.0 (69bp) 121bp 41.5 37.0 (447bp)
Raw Material / Net Sales (%) 60.3 64.0 65.6 62.2 61.0 69bp (121bp) 58.5 63.0 447bp
Other expenditure / Net Sales (%) 15.9 15.3 16.0 18.1 20.3 442bp 225bp 16.9 16.3 (68bp)
 COVID resulted in significant slump in the economic activities. SKF India being
highly related to industrial and automobile segments, reported a sharp fall of
61.2% YoY in revenue to Rs 3012mn.
 Production shut resulted in higher sales of traded goods than usual, leading to a
69bps YoY fall in the gross margin to 39%. Despite significant a sharp decline in
the production days, the company reported a marginal EBITDA loss of mere Rs
6mn during the quarter.
 The company reported a net loss of Rs 2mn during the quarter.

Exhibit 36: Financial Snapshot
CAGR
Particulars (Rs mn) CY09 CY10 CY11 CY12 CY13 CY14 FY16 FY17 FY18 FY19 FY20 CY14- CY09-
FY20 FY20
Sales 15,829 20,842 24,349 22,276 22,750 24,136 29,979 26,314 27,504 30,345 28,416 3.3% 6.0%
EBIDTA 1,585 2,705 2,979 2,584 2,612 2,812 3,639 3,362 4,348 4,859 3,495 4.4% 8.2%
11.9
PAT 942 1,770 2,085 1,901 1,667 2,028 2,572 2,439 2,959 3,358 2,890 7.3% %
Cash Flow from
Operations 2,275 1,147 1,516 1,990 1,218 2,177 911 1,150 3,672 1,810 3,298 8.7% 3.8%
Cash Flow from Investing -1,037 -1,652 -516 -1,011 -1,650 -27 -1,738 1,471 -2,649 3,064 -1,540 N.A. N.A.
Cash Flow from
Financing -272 -255 -436 -460 -463 -925 -159 -1,262 -2,253 -4,765 -1,779 N.A. N.A.
Equity 527 527 527 527 527 527 527 527 513 494 494 -1.3% -0.6%
10.3
Total Net Worth 7,147 8,487 10,112 11,554 12,755 14,162 15,694 18,112 18,373 16,969 19,053 6.1% %
Gross Debt 1 0 0 0 0 0 0 340 850 900 0 N.A. N.A.
Gross Block 7,142 8,113 8,795 9,422 10,104 10,131 10,391 4,255 4,619 4,804 5,917 -10.2% -1.9%
Long Term Investments 0 0 0 0 0 196 189 0 0 0 0 N.A. N.A.
Cash & Current
Investments 2,879 2,119 1,081 1,601 706 1,931 946 3,793 2,610 1,625 3,134 10.2% 0.9%
Key Ratios
EPS 17.9 33.6 39.5 36.0 31.6 38.5 48.5 46.3 57.3 65.7 58.5
ROE% 13.2 22.6 22.4 17.5 13.7 15.1 17.2 14.4 16.2 19.0 16.0
ROCE% 27.8 30.3 27.8 19.7 17.3 16.9 19.9 17.0 20.8 24.0 16.0
Net Debt Equity -0.4 -0.2 -0.1 -0.1 -0.1 -0.1 -0.1 -0.2 -0.1 0.0 -0.2
Gross Asset Turn (x) 2.1 2.6 2.8 2.3 2.2 2.3 2.9 3.5 5.7 5.8 4.8
Inventory days 40 40 40 38 38 42 38 54 52 55 58
Receivable days 47 45 53 49 49 53 47 66 64 63 56
Payable days 62 51 45 41 38 48 33 39 51 42 53
WC Days 24 34 47 46 50 47 52 81 66 76 61
Dividend Payout % 22.4 20.9 19.0 20.8 23.7 26.0 30.8 21.1 20.8 17.7 222.4
Cost Matrix CY09 CY10 CY11 CY12 CY13 CY14 FY16 FY17 FY18 FY19 FY20
RM/Sales% 65.9 64.8 64.5 64.7 63.3 62.1 62.4 61.8 58.4 58.5 63.0
Employee cost/Sales% 9.2 7.0 6.8 7.6 8.1 8.9 8.4 8.4 8.6 8.5 8.4
Other Exp/Sales% 14.8 15.2 16.4 16.1 17.1 17.3 17.0 17.0 17.2 16.9 16.3
EBITDAM % 10.0 13.0 12.2 11.6 11.5 11.7 12.1 12.8 15.8 16.0 12.3
PATM % 6.0 8.5 8.6 8.5 7.3 8.4 8.6 9.3 10.8 11.1 10.2

Outlook and valuation
SKF India is one of the largest Bearing manufacturers in India and is a market leader
in the Automotive Wheel End segment besides having strong presence in the
Industrial segments. After a slow patch, the Company seems to be benefitting from
the recovery in automotive and industrial segments over the next two years besides
higher traction in railways.
At the CMP of Rs 1485, SKF India trades at a P/E of 36.7x, 24.9x and 21.4x its FY21E,
FY22E and FY22E EEPS respectively. With strong balance sheet, robust return ratios
and long-term earnings visibility, we initiate coverage on SKF India with BUY rating
and target price of Rs 2084 (30x FY23E EPS). SKF India‘s 1 year forward P/E averaged
at 25.1 for the last ten years, while at 30.5x for last five years.
Exhibit 37: 5 years PE trend (1yr forward PE)
2500
2000
1500
1000
500
0
01-Dec-16
01-Dec-17
01-Dec-18
01-Dec-19
01-Dec-20
01-Jun-16
01-Jun-17
01-Jun-18
01-Jun-19
01-Jun-20
01-Apr-16
01-Apr-17
01-Apr-18
01-Apr-19
01-Apr-20
01-Oct-16
01-Feb-17
01-Oct-17
01-Feb-18
01-Oct-18
01-Feb-19
01-Oct-19
01-Feb-20
01-Oct-20
01-Feb-21
01-Aug-16
01-Aug-17
01-Aug-18
01-Aug-19
01-Aug-20
Price 20x 25x 30x 35x

Key Risks
Significant downturn in the economic activities: Demand of bearing is heavily

dependent on the economic activities and slump in the economic activities can
severely dampen the demand of bearings. SKF India, too will be impacted in case of
sharp downturn in the economic activities.
Sharp fluctuation in the input price: Although it operates at significantly higher

gross margin, a significant fluctuation in the Steel prices can severely impact the
margin either way.
Sharp Fluctuation in foreign exchange: 10.7% of SKF India‘s revenue comes from
exports, while import of Raw Materials, Components and finished Goods account for
~41.7% of revenue. Consequently, a large part of import does not have a natural
hedge, exposing the company to a significant forex risk.

Company Overview
SKF India is a 52.6% subsidiary of SEK 86.6bn AB SKF, a Sweden based Bearing. AB
SKF was established in 1903 and is a global supplier Bearings to Automotive and
Industrial.
The SKF group’s global footprint consists of 103 manufacturing facilities spread
across 130 countries 15 Technologies Centers and a workforce of 43,360 people. The
Group supplies anti friction solutions to over 40 industries and owns majority stake in
SKF India. The group is first to introduce e-Commerce in the Auto Component
Aftermarket.
SKF India was incorporated in 1961 and commissioned its first manufacturing facility
in Pune in 1965. Although known for its prominent position in the Automobile Wheel
End market, SKF India is a market leader in the domestic Industrial Aftermarket. The
company caters over 40 Industries. SKF India employs 1,716 people across its
sites and offices. SKF India has three manufacturing facilities (Pune,
Bangalore and Hardwar) and one Global Technical Centre, located in
Bangalore.
Exhibit 38: SKF India: A snapshot

Particulars
Manufacturing Facility 3
Employees 1716
Offices 12
Global Technical Centre 1 (Bangalore)
Distributors 440+
Exhibit 39: Revenue Mix
10.7% 14.4%
11.8%
25.9%
11.3%
7.0%
13.9%
5.0%
Automobile 2W OEMs Automobile 4W OEMs Automobile After Market
Railway Wind Other Industrial OEMs
SKF India‘s product offering can be categorized into- Bearings, Mounted Bearings and
Housings, Seals, Lubricants, Condition Monitoring Equipments and Aftermarket
Services.etc.
In the Industrial Aftermarket, the company offers services like Remanufacturing, REP
(Rotational Equipment Performance)

Exhibit 40: Market Positioning

INDUSTRIAL AUTOMOTIVE
Customized Bearings, Seals, Wheel-end
Bearings, Seals, Lubrication Systems, Rotating
OFFERINGS Products, Driveline, Engine, E-Powertrain,
equipment solutions, Remanufacturing
Suspension, Steering applications
Caters 40+ industries globally, both directly and Cars, Light and Heavy Trucks, Trailers, Buses
APPLICATIONS
indirectly, through a network of distributors and Two-wheelers, Tractors
Vehicle aftermarket is supplied with spare
Leader in Industrial Distribution market, which
AFTERMARKET parts, both directly and indirectly, through its
primarily serves the Aftermarket
extensive distribution network
Leader in Wheel-End solutions, strong
position in Application-driven Powertrain
POSITION Key player in Railway and Heavy industries
solutions. Leading player in component
development for automotive electrification
Exhibit 41: Bearings Portfolio
Segment Product
Deep Groove Ball Bearings, Insert Bearings (Y-Bearings),
Angular Contact Ball Bearings, Self-Aligning Ball Bearings,
Ball Bearings
Thrust Ball Bearings, Angular Contact Thrust Ball Bearings,
This Section Bearings
Cylindrical Roller Bearings, Needle Roller Bearings,
Tapered Roller Bearings, Spherical Roller Bearings, Cooper
Roller Bearings Split Roller Bearings, CARB toroidal Roller Bearings,
Cylindrical Roller Thrust Bearings, Needle Roller Thrust
Bearings, Tapered Roller Thrust Bearings, Spherical Roller
Thrust Bearings
Bearings Accessories Adapter Sleeves, Withdrawal Sleeves, Lock Nuts
Backing Bearings, Sensor Bearing Units, Hybris Bearings,
Engineered Products INSOCOAT Bearings, High temperature Bearings and
Bearing Units, NoWear Coated Bearings, Bearings with
Solid Oil, Indexing roller units,
Track Rollers Cam Rollers, Support Rollers, Cam Followers
Exhibit 42: Manufacturing units
Units Location
Plant 1 Pune
Plant 2 Bangalore
Plant 3 Haridwar
Exhibit 43: Technology Centre
Units Location
SKF Global Technologies Centre Bangalore
Exhibit 44: Key Milestones

Year Events
1923 Trading arm of the SKF Group was set up in Kolkata
SKF India was incorporated as a result of collaboration between AB SKF,
1961
Associated Bearing Company limited and Investment Corporation of India Ltd
1965 The first SKF manufacturing plant was set up in India
2010 Ahmedabad and Haridwar factories were set up
2011 SKF Global Technical Centre opened in Bangalore
Auditors
BSR & Co. LLP, Chartered Accountant
Credit Ratings
N.A.
Other Material Details

Directors‘ Remuneration as 10.1% PBT:
Pledged Shares: None

Exhibit 45: Business evaluation matrix
SKF India

Exhibit 46: Key Management Personnel

Board of Directors
Person Designation Profile

 BE (Electrical/Electronics) BITS, Pilani MBA - IIM, Kolkata
 Sets the strategic direction for the SKF group in India and its wide portfolio of
offerings in bearing technologies.
 Has over 26 years of global experience in various industries including
consumer goods, materials, healthcare and environmental solutions·
 Most recently, he was the Vice President & General Manager of Asia Pacific
for Danaher‘s water businesses, where he delivered strong and profitable
Manish Bhatnagar Managing Director
revenue growths across the region through a combination of strategic
partnerships, geographical expansion, product innovations and
transformational marketing. He was also instrumental in building a robust
leadership pipeline, while ensuring full compliance with the Company‘s non-
negotiable standards of conduct. Previously, he has held progressively
increasing leadership roles at General Electric, Underwriters Laboratories
and Lakme Lever
 Mechanical Engineering, University of Madras
 42 years of experience in manufacturing, ranging from high precision
components to heavy equipment and machineries
 Former Chief Executives of two Jvs: L&T Komatsu Ltd India and L&T Howden
Pvt. Ltd, India
Non-Executive,
 Member- Academic Council of Nettur Technical Training Foundation
Independent
Gopal Subramanyam  Founder member of several green field and brown field projects, noteworthy
Director,
among them being:
Chairman
o Hydraulic Component at L&T, Bangalore in technical collaboration with
Poclain Hydraulics, France
o Agriculture Tractor project, Hydraulic Excavators Mfg
o Super critical technology Boiler plant auxiliaries Mfg. business at Hazira,
Gujarat (JVC with MHPS, Japan and later JVC with Howden, UK)
 Master in Mechanical Engineering, Rome University; School of Management,
Rome University
 All Bearings Manufacturing Director, located in Airasca, Italy
 Associated with SKF Group since 1989 in various positions, including as
Automotive Division Director; Head - Powertrain & Electrical TW; Factory
Non-Executive,
Manager; Quality and Production Manager
Aldo Cedrone Non-Independent
 Ownership of ‗One implementation Plan for DGBB and Ball Bearing Units
Director
Product Lines‘
 Responsibility for all the Bearing Manufacturing Units for the Automotive
market
 Plan and execute restructuring projects
 Member of car electrification and hybridization team
 MSc Gold Medalist, Diploma in Strategic Management
 Chairperson of Pragati Leadership Institute Pvt. Ltd. Executive Director on
Pragati Leadership‘s Board for over 15 years of which as a Managing
Director for 6 years
Non-Executive,
 Strategic HR Consultant work closely with manufacturing sector transforming
Anu Wakhlu Independent
their HR systems to add value to the business
Director
 President of Soroptomist International, an international organization
dedicated to growth and empowerment of Women worldwide
 Over 30 years of experience as Certified Executive Coach, consultant and
facilitator across industry segment
 Mechanical Engineer from University of Essen, Germany
 He is associated with SKF Group since 1994 and is currently President,
Non-Executive,
Automotive and Aerospace and Member of SKF Group management
Bernd Stephan Non-Independent
 Prior to that he was Sr. Vice President Group Technology (CTO) and had held
Director
several leading positions within SKF Group in Renewable Energy, Business
unit Trucks, Business unit CR Europe
 Diploma in Business Administration, Fern Universität Hagen, German
Leadership position with responsibility for finance organization of up to 500
employees.
Non-Executive,  Extensive experience in change management in different Sr. management
Werner Hoffmann Non-Independent roles in a fast-changing market transitioning from traditional to
Director semiconductor-based technology
 Strategic partner for the re-alignment and development of the business in
Asia Pacific Region
 Experienced in M&A-projects and managing JVs

Financials (Rs mn)

Profit and Loss Statement Cash Flow Statement
Y/E (Mar) FY19 FY20 FY21E FY22E FY23E Y/E (Mar) FY19 FY20 FY21E FY22E FY23E
Net sales 30,345 28,416 22,542 25,453 27,836 PBT 5,242 3,868 2,676 3,945 4,590
Raw Materials Non-cash adjustments -237 -261 -331 -342 -338
6,906 5,873 4,806 5,600 6,235
Expenses Chg in working capital -1,072 906 945 -702 -511
Purch. of Traded Goods 10,859 12,032 9,305 9,736 10,411 Tax Paid -2,123 -1,215 -682 -1,002 -1,165
Staff expenses 5,139 4,620 3,832 4,149 4,454 Cashflow from operat. 1,810 3,298 2,608 1,899 2,577
Operating expenses 2,583 2,397 2,253 2,365 2,484 Capital expenditure -412 -592 -1,000 -1,200 -1,200
Total Expenditure 25,487 24,921 20,196 21,850 23,584 Change in investments 2,594 -1,700 5,020 0 0
EBITDA 4,859 3,495 2,346 3,603 4,253 Other investing cashflow 882 752 879 977 1,062
Depreciation 464 571 520 612 706 Cashflow from invest. 3,064 -1,540 4,899 -223 -138
Operating profit 4,395 2,923 1,826 2,991 3,546 Issue of equity -3,996 0 0 0 0
Other income 924 1,039 879 977 1,062 Issue/repay debt 50 -900 0 0 0
EBIT 5,319 3,963 2,705 3,968 4,609 Interest Paid -77 -95 -28 -23 -18
Interest 77 95 28 23 18 Increase/(Decrease) in
0 0 0 0 0
Exceptional items 0 0 0 0 0 Loan Funds
Profit before tax 5,242 3,868 2,676 3,945 4,590 Dividends paid -743 -715 -894 -894 -1,192
Tax 1884 978 674 993 1155 Other financing cashflow 0 -69 0 0 0
Profit from discount.ops 0 0 0 0 0 Cashflow from finan. -4,765 -1,779 -922 -916 -1,210
Minority interest 0 0 0 0 0 Chg in cash & cash eq 109 -21 6,585 759 1,229
PAT 3,358 2,890 2,003 2,952 3,435 Open. cash & cash eq 1,075 1,184 1,163 7,748 8,507
EO Items 0 0 0 0 0 Clsg cash & cash eq 1,184 1,163 7,748 8,507 9,736
Reported Net profit 3,358 2,890 2,003 2,952 3,435 Free cash flow to firm 1,398 2,706 1,608 699 1,377
Share O/s mn 49 49 49 49 49
Adj. EPS Rs 65.7 58.5 40.5 59.7 69.5 Ratios
Y/E Mar FY19 FY20 FY21E FY22E FY23E
Balance Sheet PER SHARE
Y/E Mar FY19 FY20 FY21E FY22E FY23E 65.7 58.5 40.5 59.7 69.5
Adj. EPS Rs
APPLICATION OF FUNDS: CEPS Rs 77.3 70.0 51.0 72.1 83.8
Non-Current Assets 5,626 6,123 6,538 7,211 7,799
Book Value Rs 343.2 385.4 407.8 449.4 494.8
Fixed Assets 2,841 3,517 4,157 4,695 5,189
Cap. Work in progress 622 411 250 300 300 VALUATION
Goodwill - - - - - EV / Net Sales 2.4 2.5 -0.4 -0.4 -0.4
Noncurrent investment 0 0 0 0 0 EV / EBITDA 14.0 18.7 27.2 17.5 14.5
Deferred tax assets - - - - - P / E Ratio 21.9 25.4 36.7 24.9 21.4
Long term loans & adv. 1,250 800 720 792 871
Other non-current asst 913 1,396 1,410 1,424 1,438 P / BV Ratio 4.3 3.9 3.6 3.3 3.0
Current Assets 17,113 18,401 17,753 19,493 21,526 GROWTH YOY%
Current investment 442 1,972 1,972 1,972 1,972 Sales Growth 8.2 -6.4 -20.7 12.9 9.4
Inventories 4,610 4,518 3,397 3,835 4,195 EBITDA Growth 11.7 -28.1 -32.9 53.6 18.0
Sundry debtors 5,213 4,357 3,705 4,184 4,576
Adj. Net Profit Growth 13.5 -13.9 -30.7 47.4 16.4
Cash and bank 1,184 1,163 7,748 8,507 9,736
Other bank balances 4,851 5,020 0 0 0 Gross Fixed Asset Growth 4.0 23.2 19.6 16.2 14.6
Short loans & adv. 202 472 477 482 486 PROFITABILITY
Others current assets 612 900 454 513 561 EBITDAM (%) 16.0 12.3 10.4 14.2 15.3
Total Assets 22,738 24,525 24,291 26,705 29,325 NPM (%) 11.1 10.2 8.9 11.6 12.3
Raw Material/Net Sales (%) 58.5 63.0 62.6 60.3 59.8
SOURCES OF FUNDS:
Share Capital 494 494 494 494 494 Int/PBIT (%) 1.7 0.7 0.8 0.4 0.3
Reserves 16,475 18,558 19,667 21,725 23,969 ROE (%) 19.0 16.0 10.2 13.9 14.7
Shareholders’ Funds 16,969 19,053 20,162 22,220 24,463 ROCE (%) 24.0 16.0 9.4 14.2 15.3
Minority interest 0 0 0 0 0
ROIC (%) 27.1 18.4 14.0 27.4 29.4
Non-Current Liab. 95 307 346 390 438
Long term borrowings 0 0 0 0 0 Tax / PBT (%) 35.9 25.3 25.2 25.2 25.2
Deferred tax liability -228 -169 -178 -186 -196 TURNOVER
Other Long-term Liab. 240 405 446 490 539 Net Working Cycle 76.2 61.1 70.2 72.1 72.6
Long-term provisions 84 71 78 86 94 Debtors Velocity (Days) 62.7 56.0 60.0 60.0 60.0
Current Liab. & Prov. 5,674 5,165 3,783 4,095 4,423
Inventory (Days) 55.5 58.0 55.0 55.0 55.0
Short term borrowings 900 0 0 0 0
Trade payables 3,491 4,120 2,767 2,993 3,231 Creditors Velocity (Days) 42.0 52.9 44.8 42.9 42.4
Other current liabilities 1,103 916 874 946 1,021 Gross Asset Turnover 5.8 4.8 3.3 3.2 3.0
Short term provisions 179 129 142 156 172 Total Asset Turnover 1.3 1.2 0.9 1.0 1.0
Total Equity & Liab. 22,738 24,525 24,291 26,705 29,325 LIQUIDITY
Net working capital 10714 10102 4251 4919 5394
Gross Debt-Equity Ratio 0.1 0.0 0.0 0.0 0.0
Total Gross Debt 900 0 0 0 0
Total Net debt -725 -3,134 -9,720 -10,479 -11,708 Net Debt-Equity Ratio 0.0 -0.2 -0.5 -0.5 -0.5
Total capital employed 17,641 18,883 19,984 22,033 24,267 Interest Coverage 69.4 41.8 95.1 174.4 253.2
Current Ratio (x) 3.0 3.6 4.7 4.8 4.9
Quick ratio (x) 2.2 2.7 3.8 3.8 3.9
PAYOUT
Payout % 17.7 222.4 37.0 25.1 28.8
Dividend % 120.0 1300.0 150.0 150.0 200.0
Yield % 0.8 8.3 1.0 1.0 1.3

Timken
SKF India
India Ltd. Ltd. – Initiating
– Initiating Coverage
Coverage
Timken India Ltd. BUY
Structural business improvement driving outperformance
Institutional Research
Timken India, coming from a strong parentage of a US-based giant, Timken Co, has had a
storied history since its establishment in India nearly three decades ago. The bearings major has
CMP (Rs) 1075
been riding on an increase in demand even in challenging times. One of the top four bearings
Target (Rs) 1333
manufacturers in India with ~11.3% market share, it has marked its leadership in Tapered Roller
Upside (%) 24 Bearing, assemblies which are precisely designed to manage both radial and axial loads, hence
making them superior in terms of load-carrying capacity when compared to peers. This product
Nifty: 11,154 Sensex: 37,734 is already replacing Spherical and Cylindrical Roller Bearings in areas that require high axial
load application like wind turbines, high-speed passenger trains and heavy haulage freight
Key Stock Data wagons.
Bloomberg TMKN IN
The company boasts of a robust balance sheet, has seen structural improvement in return ratios
Shares O/s Mn(FV) INR10) 75.2
and also has a well-diversified revenue mix. All these factors and more that we will discuss
Mkt Cap (USD Bn/INRBn) 1.1/80.8 below augur well for long-term growth and investment opportunities. Hence, we are initiating
52-week high/low 1228/650 coverage on Timken India with BUY rating at a price target of Rs.1,333 (33x FY23E EPS).
6m daily avgvol(INR)Mn) 55
Domestic Dominance And Railways Push
Free Float % 25
Due to its dominant position in the bearings industry, the company is well placed to capitalize on
Stock Performance government‘s focus on modernizing Indian Railways, which is one of Timken India‘s key clients.
(%) 1m 3m 12m The rise in investments in this space will not only be beneficial for the country, but also for
TMKN 19.2 52.8 14.8 players such as Timken. Besides Tapered Roller Bearing, the company also commands an
enviable position in high speed, high load applications like Railways.
NIFTY 8.9 0.4 5.3
NSE500 9.1 1.2 3.1 Localization Aids Operational Efficiency
BSE Midcap 9.1 1.2 (1.9)
Timken India is being a flag bearer for other MNC bearings companies when it comes to
localization of finished goods, raw materials and component sourcing and technologies. In fact,
2yr 3yr 5yr it has already localized 70% of finished goods and most of its steel requirements. This strategy
Avg.PER (x) 28.1 32.0 35.5 has boosted its profitability in FY20. We believe this structural improvement of its business
profile is likely to continue, hence, yielding superior profitability and return ratios.
Shareholding Pattern
(%) Dec19 Mar20 Jun20 Timely Acquisition Of ABC Bearings
Promoter 67.8 67.8 67.8 In FY18-19, Timken India acquired a business that has a large open capacity for wheel-end
FII 2.3 2.2 2.1 spherical bearings. It has also aided its low-cost manufacturing footprint and brought a massive
DII 9.0 9.4 10.5 potential for growth in this segment in both domestic and global markets. We believe the
Others 20.9 20.6 19.6 company can leverage its technology in the Spherical Bearings segment and take advantage of
its global distribution network to multiple ABC Bearings‘ revenue in the coming years.
MdShaukat Ali We forecast revenue and earnings growth of 4.1% and 7.3% CAGR, respectively, over FY20-23E.
shaukat.ali@amsec.in With a healthy balance sheet, robust return ratios and long-term earnings visibility, Timken India
+91 98992 30857
remains a strong play on an ongoing binge of setting of capacities in India by global
engineering OEMs. Thus, we are confident about our call to initiate coverage on Timken India
Exhibit 1: Key Financials with a BUY rating.
Exhibit 2: Key Indicators
Y/E Mar (Rs mn) FY19 FY20 FY21E FY22E FY23E Y/E Mar FY19 FY20 FY21E FY22E FY23E
Sales 16,644 16,178 14,205 16,329 18,248 Equity 752 752 752 752 752
YoY (%) 33.5 -2.8 -12.2 15.0 11.8 RoE (%) 14.6 16.9 9.4 13.5 14.4
EBITDA 2,886 3,633 2,419 3,653 4,307 RoCE (%) 19.6 18.8 10.0 14.9 15.9
YoY (%) 76.8 25.8 -33.4 51.0 17.9 RoIC (%) 22.5 23.6 14.7 25.2 29.8
Reported PAT 1,486 2,461 1,557 2,483 3,037 D:E (x) -0.1 -0.3 -0.4 -0.4 -0.5
YoY (%) 61.6 65.6 -36.7 59.5 22.3 PER (x) 54.0 32.9 51.9 32.6 26.6
EBITDAM (%) 17.3 22.5 17.0 22.4 23.6 P/BV (x) 6.0 5.1 4.7 4.1 3.6
NPM (%) 8.9 15.2 11.0 15.2 16.6 EV/Sales (x) 4.8 4.7 5.2 4.4 3.8
EPS 19.9 32.7 20.7 33.0 40.4 EV/EBITDA (x) 27.4 21.1 30.7 19.8 16.1

Timken India Ltd. – Initiating Coverage
Numbers that speak

Exhibit 3: Revenue Trajectory Exhibit 4: Exports Trend
(Rs mn) (%) (Rs mn) (%)
20,000 100 5,000 82.4 100
18,000 4,500
80 80
16,000 78.4 4,000
14,000 44.0 60 3,500
28.4 33.5 43.6 60
12,000 40 3,000
18.4 15.0 11.8 31.9
10,000 14.6 2,500 40
4.8 20 42.7
8,000 -0.8 -2.8 2,000 15.0 12.0
-12.2 13.3
6,000 -15.8 0 5.7 5.3 20
1,500 1.2
4,000
-20 1,000 -12.1 -8.8 -9.0
2,000 0
0 -40 500
0 -20
CY10
FY21E
FY22E
FY23E
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
CY10
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Exhibit 5: Well-Diversified Revenue Mix Exhibit 6:Exports Mix
1%
22%
25%
30%
70%
17% 25%
11%
Railway Mobility Process Distribution Exports Other heavy Commercial vehicles Railways
Exhibit 7: EBITDA On The Right Track Exhibit 8: Steady Earnings Growth

(Rs mn) (%) (Rs mn) (%)
23.6
5,000 22.5 22.4 25 3,500 80.3 100
4,500
3,000 56.9 61.6 65.6 59.5 80
4,000 17.3 17.0 20
3,500 14.4 14.4 15.3 15.0 2,500 60
13.1 58.0 22.3 40
3,000 10.7 9.9 15 2,000 14.0
2,500 1.2 5.7 20
1,500 -5.4
2,000 11.9 10 0
1,500 1,000 -36.7 -20
1,000 5 -45.1
500 500 -40
0 0 0 -60
CY10
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
CY10
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
EBITDA EBITDA Margin PAT Growth y-o-y
Exhibit 9: Robust Return Ratios Exhibit 10: Fixed Asset Turnover

(%) (x)
28.6 29.2 6.8
23.3 22.5
19.6 18.8
17.8 4.2 4.1
23.4 15.5 14.9 15.9 3.5 3.4
14.4
19.7 19.1 10.0 2.6 2.5 2.7
13.5 18.0 17.1 16.9 2.2
15.5 1.8 1.4 1.6 1.6
12.4 13.9 14.6 13.5 14.4
9.4
CY10
FY21E
FY22E
FY23E
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
CY10
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20

A Domestic Significance That Is Only Set To Get Stronger
Due to its strong parentage, broad product offering and diverse application of
products, Timken India has captured a market share of 11.3% in the domestic
bearings market, after the acquisition of ABC Bearings. The company is present in
Timken India is one of the top almost all segments where bearings are used spanning across Mobility (Railways,
four Bearing players in India, Automobile and Off-Highway Vehicles) to Process Industry (Steel, Cement, Textile,
with leadership in Tapered
Power Wind, Power, etc) and aerospace and defense. It serves fragmented markets
Roller Bearing and market
that have anything with wheels or anything that moves on stationary equipment — on
share of ~11.3%
road, off road, off highway, rails, trains, power, coal or mining.
Timken India, along with two other MNC players SKF India and Schaeffler India,
dominates almost half of the domestic bearings market. Moreover, as the leader, SKF
India, saw its market share decline gradually over the last few years, Timken India is
trying to make the most of the changing gears. Yes, ABC Bearings‘ ~2% market share
at the time of acquisition has now fallen due to significant fall in revenue from its
major contributor Heavy Commercial Vehicles. But we believe higher use of
Tapered Roller Bearings, leadership in the railway business and large open
capacity at ABC Bearings for wheel-end bearings will help Timken India
gradually increase its domestic market share in the coming years.
Exhibit 11: Its Dominance In The Domestic Bearings Industry Has Huge
Potential To Increase
22.2% 23.2%
7.2%
22.7%
13.4%
11.3%
Timken India Has An Edge In Tapered Roller Bearings, Which Will Aid Its
Outperformance
One of its strongest features is its specialization and leadership position in Tapered
Roller Bearings (TRB), which finds its application in high axial-radial loads globally.
High Speed, High Load segments such as domestic Railways, Wind Turbines and
more, are replacing Spherical Roller Bearings with TRBs. Due to its technological
upper hand in this product, Timken India is the natural beneficiary of this transition.
Hedged Right Due To The Different Revenue Contributors

In an interview with a news channel earlier this year, Timken India CMD Sanjay Koul
had said since they cater to several fragmented markets, slowdown in one sector was
offset by growth in another. He said, ―While there is a dip in the coal side, we see a
very strong off take in terms of the wind market.‖ Surely, it is one of the most
diversified players in the Bearings industry in India. Among the large three MNC
bearings manufacturers, Timken‘s dependence on domestic Automobile demand
remains the lowest at 25%, even after it went up due to the acquisition of ABC
Bearings, which primarily manufactures wheel-end bearings for heavy commercial
vehicles and tractors. Otherwise, its dependence on domestic auto stood at just 14-
15%. The process industry accounts for 11% of total revenue. Railway is one of the
key contributors at ~22% of total revenue in FY20. Thus, It is hedged well against
downturns in one particular sector.

Exhibit 12: Balanced De-Risking Strategy — Diversified Revenue Mix
1%
22%
25%
17% 25%
11%
Railway Mobility Process Distribution Exports Other
Evidently, the company has highly de-risked its revenue stream and is not overtly
dependent on one single industry. This bodes well at a time when the Automobile
segment, particularly CVs, is undergoing significant change and is likely to show
muted demand in the coming years. In this space, we believe Heavy Commercial
Vehicles is undergoing a structural decline as consumers move towards personal
mobility. The commissioning of Dedicated Freight Corridor and muted industrial
activity have also hurt the sector. But, Mobility and Off-Highway Vehicles segment
accounts for merely 25% of Timken India‘s revenue. And we expect this to be partially
offset by robust demand from the Agri Machineries segment.
Safe Harbor In A Strong Parentage: The Timken Company, US

Timken Co. (NYSE: TKR) is a US-based global giant in the field of Engineering
Bearings and Power Transmission products. The $3.8bn parent of Timken India has
more than 18,000 employees across several geographies including North
America, Europe, LATAM and Asia Pacific, which are split at 52%, 23%, 6%
and 19% of the overall business, respectively.
The company operates through a synergetic chain of manufacturing bases spread

over 42 countries across the world. For Timken, Asia Pacific remains the fastest
growing, with this region seeing 19% revenue CAGR growth over the last three years.
Exhibit 13: Timken Co., US-Business Segment Exhibit 14: Timken Co., US-Wide Reach
19%
6%
50% 50%
52%
23%
Mobile Industry process Industry North America Europe LATAM Asia Pacific
Exhibit 15: Timken Co., US-Product Offerings Exhibit 16: Timken Co., US-Channel Mix
44%
50% 50%
56%
Bearings Power Transmission

OEMs Aftermarket/Distribution

ABC Bearings Acquisition — Low-Cost Capacity With A Boost In Product

Portfolio. Synergies Are Just Waiting To Be Realised
ABC Bearings is a significant listed player in the domestic Wheel-End Bearings

market, which had revenue of Rs 1903mn in FY17 and a market share of ~2%.
Timken India acquired the company in 2018, and the amalgamation of ABC and
Timken India resulted in issuing of 7.22mn shares of Timken India to ABC’s
shareholders. The acquisition happened at an EV/EBITDA of 13.6x, based on
FY17 adjusted EBITDA.
Before its acquisition by Timken India, ABC Bearings was a listed and prominent
Bearings manufacturer, which catered to OEMs as well as the Aftermarket of
Commercial Vehicles and Tractors segment in India. The company has two plants —
one in Bharuch, Gujarat and the other in Dehradun, Uttarakhand. It continues to
have a strong product portfolio of Spherical Roller Bearings, Tapered Roller Bearings,
Cylindrical Roller Bearings and Slewing Rings.
The amalgamation of ABC Bearings has resulted in higher contribution of Mobility

segment to Timken India‘s overall revenue.
Exhibit 17: ABC Bearings: A Timely Bet
Year of Establishment: 1961

No. of Plants: 2 (Bharuch and Dehradun)
No. of Employees: 475
Through ABC Bearings, Timken Revenue: Rs 1903mn (FY17)
India has entered into the Product Offerings: Spherical and Cylindrical Roller Bearings, Slewing Rings
Wheel-End market, a segment
Target Area: OEMs and Aftermarket of CV, Tractors and Industrials
the Timken Group had walked
away from many years ago Open Capacity: 60%
Optimum Achievable Revenue with existing capacity: Rs 4.5bn
Why Timken India Acquired ABC Bearings — The Rationale:
1. EPS accretive from the first year of amalgamation

2. 60% open capacity at a reasonable price
3. Enough open land for Brownfield Expansion
4. Cost competitive manufacturing footprint in a low cost geography
5. ABC’s strong footprint in the Automobile Wheel-End market, which
Timken Group had phased out of
6. Strong presence in Spherical and Cylindrical Bearings
7. Offers a huge exports opportunity for wheel-end bearings in the
European and North American Heavy Truck markets
8. Technology infusion from Timken India will lead to increase in high
diameter non-commoditized Bearings manufactured at ABC Bearings
The Timken Co had walked away from the wheel-end market long back and this
acquisition has allowed the group to re-establish itself in this space. The group
already had the technology for Spherical Bearings and now it can put that to good
use since it had no capacity prior to the acquisition. With its superior technology,
Timken will be able to upgrade ABC Bearings from the commoditized wheel-end
space (16-17% EBITDA margin) to high-tonnage Spherical Bearings. This will open up
export opportunity for the company in segments such as European and North
American Heavy Haulage Commercial vehicles.
Timken started exporting wheel-end bearings for CVs from ABC’s plant to
various geographies from November 2019. However, the true potential from
this business is yet to be realised. But, we are sure that exports will see a
significant increase due to this acquisition.

Railways: From High Speed Passenger Coaches To Freight Application,

Timken Continues To Lead
Oneof the greatest advantages that Timken India has over other players is that it is
the largest supplier of Bearings to Indian Railways. This segment brings in 24% of
Timken has more than half business for the company, and it enjoys 55% market share in Freight Wagon
the market in High Speed Bearings. Essentially, our Rajdhani, Vande Bharat and Shatabdi high-speed trains run
Passenger Wagons and on Timken India‘s bearings. In fact, the company has amassed 50% market share in
Freight Wagon in India this segment of high-speed coaches. Moreover, it also supplies to Metro Wagons and
exports railway bearings to different geographies. Since conventional coaches are
being phased out and modernization picks up, Timken India is staring at a huge
opportunity.
Exhibit 18: Geared for growth

Major Railway Segments Timken’s Market Share
Freight Wagon 50%
Conventional Coaches Not Present
High Speed Passenger Coaches 50%
Present but Market Share
Locomotives
data not Available
Exhibit 19: Domestic Railway Market Share of Key players Exhibit 20: Timken’s Railway Business Mix
19%
39% 30%
22%
70%
20%
Freight Wagon Passenger Wagon

Over the last decade, Timken‘s revenue from railways grew at a healthy clip of 12%
CAGR. Timken India‘s Railway business operates at 90% capacity utilization,
compared to overall capacity utilization of ~70%.
Protected From Structural Decline In Auto Industry, Especially Falling CV

Demand, Due To Low Dependence On The Sector
Among the top three MNC Bearings manufacturers, Timken India is the least
dependent on the Automobile sector. Before the acquisition of ABC Bearings,
domestic auto OEMs contributed less than 20% to its revenue.
It‘s no news that the domestic Automobile sector has been seeing pain after robust
demand for a few years. Thus, growth visibility has significantly reduced and there are
many near-term headwinds, particularly in the CV segment, which accounts for a
large share in the Automobile bearings market in India. Similarly, down trading
within the PV segment will also put pressure on bearings manufacturers in the near
term.
Timken will not only be less impacted due to its lower dependence on automotive
sector, but will also benefit from strong demand led by increased investment in
railway/Dedicated Freight Corridors.

Exhibit 23: Timken Is The Least Exposed To Slowing Auto Sector

Timken India 25%
SKF India 37%
Dedicated Freight Corridors is one of the best recent developments for players like
Timken India, which commands a leadership position in Railways. This will
significantly shift the freight movement from MHCVs to Railways. In fact, CV
application will gradually become limited to last mile haulage.
Timken India Shows The Way In Going Local In The Bearings Industry
In the initial phase of growth, MNC bearings companies capitalized on the strong
product portfolio of their parents. However, they realized that there was a deep cost
advantage in localization of manufacturing — both in terms of final products and raw
material inputs, especially with regards to high quality steel and components. This
cost advantage has translated into much better operating metrics with an increase in
steel yield and better margins.
Exhibit 24: Timken India & Schaeffler India Lead The Way
Timken India 71.2%
SKF India 54.3%
Both Timken India and Schaeffler India have adapted faster and moved towards
manufacturing finished goods locally. Further, Timken has worked on a Korean model
of localization of steel and components, which mean all its key suppliers are located
within 20km of the manufacturing base of Timken India. As they say there‘s an
opportunity in every crisis, Timken did not let COVID-19 slow it down. It continued to
invest in localization of components manufacturing even during the past few months.
Last but not the least, it has also localized its technologies and R&D capabilities and is
making significant effort towards doing the same with design and process innovation
capability.
Exhibit 25: Gross Margin of Variation Exhibit 26: EBITDA Margin viz-a-viz Localization
(%)
(%) 23.6
57.7 56.0 57.7 57.9 100.0 93.0 22.5 22.4 25.0
50.7 49.2 50.6 51.7 90.0 83.2
50.4
46.8 80.0 75.9 17.3 17.0 20.0
70.0 14.4 15.3 15.0 79.6
50.7 46.4 13.1
76.7
48.0 60.0
67.7 71.2 67.6 71.8 73.8 15.0
50.0 9.9 64.6 67.5 66.5
18.0 18.0 40.0 14.4 10.0
12.3 11.9
23.5 30.0
10.7
17.8 20.0 20.0 20.0 20.0 18.0 20.0 20.0 20.0 5.0
11.7 10.0
0.0 0.0
CY10
FY21E
FY22E
FY23E
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
CY10
FY21E
FY22E
FY23E
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Traded Goods Manufactured Goods

Localization of Finished Goods EBITDA Margin
Localization has significant impact on the overall gross margin of the

company, but it varies sharply between Traded Goods and Manufactured
Goods — at 15-20% and 50-60%, respectively.
The Big Exports Opportunity With ABC Bearings’ Acquisition
Over the past 10 years, Timken India‘s exports business has grown at 17.6% CAGR,
at par with its growth in domestic sales over the same period at 17.8% CAGR.

Exhibit 27: Offshore Dreams — Exports Boost

(Rs mn) (%)
Exports is expected to account
5,000 82.4 100
for 50% of Timken’s revenue in 4,500
the medium term 4,000 80
3,500 43.6 60
3,000
31.9
2,500 40
42.7 15.0
2,000 13.3 12.0
1,500 5.7 5.3 1.2 20
1,000 -12.1 -8.8 -9.0
0
500
0 -20
CY10
FY21E
FY22E
FY23E
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
This growth will be further accentuated by the acquisition of ABC Bearings, whichhas
been a low-cost manufacturer of Wheel-End Bearings, an area Timken Group had
walked out of. These bearings find application in Heavy Commercial Vehicles and
Tractors. Although Timken India has the technological know-how of Spherical Wheel-
End Bearings, it lacked capacity. Hence, the acquisition made sense for the company.
It opens up the entire North American and European Heavy Commercial Vehicle
markets. With a huge cost advantage and unutilized capacity of over 60% at ABC
Bearings, the company has set an aggressive target to achieve 50% of its revenue
from exports in the medium term.
Exhibit 28: Exports Revenue Is Expected To Double Exhibit 29: Exports Segment Revenue Break-Up
25% 30%
75% 70%
Exports Domestic heavy Commercial vehicles Railways

Financial Overview
Strong Financials Led By Healthy Revenue Growth, Higher Profitability.

Localisation Drive and Burgeoning Exports Help Achieve Industry Leading
Domestic revenue and exports Margin
have seen17.8% and 17.6%
CAGR growth, respectively, Lower dependence on automobiles, aggressive localisation initiatives helped Timken
during CY09-FY20. navigate the slow-down in demand over the last two years. As it marked revenue
growth at 17.8% CAGR over CY09-FY20 with exports revenue growing at the same
pace.
Exhibit 30: Revenue Growth Intact
(Rs mn) (%)
20,000 100
18,000
80
16,000 78.4
14,000 44.0 60
28.4 33.5
12,000 40
10,000 18.4 15.0
14.6 11.8
8,000 4.8 20
-0.8 -2.8
6,000 -15.8 -12.2 0
4,000
-20
2,000
0 -40
CY10
FY21E
FY22E
FY23E
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
The company reported a whopping 22.9% growth in the Standard Tapered Roller
Bearing (TRB) sales volume over the past 10 years. Overall, revenue has grown at a
CAGR 17.7% over the same period.
Exhibit 31: Rolling In Big Volumes

Standard Roller Bearings 22.9%
Special Roller Bearings 8.4%
Components 6.5%
Exhibit 32: Product Volume Trend
(Units)
120,00,000
100,00,000
80,00,000
60,00,000
40,00,000
20,00,000
-
CY09
CY10
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Standard Roller Bearings (mn units) Components Special Roller Bearings (mn units)
Despite a slowdown in the domestic Automobile segment, the company is expected to

show good growth going forward, driven by Exports and Railways. The company has
large open capacity of 60% at ABC Bearings, which manufactures wheel-end
bearings. Timken can leverage its global relationship with OEMs to ramp up exports
of wheel bearings to the European and North American CV markets.

We expect the revenue to decline by 12% in FY21 due to COVID-19 impact

though the same will recover and will growth in double-digit during FY22-
24E. We conservatively forecast its revenue to grow at CAGR of 4.1% over
FY20-23E.
EBITDA Margin On A Structural Uptrend
We have already established that domestic bearings manufacturing companies have

cashed in on the opportunity that localization has offered — for both finished goods
and raw materials. When compared to average gross margin of 15-20%, goods
manufactured locally offer gross margin of 50-60%. Thus, Timken India has
aggressively been pursuing this route along with local sourcing of components, raw
materials and product development capabilities. With rising localization, the
company‘s EBITDA margin is seeing significant improvement and is likely to continue
this trend in the coming years. Even during the COVID-19 slowdown, the company
has continued investments into two key areas —Automation and Localization of
component manufacturing. Product mix, forex movement and commodity
prices, too, have played a significant role in margin improvement.
Exhibit 33: Rising EBITDA Margin Exhibit 34: Aggressively Going Local
(Rs mn) (%)
(%)
23.6
5,000 22.5 22.4 25 100.0
4,500 93.0
95.0
4,000 17.3 17.0 20 90.0
3,500 14.4 15.3 15.0 83.2
14.4 85.0
3,000 13.1 15
10.7 9.9 80.0 75.9
2,500 75.0 79.6
2,000 11.9 10 76.7
70.0
1,500 73.8
65.0 71.2 71.8
1,000 5 67.7 67.5 66.5 67.6
60.0 64.6
500
55.0
0 0
50.0
CY10
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
CY10
FY21E
FY22E
FY23E
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
EBITDA EBITDA Margin Localization of Finished Goods

Unlevered Balance Sheet And A Major Cash And Investment War Chest Of
More Than Rs 4 Billion
Despite steadily adding capacity and acquiring a new company, Timken India has
near zero gross debt. It has generated Operating Cash Flow and Free Cash Flow of
Rs 10,737mn and Rs 4344mn, respectively, over the past decade. With no large
investment needed in the near future and enough land for Brownfield expansion at
ABC‘s Bharuch plant, Timken is expected to generate robust Free Cash Flow of Rs
6046mn over the next three years. The company had Cash and Investment (net of
debt) of Rs 4299mn as of March 31, 2020.
Exhibit 35: Timken’s Debt Level Is More Than Comfortable
(Rs mn) (x)

FY21E
FY22E
FY23E
CY10
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
0 -0.1 0.0
-0.1 -0.1
-0.1 -0.1 -0.1
-2,000 -0.2 -0.1
-4,000 -0.3 -0.2

-0.2
-6,000 -0.4 -0.3
-0.4
-8,000 -0.4
-0.5
-10,000 -0.6 -0.5
-12,000 Net Debt Net D/E (x) -0.6

We Forecast 7.3% Earnings CAGR Over The Next Three Years
Despite a conservative revenue growth estimate of 4.1% over FY20-23E, we expect its
earnings to grow faster at a CAGR of 7.3%, given margin improvement on account of
focus on localization, better capacity utilization at its ABC plant and ongoing
automation. Also, the company does not have large capex plans in the near term as
the overall capacity utilizations stayed at ~70% in FY20 (capacity utilization in its
Railway plant at Jamshedpur is ~90% while the same at ABC would be at ~45%).
Exhibit 36: Strong Earnings Visibility

(Rs mn) (%)
3,500 80.3 100
3,000 61.6 65.6 80

56.9 59.5
60
2,500
58.0
22.3 40
2,000 14.0
1.2 5.7 20
1,500 -5.4
0
1,000
-36.7 -20
-45.1
500 -40
0 -60
CY10
FY21E
FY22E
FY23E
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
PAT Growth y-o-y
Although asset turnover was hit due to investment towards the ABC
acquisition and localization efforts, its superior product portfolio and robust
business model have delivered healthy return ratios
The Company‘s RoCE improved from 15-20% during CY10-FY14 to 28-29% in FY15-
16. However, its acquisition of ABC Bearings in 2017 coupled with increasing
investments in automation and component localization hurt its asset turnover and
return ratios. But we feel that asset turnover has bottomed out and is likely to improve
going forward; given the company has no capacity addition requirement in the
medium term.
Exhibit 37: Consistent Return Ratios Exhibit 38: Temporary Dip in asset turn
(%)
(x)
28.6 29.2
23.3 22.5
19.6 18.8 6.8
17.8
15.5 14.9 15.9
14.4 23.4 3.5
13.5 19.7 19.1 10.0
18.0 17.1 16.9 2.2 2.6 4.2 4.1
15.5 13.9 14.6
12.4 13.5 14.4 3.4
9.4 2.5 2.7
1.8 1.4 1.6 1.6
CY10
FY21E
FY22E
FY23E
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
CY10
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E

Conservatively, we expect the RoIC to improve from the low of 14.7% in FY21E to
25.2% and 29.8% in FY22E and FY23E, respectively. ABC Bearings has a large open
capacity for Spherical Roller Bearings, which offers a massive export opportunity in
the North American and European Heavy Haulage Commercial Vehicle market. This
will lead to significant improvement in asset turnover and return ratios in the coming
years.
Exhibit 39: RoIC On An Uptrend
40.0
34.7
31.9 33.0
22.1 29.8
26.7 25.2
22.5 23.6
20.7
17.7
14.7
CY10
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
RoIC

Exhibit 40: 1QFY21 Financial Performance — Braving The COVID-19 Storm

Rs Mn 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 % YoY % QoQ FY19 FY20 % YoY
Net sales 4378 4012 3733 4055 1602 -63.4 -60.5 16644 16178 -2.8
Stock adjustment 77 49 7 104 -336 -536.8 -422.4 -509 237 -146.6
Purchase of finished goods 1041 877 912 891 656 -37.0 -26.4 4025 3722 -7.5
Employee cost 310 312 298 317 262 -15.5 -17.4 1227 1238 0.9
Other expenditure 758 680 637 643 362 -52.2 -43.7 3245 2717 -16.3
EBITDA 951 897 842 938 141 -85.2 -85.0 2887 3628 25.7
add: Other income 42 64 53 73 78 85.7 7.0 163 232 42.5
Depreciation 208 191 185 185 179 -13.8 -3.2 793 769 -3.1
Interest 3 3 19 2 3 -3.1 47.6 18 28 56.3
Exceptional items 0 0 0 0 0 - - 0 0 -
Profit before tax 782 767 690 824 36 -95.4 -95.6 2238 3064 36.9
Provision for taxation 277 269 -155 211 5 -98.3 -97.7 752 603 -19.8
PAT after Minority Interest 505 498 846 613 31 -93.8 -94.9 1487 2461 65.6
Equity Capital 752 752 752 752 752 680 752
EPS (Reported) 6.7 6.6 11.2 8.1 0.4 19.8 32.7
EBIDTA (%) 21.7 22.4 22.5 23.1 8.8 (1295bp) (1436bp) 17.3 22.5 508bp
PAT (%) 11.5 12.4 22.7 15.1 2.0 (957bp) (1314bp) 8.9 15.2 628bp
Tax / PBT (%) 35.4 35.1 -22.5 25.6 13.2 (2222bp) (1242bp) 33.6 19.7 (1391bp)
Gross Margin (%) 46.1 47.1 47.6 46.8 47.8 162bp 93bp 44.2 46.9 266bp
Raw Material / Net Sales (%) 53.9 52.9 52.4 53.2 52.2 (162bp) (93bp) 55.8 53.1 (266bp)
Other expenditure / Net Sales (%) 17.3 16.9 17.1 15.9 22.6 529bp 675bp 19.5 16.8 (270bp)
KEY TAKEAWAYS
 Timken India‘s growth is highly related to economic activity in the country, which
was hit due to COVID-19 related lock-down. Hence, it reported a sharp fall of
63.4% in revenue to Rs 1602mn.
 But that was partly offset by significant cost-cutting measures, which led to positive
EBITDA of Rs 141mn. This was at a time when most of its peers reported large
EBITDA loss.
 Gross margin improved 162bps YoY to 47.8% during the quarter.
 The company reported a PAT of Rs 31mn during the quarter.

Exhibit 41: Financial Snapshot — Long-Term Growth Remains Intact

CAGR
Particulars (Rs mn) CY09 CY10 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19# FY20 FY15- CY09-
20 FY20
Sales 3,179 4,579 8,169 6,882 7,213 9,259 10,608 10,527 12,468 16,644 16,178 11.8% 17.7%
EBIDTA 412 660 970 735 716 1,337 1,625 1,580 1,633 2,886 3,633 22.1% 24.3%
PAT 325 511 807 442 448 807 920 972 920 1,486 2,461 25.0% 22.4%
Cash Flow from Operations 584 299 341 131 457 425 996 1,641 390 2,488 3,569 53.1% 19.8%
Cash Flow from Investing -557 -339 -502 -170 -300 -234 -651 -1,251 -638 -1,097 -1,075 N.A. N.A.
Cash Flow from Financing -4 -4 -1,318 -158 -159 -257 13 -47 -19 -233 -166 N.A. N.A.
Equity 637 637 637 637 680 680 680 680 680 752 752 2.0% 1.7%
Net Worth 3,295 3,806 3,131 3,415 3,823 4,384 5,221 6,179 7,023 13,407 15,767 29.2% 16.9%
Gross Debt 0 0 148 0 32 25 43 84 159 231 200 51.3% N.A.
Gross Block 2,005 2,090 2,418 2,516 2,807 1,060 1,588 2,820 3,420 7,850 8,043 50.0% 14.9%
Cash & Current Investments 1,766 2,135 776 459 435 404 717 1,089 782 1,976 4,278 60.3% 9.2%
Key Ratios
EPS 5.1 8.0 12.7 6.9 6.6 11.9 13.3 14.3 13.5 19.9 32.7
ROE% 19.7 14.4 23.3 13.5 12.4 19.7 19.1 17.1 13.9 14.6 16.9
ROCE% 18.7 15.5 23.4 18.0 15.5 28.6 29.2 22.5 17.8 19.6 18.8
Net Debt Equity -0.5 -0.6 -0.2 -0.1 -0.1 -0.1 -0.1 -0.2 -0.1 -0.1 -0.3
Gross Asset Turn (x) - 1.0 1.7 1.5 1.5 1.7 1.7 1.3 1.3 1.2 0.9
Inventory days 77 84 66 74 69 66 64 65 72 70 66
Receivable days 58 66 49 69 75 69 67 67 65 66 66
Payable days 56 63 44 35 37 34 39 54 58 51 48
WC Days 80 87 71 108 107 101 92 77 80 85 83
Dividend Payout % 0.0 0.0 158.0 0.0 129.1 25.3 7.4 7.0 7.4 5.1 3.1
Cost Matrix CY09 CY10 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
RM/Sales% 50.8 51.6 58.3 60.6 61.9 59.9 60.1 58.9 59.4 55.8 53.1
Other Exp/Sales% 26.2 23.6 22.4 21.1 20.8 18.5 18.2 19.0 20.2 19.5 16.8
EBITDAM % 13.0 14.4 11.9 10.7 9.9 14.4 15.3 15.0 13.1 17.3 22.5
PATM % 10.2 11.1 9.9 6.4 6.2 8.7 8.7 9.2 7.4 8.9 15.2
# Post acquisition of ABC Bearings Source: Company, AMSEC Research

Timken India comes from the umbrella of a 120-year-old US-based global

engineering giant. This parent Timken Co is not only an expert in bearings, but also
Mechanical Power Transmission. Similarly, the Indian subsidiary has proven its mettle
in a tough environment over the years. It has risen to become the fourth-largest
bearings manufacturer in India and is a leader in Tapered Roller Bearings, one of the
most crucial bearings products in modern times.
After factoring a 12% / 37% decline in sales and earnings during FY21 due to
COVID-19, we estimate revenue and earnings will return to growth trajectory in FY22
and forecast FY20-23 CAGR of 4.1% and 7.3% in sales and earnings, respectively,
over FY20-23E. Rising localization, improving operational efficiency and higher
capacity utilizations at ABC Bearings will lead to superior profitability and return
ratios. The company will continue to boast healthy RoCE and RoE of 15.9% and
14.4%, respectively in FY23E, while RoIC is expected to improve to 29.8% in FY23E.
At a CMP of Rs 1,075, Timken India trades at P/E of 51.9x, 32.6x and 26.6x its FY21E,
FY22E and FY23E EPS, respectively. The above argument proves that it has a strong
balance sheet with long-term earnings visibility, making Timken India a strong play
on an ongoing localization of manufacturing by the global OEMs. We initiate
coverage on Timken India with a BUY rating and target price of Rs 1,333 (33x FY23E
EPS). Timken India‘s 1-year forward P/E averaged at 31.2x for the last ten years, and
at 35.5x for the last five years.
Going forward, all the three bearing companies: SKF, Timken and Schaeffler
are expected to report improved performance on a low base of FY21.
However, as per our analysis and forecast, only Timken will be able to log
significantly higher profitability compared to the peak achieved in FY19 led
by its structural business realignment viz. aggressive localization, export
thrust and lower dependence on automobiles. In that context, Timken also
seem to face less disruption that may potentially be caused due to advent of
electric vehicles.
Exhibit 42: 5-Year PE Trend (1-Year Forward PE)
1200
1000
800
600
400
200
0
01-Apr-16 01-Apr-17 01-Apr-18 01-Apr-19 01-Apr-20

Key Risks
There are risks in every business, even with strong ones such as Timken
India. Some of the challenges that this bearings leader will face are:
Significant downturn in economic activity: Demand for Bearings is heavily

dependent on sustained economic activity and a slump could severely dampen
growth in this industry.
Sharp fluctuation in input price: Although it operates with a significantly high

gross margin, a sharp fluctuation in Steel prices could severely impact its margin.
Sharp fluctuation in foreign exchange: 25% of Timken‘s India‘s revenue comes

from exports and is likely to reach 50% in the coming years. Besides that, it also
imports traded goods from its sister company based in different countries. Although
large imports offer a natural hedge to some extent, a wide dispersion of exports and
imports makes it heavily dependent on forex movement. Any sharp movement in the
same could severely hurt its revenue as well as profit.

Company Overview
Before making any investment it is important to understand a company‘s providence.

Thus, it gives us confidence to say that Timken India is a subsidiary of the 120-year-
old The Timken Company, which is a US-based engineering leader in bearings and
mechanical power transmission products.
With a leadership position in Tapered Roller Bearings, the group has a deep
knowledge of metallurgy, tribology and mechanical power transmission and owns
more than twenty global industrial brands like TIMKEN®, FAFNIR®, PHIILADELPHIA
GEARS®, DRIVES®, Lovejoy® ROLLON®, DIAMOND®, Cone Drive®,
GROENEVELD®, BEKA® and Interlube®. The group‘s global footprint is enviable to
say the least with 125 manufacturing facilities/service centers, 21 technology and
engineering centers, and 68 distribution centers and warehouses, supported by more
than 18,000 employees. The Timken Group operates in 42 countries around the
globe.
Exhibit 43: Timken Co Brands — A Milieu Of Tradition And Innovation
Source: The Timken Co Annual Report, AMSEC Research

This vast conglomerate‘s Indian subsidiary, Timken India, started as a 40:40 joint
venture between one of the most trusted groups in India through Tata Steel and The
Timken Co. in the 1980s. Riding on The Timken Co‘s experience and superior
technology, the company has carved a niche for itself in the domestic Bearings market
and currently holds more than 11% market share.
It has built its leadership position in the Tapered Bearings segment, which finds its
application in high-speed high axial-radial loads. Consequently, the company enjoys
a leadership position in the domestic railway business, particularly in the high
haulage freight wagons and High Speed Passenger Wagons like Vande Bharat,
Shatabdi and Rajdhani Trains.
Product Mix:
Timken India is present in two broad categories — Bearings and Bearing Accessories,
the latter of which includes Oil Seals, Lubricants, Maintenance Tools and Condition
Sensors.

Exhibit 44: Product-Wise Revenue Mix Exhibit 45: Geography-Wise Revenue Mix
5.2%
3.1% 12%
13%
29.4%
62.3%
75%
Bearing Components
India US Rest of the World
Bearing Accessories Revenue from Services and Others
The company sells bearings and allied products to two broad segments — Mobility
and Process Industries. Majority of the Tapered Bearings are manufactured locally,
while the company used to import Cylindrical and Spherical Bearings as well as
Lubricants from Timken Co‘s subsidiaries abroad. Spherical Bearings for Wheel-Ends
are now locally manufactured since the acquisition of ABC Bearings. Oils Seals are
locally sourced.
Exhibit 46: Product Offerings and Applications

Business Segment Served Industries Products
Railway Tapered Roller Bearings,
Light Vehicles Spherical Roller Bearings,
Mobility Industries Off-Highways Lubricants,
Heavy Trucks Seals
Auto Aftermarket
Tapered Roller Bearings,
Heavy Industries,
Cylindrical Roller Bearings,
Industrial Processes
Spherical Roller Bearings,
Process Industries Gear Drives
Lubricants,
Energy
Seals,
Industrial Distribution
Condition Monitoring Sensors
‘MILLTEC’
Services - Bearing Reconditioning and Repairs; Condition
Monitoring; Reliability Services
Exhibit 47: Product Offerings and Sourcing

Business Segment Products Sourcing
Tapered Roller Bearings Manufactured at Jamshedpur
Partly imported, partly manufactured at
Spherical Roller Bearings
Mobility Industries Bharuch
Lubricants Imported
Seals Locally Sourced
Tapered Roller Bearings Manufactured at Jamshedpur
Spherical Roller Bearings Imported
Process Industries Cylindrical Roller Bearings Imported
Lubricants Imported
Seals Locally Sourced

Exhibit 48: Product Line For Bearings

Tapered Roller Bearings Spherical Roller Bearings Cylindrical Roller Bearings
Precision Bearings Ball Bearings Plain Surface Bearings
Anti Thrust Bearings
Exhibit 49: Product Line For Bearings and Driveline Bearing Assemblies
Driveline Centre Support Bearings Driveline Centre Support Bearing for
Timken Housed Unit
for CVs LCVs
Integrated Bearing Assemblies Wheel Hub Assembly

Exhibit 50: Product Line For Bearing Accessories (Seals, Grease and Lubricants, Maintenance Tools & Sensors
Seals Encoders & Sensors Timken Maintenance Tool
Timken Automotive Grease BEKA Lubricants Timken Housed Unit
Manufacturing Facilities:
Timken India has one plant at Jamshedpur, which manufactures Tapered Roller
Bearings for diverse applications. And with the acquisition of ABC Bearings, it has
started low cost manufacturing of Spherical Roller Bearing sat plants in Bharuch and
Dehradun. The ABC manufacturing facilities continue to operate below 40%
utilization and Timken has enough land for Brownfield expansion.
Timken India also has a Gear Box Refurbishing facility at Raipur, which utilizes the
technology of Philadelphia Gears, acquired by the parent company.
Exhibit 51: Plants That Make The Company

Products Units Annual Capacity
Timken Jamshedpur Tapered Roller Bearings
Bharuch Wheel End Bearings
ABC
Dehradun Wheel End Bearings
Bearing Reconditioning and
Repairs
MILLTEC -
Condition Monitoring
Reliability Services
Philadelphia Gears Raipur Refurbishment of Gear Boxes
Exhibit 52: Manufacturing and Service Facilities

Business Segment No of Distributors
Mobility Industries 86
Process Industries 40

Auditors
Deloitte Haskins& Sells LLP
Credit Ratings
ICRA A1+ for Commercial Papers
ICRA A1+ for Short Term Funds

Directors‘ Remuneration as % PBT: 11.1%
Exhibit 53: The Perfect Offering Of Quality Management And Business

Strength
Timken
India

Exhibit 54: Key Management Personnel — The Leaders Who Run The Show
Board of Directors

Sanjay Koul, the Chairman and Managing Director at Timken India joined the
company in 1990 as a Production Engineer at its manufacturing facility in
Jamshedpur and is a BE (Mechanical) from BITS, Pilani and Business Masters from
XLRI, Jamshedpur. He subsequently held various leadership positions at Timken
Sanjay Koul CMD
India — National Sales Manager for the company‘s railway business, Plant
Manager at Jamshedpur and General Manager of Asia‘s supply chain based in
Wuxi, China. He recently held the position of Director of Manufacturing and Supply
Chain for the company‘s business in Asia, operating from Shanghai, China.
Bushen Lal Raina holds a Science undergraduate degree from NIT Srinagar and
Masters degree in Business from XLRI. He is also the Chairman at Tinplate
Independent
BushenLalRaina Promotion Council and NICCO Jubilee Park. He previously held a position of
Director
Director-International Trading Division at Tata Steel and Non-Executive Director at
The Tinplate Co of India.
Mrs. Rama is the CEO of Electronics City Industrial Township Authority (ELCITA).
She also serves on the academic advisory board of Management Institutes. In the
past, she worked as Delivery Head for a product engineering team and Location
Additional Head for Infosys Development Center. At ELCITA, Mrs. Rama has contributed
N.S. Rama & Independent significantly for the development of Electronics City and is now focusing on taking it
Director to the next level and improve people‘s quality of life. Mrs. Rama also serves as an
external member of Anti Sexual Harassment Committee of various companies. Mrs.
Rama has decades of rich experience in engineering and system design and R&D in
Telecom.
Mr. Smith is responsible for leading Timken‘s technology strategy, including
product and digital technologies to improve customer experience and create
Vice President, enterprise value. This includes overseeing Timken‘s Bearings R&D, as well as
Douglas Smith Technology & information technology and digital transformation initiatives. Mr. Smith joined
Additional Director Timken in 1991 and has held a number of R&D, manufacturing and management
positions during his tenure. He holds eleven patents from the U.S. Patent and
Trademark Office.
Mr. Avishrant Keshava, has work experience of about 27 years, of which 20 years
have been with Timken itself. He undertook this position in 2015, prior to which he
Business Controller worked across various roles in Finance. Mr. Keshava started his career with Modi
- India, CFO & Cement in May 1993 and moved to Hyderabad in the Pharma Industry. He joined
AvishrantKeshava
Whole-time the Company as Asst. Manager in 2000 and moved higher to become the Plant
Director Controller in 2009. He was promoted as Deputy Controller of Accounts and
relocated to Bengaluru in April 2012. In 2014, he occupied the position of
Controller of Accounts – India.
Mr. PS Dasgupta, Advocate, Founder and Senior Partner, New Delhi Law Offices,
Priya Shankar Independent Non
has been practising law since 1978. He has vast knowledge and experience of 42
Dasgupta Executive Director
years of legal practice.

Financials (Rs mn)
Y/E (Mar) FY19 FY20 FY21E FY22E FY23E Y/E (Mar) FY19 FY20 FY21E FY22E FY23E
Net sales 16,644 16,178 14,205 16,329 18,248 PBT 2,238 3,064 2,080 3,318 4,059
Raw Materials Non-cash adjustments 747 621 338 335 248
6,575 4,873 4,223 4,959 5,668
Expenses Chg in working capital 257 722 725 -502 -334
Purch. of Traded Goods 2711 3722 3779 3685 3828 Tax Paid -754 -838 -505 -815 -1,001
Operating expenses 3,245 2,712 2,557 2,743 3,066 Cash flow from operat. 2,488 3,569 2,639 2,335 2,972
Staff expenses 1,227 1,238 1,228 1,289 1,380 Capital expenditure -1,174 -1,203 -500 -600 -800
Total Expenditure 13,758 12,545 11,786 12,677 13,942 Change in investments - - - -20 -23
EBITDA 2,886 3,633 2,419 3,653 4,307 Other investing cash flow 77 128 417 497 635
Depreciation 793 769 721 822 875 Cash flow from invest. -1,097 -1,075 -83 -122 -188
Operating profit 2,093 2,864 1,698 2,831 3,432 Issue of equity - - - - -
Other income 163 227 397 497 635 Issue/repay debt -125 -31 -50 -37 -28
- - - - -
Exceptional items 0 0 0 0 0 Loan Funds
Profit before tax 2,238 3,064 2,080 3,318 4,059 Dividends paid -91 -91 -91 -91 -136
Tax 752 603 524 835 1022 Other financing cash
-0 -17 - - -
Profit from discount.ops 0 0 0 0 0 flow
Cash flow from finan. -233 -166 -155 -139 -172
Chg in cash & cash eq 1,157 2,328 2,402 2,074 2,612
PAT 1,486 2,461 1,557 2,483 3,037
Open. cash& cash eq 782 1,976 4,278 6,548 8,623
EO Items 0 0 0 0 0
Clsg cash & cash eq 1,976 4,278 6,548 8,623 11,234
Reported Net profit 1,486 2,461 1,557 2,483 3,037
Share O/s mn 75 75 75 75 75 Free cash flow to firm 1,314 2,366 2,139 1,735 2,172
Adj. EPS Rs 19.9 32.7 20.7 33.0 40.4
Ratios
Balance Sheet Y/E Mar FY19 FY20 FY21E FY22E FY23E
Y/E Mar FY19 FY20 FY21E FY22E FY23E PER SHARE
APPLICATION OF FUNDS: Adj. EPS Rs 19.9 32.7 20.7 33.0 40.4
Non-Current Assets 8,996 9,350 9,138 8,925 8,861 CEPS Rs 30.3 42.9 30.3 43.9 52.0
Fixed Assets 6,133 5,667 6,886 6,639 6,515 Book Value Rs 178.3 209.7 229.2 261.0 299.6
Cap. Work in progress 635 1,565 125 150 200
VALUATION
Goodwill 1,813 1,813 1,813 1,813 1,813
Noncurrent investment 0 0 0 0 0 EV / Net Sales 4.8 4.7 5.2 4.4 3.8
Deferred tax assets 0 0 0 0 0 EV / EBITDA 27.4 21.1 30.7 19.8 16.1
Long term loans & adv. 63 64 71 78 86 P / E Ratio 54.0 32.9 51.9 32.6 26.6
Other non-current asst 351 240 242 245 247 P / BV Ratio 6.0 5.1 4.7 4.1 3.6
Current Assets 8,783 10,446 12,072 14,945 18,275
GROWTH YOY%
Current investment 1,757 132 132 151 174
Inventories 3,171 2,914 2,559 2,953 3,300 Sales Growth 33.5 -2.8 -12.2 15.0 11.8
Sundry debtors 3,019 2,915 2,530 2,908 3,250 EBITDA Growth 76.8 25.8 -33.4 51.0 17.9
Cash and bank 219 4,147 6,548 8,623 11,234 Adj. Net Profit Growth 61.6 65.6 -36.7 59.5 22.3
Other bank balances 21 21 0 0 0 Gross Fixed Asset Growth 129.5 2.5 24.1 5.8 7.1
Short loans & adv. 1 3 3 3 4
Others current assets 594 315 301 307 313 PROFITABILITY
Total Assets 17,778 19,795 21,210 23,870 27,136 EBITDAM (%) 17.3 22.5 17.0 22.4 23.6
NPM (%) 8.9 15.2 11.0 15.2 16.6
SOURCES OF FUNDS: Raw Material/Net Sales (%) 55.8 53.1 56.3 52.9 52.0
Share Capital 752 752 752 752 752
Int/PBIT (%) 0.8 0.9 0.7 0.3 0.2
Reserves 12,655 15,015 16,481 18,873 21,774
Shareholders’ Funds 13,407 15,767 17,233 19,625 22,526 ROE (%) 14.6 16.9 9.4 13.5 14.4
Minority interest 0 0 0 0 0 ROCE (%) 19.6 18.8 10.0 14.9 15.9
Non-Current Liab. 1,247 1,151 1,248 1,353 1,467 ROIC (%) 22.5 23.6 14.7 25.2 29.8
Deferred tax liability 549 377 396 416 436
TURNOVER
Other Long-term Liab. 201 272 299 329 362
Long-term provisions 496 502 552 608 669 Net Working Cycle 85 83 79 83 84
Current Liab. & Prov. 3,103 2,857 2,729 2,892 3,142 Debtors Velocity (Days) 66 66 65 65 65
Short term borrowings 231 200 150 112 84 Inventory (Days) 70 66 66 66 66
Trade payables 2,335 2,139 2,010 2,153 2,368 Creditors Velocity (Days) 51 48 52 48 47
Other current liabilities 476 459 504 555 610
Short term provisions 61 60 66 72 79 Gross Asset Turnover 2.7 1.8 1.4 1.6 1.6
Total Equity &Liab. 17,757 19,775 21,210 23,870 27,136 Total Asset Turnover 1.2 0.9 0.7 0.7 0.7
Net working capital 3913 3490 2813 3390 3808 LIQUIDITY
Total Gross Debt 231 200 150 112 84 Gross Debt-Equity Ratio 0.0 0.0 0.0 0.0 0.0
Total Net debt -1,766 -4,099 -6,530 -8,662 -11,324 Net Debt-Equity Ratio -0.1 -0.3 -0.4 -0.4 -0.5
Total capital employed 14,188 16,343 17,778 20,153 23,047
Interest Coverage 128.2 112.4 149.9 317.7 517.5
Current Ratio (x) 2.8 3.6 4.4 5.2 5.8
Quick ratio (x) 1.8 2.6 3.5 4.1 4.8
PAYOUT
Payout % 5.1 3.1 4.8 3.0 3.7
Dividend % 10.0 10.0 50.0 50.0 75.0
Yield % 0.1 0.1 0.1 0.1 0.1

Schaeffler
Timken IndiaLtd.
India Ltd.–-Initiating
Initiating Coverage
Coverage
Schaeffler India Ltd. BUY
Cranking up for a long drive …
Institutional Research Having a strong pedigree of Schaeffler Group, Schaefffler India has emerged as the
largest Bearing Manufacturing company in India, with 23.2% market share, ahead of
CMP (Rs) 3700 SKF India. The company has a strong portfolio of Engine and Transmission Chassis
components that account for 40% of its revenue. Post the amalgamation of two group
Target (Rs) 4388
Companies INA Bearings and LuK India, the company’s dependence on domestic
Upside (%) 19
automobile demand has gone up significantly, which is facing headwinds. The company
will be a big beneficiary of the recovery in the domestic automobile industry. Further,
Nifty: 11,154 Sensex: 37,734 Wind and Railway segments each account for 5% of its revenue, makes it a good play on
the burgeoning capex in the domestic railway and Wind Turbine manufacturers
Key Stock Data increased thrust on Make-In-India for their global requirement. The company has a
Bloomberg SCHFL IN diverse product line for the Hybrid and Electric vehicles, showing agility to conform to the
Shares O/s Mn(FV INR10) 31.3 changing landscape of the domestic demand. A robust balance sheet, and diversified
revenue mix augur well with the long-term investment thesis. We initiate coverage on
Mkt Cap (USD Bn/INR Bn) 1.6/115.7
Schaeffler India with BUY rating at a price target of Rs 4388 (33x CY22E EEPS).
52-week high/low 4950/3044
6m daily avg vol(INR Mn) 49 Market Leader in the domestic Bearing market, with well diversified product portfolio
and application mix
Free Float % 50
Schaeffler India is the largest manufacturer of Bearings in India with a market share of ~23%.
Stock Performance However, Bearings account for 60% of the revenue, while the balance comes from Engine,
(%) 1m 3m 12m Transmission and Chassis components. Market-segment wise, Automobile, Industrial and exports
accounted for 43%, 47% and 10% of the revenue respectively. Further, the company has a strong
SCHFL 2.1 (9.9) (8.1)
presence in both Automobile and Industrial After-Markets, which account for ~7.7% and 15% of
NIFTY 8.9 0.4 5.3
the total revenue respectively, keeping the revenue profile significantly de-risked.
NSE500 9.1 1.2 3.1
High dependence on Automobile a short term headwind, will benefit from the recovery
BSEMidcap 9.1 1.2 (1.9)
in the automobile demand recovery
2yr 3yr 5yr Automobile accounts for 43% of the revenue of Schaeffler India, the highest among the top three
Avg.PER (x) 51.5 47.5 38.7 MNC Bearing companies, rendering a short term headwind as automotive sales has been on the
downward trend since FY20. However, the company has strong presence in the Automobile After-
Shareholding Pattern Market. The company is the likely beneficiary of the gradual recovery in the domestic automobile
demand, particularly the PV segment.
(%) Dec19 Mar20 Jun20
Promoter 74.1 74.1 74.1 Localization, operational efficiency leading to structural change in the margin profile
FII 3.8 3.9 3.9 Schaeffler India has been leading the MNC Bearing Companies in localization of manufacturing
DII 15.7 15.8 16.0 as well as raw materials sourcing and technologies. The company has already localized over
Others 6.4 6.2 6.0 72.4% of the finished goods. Further, the company has two R&D centers in India to localize the
technologies and product development capabilities. Although it has shunted the asset turnover in
Md Shaukat Ali the short run, the same will aid its long term business viability and margins.
shaukat.ali@amsec.in
+91 98992 30857 CY20 is going to be a tough year for the Bearing industry and for Schaeffler in particular.
However, we expect strong recovery in CY21. With sound Balance Sheet, strong product
portfolio and long-term earnings visibility, we initiate coverage on Schaeffler India with
BUY rating.
Exhibit 1: Key Financials Exhibit 2: Key Indicators
Y/E Mar (Rs mn) CY18 CY19 CY20E CY21E CY22E Y/E Mar CY18 CY19 CY20E CY21E CY22E
Sales 45,615 43,606 33,702 38,838 43,572 Equity 313 313 313 313 313
yoy (%) 16.0 -4.4 -22.7 15.2 12.2 RoE (%) 16.7 13.0 6.1 10.8 12.5
EBITDA 7,396 6,336 3,714 5,841 7,155 RoCE (%) 23.1 16.8 6.1 11.7 14.1
yoy (%) 8.4 -14.3 -41.4 57.3 22.5 RoIC (%) 24.4 17.6 7.6 17.8 21.9
Reported PAT 4,198 3,676 1,823 3,344 4,157 D:E (x) -0.3 -0.3 -0.3 -0.3 -0.4
yoy (%) 8.1 -12.4 -50.4 83.4 24.3 PER (x) 27.6 31.5 63.4 34.6 27.8
EBITDAM (%) 16.2 14.5 11.0 15.0 16.4 P/BV (x) 4.3 3.9 3.8 3.6 3.4
NPM (%) 9.2 8.4 5.4 8.6 9.5 EV/Sales (x) 2.4 2.5 3.1 2.7 2.4
EPS 134.3 117.6 58.3 107.0 133.0 EV/EBITDA (x) 14.6 16.9 28.4 17.9 14.4

Schaeffler India Ltd. - Initiating Coverage
Numbers that speak

Exhibit 3: Revenue Trend: Higher dependence on Exhibit 4: Exports Trend: Subdued trend led by weak
Automotive segment impacted the revenue since CY19 global markets
(Rs mn) (%) (Rs mn) (%)
50,000 102.2 120 6,000 57.3 70
45,000 100 60
40,000 5,000
80 50
35,000 4,000 31.7 32.1 40
60 28.1
30,000 30.4 19.3 30
25,000 16.4 16.0 40 3,000 15.0 12.5
10.6 12.8 15.2 12.2 10.5 20
20,000 5.7 20 1.7 -0.9
25.8 -3.1 -4.4 2,000 0.8 -1.7 10
15,000
-22.7 0 0
10,000 1,000 -15.0
5,000 -20 -10
0 -40 0 -20
CY10
CY11
CY12
CY13
CY14
CY15
CY16
CY17
CY18
CY19
CY20E
CY21E
CY22E
CY20E
CY21E
CY22E
CY10
CY11
CY12
CY13
CY14
CY15
CY16
CY17
CY18
Revenues (Rs mn) CY19

Growth y-o-y Exports Growth y-o-y
Exhibit 6:Product Mix : Higher dependence on

Exhibit 5: Diversified Revenue Mix
automotive post consolidation of group entities
10.5%
15.0% 35.2%
40%
60%
7.7%
31.6%
Automobile OEMs Automobile After Market

Industrial OEMs Indsutrial After Market Bearings Engine & Transmission Solution
Exports
Exhibit 7: EBITDA Trend: Lower revenue impacted the
Exhibit 8: ..also reflected in tepid Earnings
margins…
(Rs mn) (%) (Rs mn) (%)
8,000 21.6 25 4,500 85.4 83.4 100

7,000 19.4 4,000 61.2 80
18.0 17.7 17.3
16.2 16.4 20 3,500 44.8
6,000 15.2 14.8 15.0 60
14.5
5,000 13.1 3,000 25.5 29.2 22.1 24.3 40
11.0 15
2,500 8.1
4,000 20
10 2,000 -9.5 -12.4
3,000 -23.5 0
1,500
2,000 1,000 -20
5 -50.4
1,000 500 -40
0 0 0 -60
CY10
CY11
CY12
CY13
CY14
CY15
CY16
CY17
CY18
CY19
CY20E
CY21E
CY22E
CY10
CY11
CY12
CY13
CY14
CY15
CY16
CY17
CY18
CY19
CY20E
CY21E
CY22E
EBITDA EBITDA Margin PAT Growth y-o-y
Exhibit 9: Return Ratios Exhibit 10: Fixed Asset Turnover

(%) (x)
28.1
35.3
27.0 25.5 7.1
23.5
32.3 23.1 6.8 6.5
19.8 18.1 19.7 16.8
14.8 14.1 5.4
23.5 22.9 11.7 4.6 4.8 4.5
20.4 4.1 4.4
3.9
16.4 16.7 6.1 3.5 3.5
3.1
13.0 14.6 13.0
10.8 12.5
6.1
CY20E
CY21E
CY22E
CY10
CY11
CY12
CY13
CY14
CY15
CY16
CY17
CY18
CY19
CY20E
CY21E
CY22E
CY10
CY11
CY12
CY13
CY14
CY15
CY16
CY17
CY18
CY19


Market Leader in the domestic Bearing Market
Post amalgamation of the two group entities, Schaeffler India is now the market leader
in the domestic Bearing Market. Growing at a CAGR of 18.2% over the past decade,
Schaeffler India is the market the company has outpaced the erstwhile market leader, SKF India. The company
leader in the domestic Bearing
currently enjoys ~23. market share in the domestic Bearing market. Further, the
Manufacturers in India, with
company has diversified its portfolio towards non-bearing segment as well and
technology leadership in the
Spherical and Cylindrical Roller Bearings account for 60% of the total revenue, while the balance comes from Engine,
Bearings… Chassis and Transmission Components.
Over half of the domestic bearing Market is dominated by the three MNC players- SKF
India, Schaeffler India and Timken India. SKF India, which had been the market leader,
has witnessed gradual market share erosion over the last few years due to transition of
the industry from Ball Bearing to the Roller Bearing which has superior load carrying
capacity. This was driven by pick-up in the non-auto application of Bearings as well as
premiumization of Automobile in India.
Exhibit 11: A dominant player in Domestic Bearing Industry
22.2% 23.2%
7.2%
22.7%
13.4%
11.3%
Leadership in the Spherical Roller Bearing and Cylindrical Roller Bearings

augurs well
Owing to strong parentage, Schaeffler India enjoys leadership in the Cylindrical and
Spherical Roller Bearings. Roller Bearings has gained significant traction in India and
gained market share gradually over the past years, while the Ball Bearing has relative
loss of foothold in application. Having technological leadership in the Cylindrical and
Spherical Roller Bearing, Schaeffler India has seen robust growth in its business and
gradually replaced SKF India as the market leader. Spherical and Cylindrical Roller
Bearing have superior load carrying capacity than Ball Bearings and have wider
application ranging from Automobile to process and Power sector. However, Ball
Bearings continue to account for over 50% of the total Bearings sold in India in terms of
numbers.
Diversified Revenue Mix, Non Bearing products account for about half the
revenue
Schaeffler India has a diversified revenue-mix in term of the sectors and Industries it
caters. After the amalgamation of INA Bearing and LuK, the Company‘s dependence
has been almost equal on both the Industrial an Automobile. About 60% of the
revenue accrues from Bearings, while the balance comes from the Engine, Chassis and
Transmission Components Solutions. This makes the company less dependent on
Bearing demand compared to the other Bearing companies. Market segment wise,
Automobile accounts for 43% of the revenue, while the Industry accounts for 57% of
the revenue.

Exhibit 12: Segment Mix Exhibit 13: Industry Mix

10%
40% 43%
60%
47%
Bearings Engine & Transmission Solution Automobile Indsutry Exports

Within the automobile segment, the company caters both the OEMs as well as the
aftermarket with 82% and 18% contribution respectively. Similarly, OEMs and After
Market account for 67.8% and 32.2% of the industrial revenue respectively. This
significantly de-risks the revenue as when OEMs show weaker demand, servicing of
vehicles rises, leading to better After Market demand.
Exhibit 14: Revenue Mix of Industrial segment Exhibit 15: Revenue Mix of Automobile segment
18%
32.2%
67.8%
82%
OEMs After Market OEMs After Market
Exhibit 16: Mix of Revenue from Automobile
18%
82%
OEMs After Market
Strong Parentage: The Schaeffler Group…

Schaeffler India is a subsidiary of Schaeffler AG. a publicly listed German entity. The
Schaeffler group is a global giant in the field of Engineering Bearings and Mechanical
Power Transmission. The group is known for high Precision Engine and Power
Transmission Components, Chassis components, Lubricants and Grease etc. The
Company produces Plain and Roller Bearings and is known for its innovation in the
respective fields.

Established in 1946, Schaeffler Group has operations in 170 locations worldwide, 70

production facilities in 22 countries, 20 R&D centers and a workforce of 87,700
employees. The group has received over 26,000 patents registrations over the past 7
decades and is known as one of most innovation led organization in the world.
Exhibit 17: The Schaeffler Group: A snapshot

Particulars
Year of Establishment 1946
Revenue €14.4 billion
Invention Disclosure 3,298
Employees Strength 87,700
Presence 22 Countries
R&D Centre 20
Production Facility 70
No. of Locations 170
Source: Schaeffler AG, AMSEC Research
Exhibit 18: Schaefller AG-Business Segment Exhibit 19: Schaefller AG -Geographical Reach
10.4%
24.5% 21.9%
12.8% 62.6% 19.2%

48.5%
Automotive OEMs Automotive Aftermarket Industrial Asia Pacific Region Europe Greater China Americas
Exhibit 20: Schaefller AG –Auto Product Offerings Exhibit 21: Schaefller AG –Industrial Product Offerings
Amalgamation of INA Bearings and LuK India puts Schaeffler India into
Leadership position, significant revenue and cost synergies yet to trickle in…
The Schaeffler Group had three subsidiaries India, Schaeffler India (erstwhile FAG
Bearings, the listed entity), INA Bearings and LuK India. In 2016, the Schaeffler group
decided to merge the two wholly owned subsidiaries viz. INA Bearings and Luk India
with Schaeffler India (erstwhile FAG Bearings) in an all share deal. This resulted in one
Schaeffler entity within the country. Consequently, Schaeffler AG‘s stake in Schaeffler
India went up from 51.33% to 74.13%.

Swap ratio for INA Bearings: For every 65 shares of INA Bearings India Private
Limited, Schaeffler India issued 10 shares to the shareholders i.e., promoter. Issuance:
8.21mn Shares of Schaeffler India to INA Promoters
Swap ratio for LuK India: For every 35 shares of LuK India, 10 shares of Schaeffler
India Limited were issued to the promoters.
Issuance: 6.428mn Shares of Schaeffler India to LuK Promoters
Rationale behind the merger: The amalgamation was meant to reduce the
structural complexity in India and create one strong Schaeffler entity in India. This put
the Schaeffler in the leadership position in the domestic Bearing market.
The merger greatly benefitted the product mix and solutions offered by Schaeffler in
India, especially in the automotive segment and brought in cost synergies. Both INA
and LuK had a complementary product mix, which could be bundled together and
offered to the end users. As both INA and LuK provided primarily Automotive solutions,
the share of Automotive segment in the revenue mix has gone up to about 60%
(including After Market), compared to 31% before the merger. The company expects
synergies of bigger scale to play in, resulting additional revenue of Rs 3760-
4700mn and cost saving of Rs 400-500mn.
Synergies of scale in play post amalgamation

Exhibit 22: Synergies of Cost Exhibit 23: Synergy of Revenue

Exhibit 23: Scheme of Amalgamation of INA Bearings and LuK India with Schaeffler India
INA Bearings India: (Net-worth-

Rs1,992mn, Revenue: Rs 10,418mn,
100%
Employees-663)
Products: Needle/Linear Bearings, Engine,
Transmission and Chassis Precision
Components for Automotive and Industrial
applications
Manufacturing facility: Talegaon, Pune

EBITDA Margin:14%
FAG Bearings: (Net-worth INR
23,252 Mn, Rs 35,694mn)
Products: Comprehensive
solution for Automobile and
Schaeffler AG
LuK India: (Net-worth-Rs2,788mn, Rs

7,298mn Employees-757) Industries.
Schaeffeler Ag
100
Products: Clutch and transmission
Four Manufacturing Plant, 2
% components and systems for Automotive
Merger
R&D Facility, 8 Sales Offices,
applications
29,000 Retail network and 320
Manufacturing facility : Hosur, Tamil Nadu Distributors
EBITDA Margin: 17.3%
FAG Bearings: (Net-worth- Rs14,525mn,

Revenue-Rs 18,822mn, Employees- 1525)
Products: Ball and Roller bearings of all types
51.33%
for Industrial and Automotive application.
Manufacturing plant: Maneja and Savli in
Gujarat
EBITDA margin: 16.3%

74.13%
Exhibit 24: Change in Revenue Mix post Scheme of Amalgamation and LuK India with Schaeffler India (erstwhile FAG)
Segments FAG Pre Amalgamation INA LuK FAG Post Amalgamation
Passenger Cars 11% 59% 24% 26.8%
2W 12% 21% 11.8%
Tractors 4% - 19% 6.0%
CV 2% 6% 25% 7.8%
Auto After Market 2% 2% 32% 7.7%
Total Automobile 31% 88% 100% 60.0%
Wind Energy 7% - - 3.0%
Railway 6% - - 3.0%
Industrial OEMs Ex-Wind & Railway 30% 8% - 20.4%
Industrial After Market 26% 4% - 13.6%
Total Industrial 69% 12% - 40.0%
Total Revenue 100% 100% 100% 100%
Higher dependence on the domestic Automobile space a short-term headwind,

Schaeffler India’s dependence on though a key beneficiary of recovery in the domestic automobile demand
automobile has declined from
60% in CY17 to 43% in CY19, Schaeffler India, after amalgamation of INA and LuK is now the leader in the domestic
given muted automobile demand Bearing market. However, the Company has the highest dependence on the
and robust growth in other automobile (43% of revenue) among the top Bearing companies.
segments like wind and railway.

Exhibit 25: Contribution of Automobile to Key Bearing companies

Timken India 25%
SKF India 37%
Although the recent demand surge from the Railways and Wind has reduced its
dependence on Automobile sector and Automobile segment‘s contribution to revenue
has declined from ~60% post amalgamation to 43% in CY19.
Schaeffler India has a wide range of products for the Automobile segment ranging from
Bearings to Engine and Chassis Components like Valve Train Components, Variable
Camshaft Timer, Mechatronic, Clutch Assemblies. Acquisition of Luk and INA has
greatly enriched the product offering of Schaeffler India for Automobiles. With strong
research focus, the Company is well prepared to capitalize on the premiumisation,
change in emission norms and penetration of EVs. The company already offers
Drive Assemblies for Hybrid and Electric Vehicles.
Within the Automobile segment, the company is well diversified across the
Schaeffler India’s automotive different sub-segments like PVs, 2W, LCV, MHCVs, Tractors and Auto After
product offering is diversified and Market.
Engine, Transmission and Chassis
Exhibit 26: Diversified Automobile Revenue of Schaeffler India (CY16)
components account for 30%, 50%
and 20% respectively.
12.9%
19.6% 44.6%
9.9%
13.0%
PV CV Tractors 2W Auto After Market

Exhibit 27: Broad and Synergetic Automobile Product Offering of Schaeffler India under three Brands
Within the Automotive segment, the company has a very diversified product
offering and Engine, Transmission and Chassis components account for 30%,
50% and 20% respectively.
Schaeffler is the world leader in the Wind Power segment and a dominant
player in the Railway business.
Wind Energy: Schaeffler group is the world leader in the Bearing and Mechanical
Wind energy offers a very large Power Transmission Components for the Wind Energy. Schaeffler India supplies
opportunity as India is being used Bearings for the Wind Turbines, the Gear Boxes as well as alternators. Wind Energy has
as an exports hub by all the
reported large capacity addition in India in the last decade. The Company had revenue
major Wind Turbine
of Rs 1362mn in CY16 about 7% of consolidated revenue (pre amalgamation). Wind
manufacturers
offers a very large opportunity as India is being used as an exports hub by all the Wind
manufacturers like Siemens Gamesa, GE, Vestas and Schaeffler India is the key
beneficiary.
Schaeffler India has launched innovative solutions for the Wind Power, e.g.,
Ceramic Casing Bearings for the Wind Turbines Alternators, which can insulate
it from lightening.
Both Wind and Railway business Railway: Schaeffler India is the second largest supplier to the Indian Railways and it
have grown in excess of 17% over has a market share of 22% in the domestic Railway business. Over the past three
the past three years.
years, the company has seen robust growth ~17% in the railways business
which now account for ~5% of the revenue, compared to 3% in CY16 (post
amalgamation basis).

The company supplies Tapered, Spherical and Cylindrical bearings as well as Axle Box
Housings and Adapters to Indian and North American Railways It has been a dominant
supplier, along with Timken India and SKF India. As modernization is picking up, Indian
Railway is replacing old coaches with high Speed Coaches, which has higher Content
per Wagon. This brings large opportunity all the bearing companies, including
Schaeffler India.
Schaeffler India has launched two key products for the Railways- TAROL
(Taper Roller Bearing) for the Wheel-side and TAROL Class K for high Load
Carrying capacity up to 32.5MT, keeping an eye on upcoming opportunity from
Dedicated Freight Corridor. Seeing a large revenue potential from Indian
railway, the company is in the process of localizing the production of TAROL.
Exhibit 28: Schaeffler India a dominant player in the domestic Railway

Business
19%
39%
22%
20%
Localization of the supply chain has gained steam in the domestic Bearing
Industry; Schaeffler India has achieved highest degree of localization
In the initial phase of the growth, the MNC Bearing companies capitalized on the
strong product portfolio of their parents. However, significant cost advantage in
localization of manufacturing led to a phase of higher localization both in term
manufacturing the final products and raw materials sourcing, especially high quality
steel and components. Localization has resulted in significant improvement in their
operating metrics in term of better margins.
Exhibit 29: Localization of finished Goods Manufacturing

Timken India 71.2%
SKF India 54.3%
Within top three MNC players, Schaeffler India has undertaken faster localization of
manufacturing of the finished goods. Further, the company has undertaken significant
effort and investment towards innovation and indigenization of new technologies.

Exhibit 30: Goss Margin varies between imported and

Exhibit 31: EBITDA Margin viz-a-viz Localization
manufactured goods
(%)
21.6%
54.7%
53.7%
48.3%
51.2%
49.1%
56.3%
49.3%
48.0%
19.4%
(%)
47.2%
47.0%
76.0% 25.0%
45.0%
44.7%
18.0%
17.7%
43.0%
17.3%
16.4%
16.2%
15.2%
15.0%
74.0%
14.8%
14.5%
20.0%
13.1%
26.9%
72.0%
11.0%
73.3%
68.3%
19.8%
70.0% 15.0%
17.2%
16.5%
67.5%
15.0%
15.0%
14.5%
14.2%
13.5%
74.0%
11.5%
70.5%
10.0%
74.0%
68.0%
69.7%
72.4%
10.0%
29.2%
68.9%
68.7%
67.3%
68.0%
2.3%
66.0%
72.0%
5.0%
64.0%
62.0% 0.0%
2020E
2021E
2022E
CY10
CY11
CY12
CY13
CY14
CY15
CY16
CY17
CY18
CY19
CY10
CY11
CY12
CY13
CY14
CY15
CY16
CY17
CY18
CY19
CY20E
CY21E
CY22E
Traded Goods Manufactured Goods
Localization EBITDA Margin
Localization has significant impact on the overall gross margin of the

company. Gross margin of Traded Goods and manufactured Goods varies
sharply at 15-20% and 50-60% respectively. However, higher localization of
manufacturing has resulted in short term decline in the asset turnover.
Innovation and Rising Content per car to drive growth
Schaeffler as a group has been the second most innovative group in Germany. The
group has received a massive 26,000 patent registration so far. Riding on a strong
innovation driven pedigree, Schaeffler India has established two R&D centres to
indigenize product development and innovation. The company has invested Rs1918mn
over the past 5 years in R&D and has 93 patent registration originating from India over
2017-19. Focus on R&D has kept the company agile to conform to the changing market
dynamics like transition of domestic automobile to BS 6 and advent of Hybrid and
Electric Vehicles etc. The Company has been able to increase Content per
Vehicle/Industry on account of evolution of domestic industry.
Exhibit 32: Innovation & Indigenization of technology and Production

Key Innovation and Indigenization of Product Development
Electric Vehicle: Low cost, high speed automatic transmission for two and three wheelers which will boost the battery operating
range by at least about 10%
Automobile BS VI: Advanced coating for bearings to reduce friction by 30-40%, which will see huge application in emission
norm change
Wind & Power: Development of current insulated bearings for the local market
Railway: Best-in-class, locally manufactured Tapered Roller Bearings (TAROL) having applications in Indian and North American
railways
Railway: Axle box housings and adapters for application in railways
Exhibit 33: Schaeffler India- Rising R&D Expenditure

(Rs mn)
700 599 582

600
477
500
400
300
200 121 139
100
0
CY15
CY16
CY17
CY18
CY19
R&D Expenses

Few Innovative Product Offerings by Schaeffler India
Exhibit 34: 48V Hybrid Drive Module Exhibit 35: Electric Wheel Hub Drive
Exhibit 37: Ceramic Coated Bearing Solution for Wind

Exhibit 36: EV Axle Drive
Generator
Exports a small contributor though holds promising outlook
Schaeffler India has seen a rapid growth in exports, albeit on a low base. Exports by
Exports have grown at Schaeffler India have grown at a CAGR of 23.8% over the past 10 years, compared to
staggering CAGR of 23.8% over 17.7% CAGR for its domestic sales over the same period. Exports are largely driven by
the past decade… its innovative product offering in the Industrial segment.
Exhibit 38: Schaeffler India’s Exports Trend

(Rs mn) (%)
6,000 57.3 70
60
5,000
50
4,000 31.7 32.1 40
28.1
19.3 30
3,000 15.0 12.5
10.5 20
2,000 0.8 1.7 -0.9 -1.7 10
0
1,000 -15.0
-10
0 -20
CY10
CY11
CY12
CY13
CY14
CY15
CY16
CY17
CY18
CY19
2020E
2021E
2022E

Exports accounts for 10.5% of its revenue. Schaeffler India has been investing in R&D to
indigenize the new technology, which can ramp-up the exports significantly going
forward. The exports of Schaeffler India have been limited to the Industrial segment
and it can leverage its low cost manufacturing footprint to ramp up its exports in other
areas like automobile as well.
Exhibit 39: Geographical Mix of Schaeffler India’s Revenue
10.5%
89.5%
Domestic Exports

Financial Overview
Strong Revenue Growth Will Be Driven By A Boost In Economic Activity,

Gradual Revival In Automobile Demand And Rising Exports
Domestic revenue and exports
Domestic Bearings industry has been riding on rapid growth in economic activity in
have seen17.8% and 17.6%
CAGR growth, respectively, India across sectors. Over the past few decades, India has witnessed large capacity
during CY10-FY20. addition in Cement, Oil & Gas, Power, Textile, Process and Metal industries. We have
also seen robust growth in domestic automobile production, driven by strong demand
— domestic and international. However, sluggish economy, subdued capex cycle and
decline in automotive sales over the last two years have impacted the demand for
bearings. And COVID-19 only aggravated the situation. Despite a sharp slowdown in
the domestic in CY19 in the Automobile segment, the company has been able to show
relatively smaller fall in revenue on account good growth reported by Industrial After
Market, Automobile After market, Wind and Railway.
Going ahead, gradual recovery in economic activity, investment revival and pick-up in
automotive sales will boost demand for bearings. Schaeffler India being the leader in
the domestic Automobile segment, given a synergetic product portfolio, premiumisation
and rising content per car, will be key beneficiary of the demand recovery. Although
LCV has seen sharpest rise in the Bearings Content per Vehicle to ~110-120,
MHCV is yet to show the rise, which can aid the growth of Schaeffler’s
Automobile business going forward.
Exhibit 40: Revenue Trend

(Rs mn) (%)
Amalgamation of
50,000 LuK & INA 102.2 120
45,000 100
40,000
80
35,000
30,000 60
30.4
25,000 16.4 40
10.6 12.8 16.0 15.2 12.2
20,000 5.7 20
25.8 -3.1 -4.4
15,000
-22.7 0
10,000
5,000 -20
0 -40
CY10
CY11
CY12
CY13
CY14
CY15
CY16
CY17
CY18
CY19
CY20E
CY21E
CY22E
Exhibit 41: 10 Yr. CAGR

Domestic Business 17.7%
Exports 23.8%
Consolidated Revenue 18.2%
Exhibit 42: Exports trend Exhibit 43: Revenue Mix

(Rs mn) (%)
10.5%
6,000 70
60
5,000
57.3 50
31.7 32.1
4,000 28.1 40
19.3 30
3,000 15.0 12.5
10.5 20
2,000 0.8 1.7 -0.9 -1.7 10
-15.0 0 89.5%
1,000
-10
0 -20
CY10
CY11
CY12
CY13
CY14
CY15
CY16
CY17
CY18
CY19
2020E
2021E
2022E
Domestic Exports

We conservatively forecast its revenue to regain its 2019 level by CY22E (CY19-
22E CAGR: -0.03%).
Schaeffler India logged strong revenue CAGR of 17% over CY10-19, primarily led by
amalgamation of INA Bearing and LuK India in CY17. The revenue growth during
CY10-14 was tepid at 12% while the same jumped to 26% during CY15-19. We expect
Schaeffler India revenue to look up CY21 onwards with double-digit growth over CY21-
23E. On profitability front, lower utilization on account sharp downturn in the domestic
automobile demand impacted the margin during CY19 and CY20 of over 500 bps.
Aided by higher utilization and increased localization, we believe, the company will see
margin improvement over the next two years attaining its previous high margin of
16.4% by CY22.
Exhibit 44: EBITDA margin Trend Exhibit 45: Localization Trend

(Rs mn) (%)
(%)
8,000 21.6 25 74.0% 74.0%
73.3%
19.4 72.4% 72.0%
7,000 18.0 17.7 17.3 16.2
15.2 16.4 20 70.5%
6,000 14.8 14.5 15.0 69.7%
5,000 13.1 68.9% 68.7%
11.0 15 68.3% 68.0%
4,000 67.5% 67.3%
3,000 10
2,000 5
1,000
0 0
CY10
CY11
CY12
CY13
CY14
CY15
CY16
CY17
CY18
CY19
CY20E
CY21E
CY22E
CY20E
CY21E
CY22E
CY10
CY11
CY12
CY13
CY14
CY15
CY16
CY17
CY18
CY19
EBITDA EBITDA Margin Localization
Unlevered Balance Sheet and significant Cash and Investment
The company has added significant capacity over the past decade and its installed
capacity for bearing increased over eight-fold in the last decade from 50mn units in
CY10 to 438mn units by the end of CY19. Despite significant capacity addition,
Schaeffler India has maintained zero gross debt over most of the last ten years except
in CY17 and CY18 (gross debt in CY17 and CY18 stood at Rs 694mn and Rs 577mn
respectively). The Company has generated cumulative Operating Cash Flow and Free
Cash Flow of Rs 21,529mn and Rs 8,903mn respectively over the past decade. With
annual capex plan of ~Rs2.5 Bn over the next two years, the Company will generate
robust Free Cash Flow of Rs 8,887mn over the next three years. The company had
Cash and Investment (net of debt) of Rs 8,354mn by the end of December 31, 2019.
Exhibit 46: Net Debt & Net Debt to Equity
(Rs mn) (x)

CY20E
CY21E
CY22E
CY10
CY11
CY12
CY13
CY14
CY15
CY16
CY17
CY18
CY19
0 0
-2,000 0
-4,000 -0.2 -0.2
-0.3 0
-0.3 -0.3
-6,000 -0.3 -0.3
-0.4 -0.4 0
-0.4
-8,000 -0.3
-0.4 0
-10,000 -0.5
-12,000 -1
Net Debt Net D/E (x)
-14,000 -1
Forecasting 4.2% Earnings CAGR over the next three years
Aided by strong double-digit revenue growth starting CY21, we expect its earnings will
grow at much higher pace over CY21 and CY22 led by higher margins led by strong
operating leverage.

Exhibit 47: Earnings Trend

(Rs mn) (%)
4,500 85.4 83.4 100

4,000 61.2 80
3,500 60
3,000 25.5 29.2 24.3
22.1 40
2,500 44.8 8.1
20
2,000 -9.5 -12.4
-23.5 0
1,500
1,000 -20
-50.4
500 -40
0 -60
CY10
CY11
CY12
CY13
CY14
CY15
CY16
CY17
CY18
CY19
CY20E
CY21E
CY22E
PAT Growth y-o-y
Superior product portfolio and robust business model accrue superior return
ratios, Asset turnover hit because of aggressive capacity addition and
underperformance of automotive segment
Thanks to its diverse product offering, ranging from Bearings to Chassis, Transmission
and Engine Components, catering to broad spectrum of industries, the company logged
strong profitable growth and enjoyed higher return ratios, through CY10-18. However,
slowdown in the automobile and Industrial sectors and amalgamation of INA Bearing
and LuK India has significantly impacted the financial performance leading to sharp
contraction in return ratios over the last two years. RoCE declined from 28.1% in CY17
to 16.8% in CY19, which will further go down significantly in CY20E due to COVD
related shutdown. We feel that the company will see gradual recovery in the return
ratios thereafter. However, the company has Rs 8354mn of Cash and short term
Investments, which will go up to Rs 12480mn in CY22E, keeping a tab on RoCE.
However, RoIC to sharply improve from the low of 7.6% in CY20 to 17.8% and 21.9%
in CY21E and CY22E respectively.
Exhibit 48: Return Ratio Trend Exhibit 49: Fixed Asset Turnover
(%) (x) 7.1
35.3 6.8 6.5
32.3 28.1 5.4
27.0 25.5 4.8
23.5 23.1 4.6 4.4 4.5
23.5 4.1 3.9
19.8 18.1 19.7 16.8 3.5 3.5
14.8 14.1 3.1
22.9 11.7
20.4
16.4 16.7 6.1
13.0 14.6 13.0
10.8 12.5
6.1
CY20E
CY21E
CY22E
CY10
CY11
CY12
CY13
CY14
CY15
CY16
CY17
CY18
CY19
CY20E
CY21E
CY22E
CY10
CY11
CY12
CY13
CY14
CY15
CY16
CY17
CY18
CY19

Exhibit 50: RoIC Trend

(%)
58.0 58.7
29.9 30.0
27.1 24.4
21.5 21.3 21.9
18.0 17.6 17.8
7.6
CY10
CY11
CY12
CY13
CY14
CY15
CY16
CY17
CY18
CY19
CY20
CY21
CY22
E
E
Exhibit 51: 2QCY20 Quarterly financial performance

Rs Mn 2QCY19 3QCY19 4QCY19 1QCY20 2QCY20 % yoy % qoq CY18 CY19 % yoy
Net sales 11167 10352 10365 9285 4389 -60.7 -52.7 45615 43606 -4.4
Stock adjustment -523 251 1449 -725 382 -173.0 -152.6 -2299 158 -106.9
Purchase of finished goods 2748 2313 1395 2367 1430 -48.0 -39.6 12859 10030 -22.0
Employee cost 915 891 803 928 836 -8.7 -9.9 3179 3452 8.6
Other expenditure 1768 1507 1466 1392 1001 -43.4 -28.1 6305 6323 0.3
EBITDA 1594 1428 1470 1373 -198 -112.4 -114.4 7396 6336 -14.3
add: Other income 125 129 207 182 140 12.4 -22.9 908 632 -30.4
Depreciation 385 400 425 444 499 29.7 12.3 1485 1587 6.9
Interest 8 4 11 9 9 17.9 -2.1 70 35 -50.7
Exceptional items 0 0 0 0 0 - - -432 -3 -99.2
Profit before tax 1326 1153 1241 1101 -566 -142.7 -151.4 6317 5343 -15.4
Provision for taxation 501 210 396 317 -142 -128.3 -144.6 2119 1666 -21.4
PAT after Minority Interest 825 944 846 784 -425 -151.5 -154.2 4198 3676 -12.4
Equity Capital 313 313 313 313 313 166 313
EPS (Reported) 26.4 30.2 27.0 25.1 -13.6 134.3 117.6
EBIDTA (%) 14.3 13.8 14.2 14.8 -4.5 (1878bp) (1930bp) 16.2 14.5 (169bp)
PAT (%) 7.4 9.1 8.2 8.4 -9.7 (1706bp) (1811bp) 9.2 8.4 (77bp)
Tax / PBT (%) 37.8 18.2 31.9 28.8 25.0 (1277bp) (381bp) 33.5 31.2 (235bp)
Gross Margin (%) 38.3 37.0 36.1 39.8 37.3 (97bp) (244bp) 37.0 36.9 (6bp)
Raw Material / Net Sales (%) 61.7 63.0 63.9 60.2 62.7 97bp 244bp 63.0 63.1 6bp
Other expenditure / Net Sales (%) 15.8 14.6 14.1 15.0 22.8 697bp 781bp 13.8 14.5 68bp
 COVID-19 led shutdown resulted in significant slump in the economic activities

causing Schaeffler India reporting a sharp fall of 60.7% YoY in revenue to Rs
4389mn during Apr-June quarter.
 Production shut resulted in higher sales of traded goods than usual, leading to a
97bps YoY fall in the gross margin to 37.3%.
 However, led by significant cost cutting measures, the company capped EBITDA loss
to Rs 198mn during the quarter. The company reported a net loss of Rs 425mn
during the quarter.

Exhibit 52: Financial Snapshot

CAGR
Particulars (Rs mn) CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18 CY19
CY14-19 CY09-19
Sales 8,187 10,486 13,086 14,467 14,024 16,322 17,244 19,452 39,331 45,615 43,606 21.7% 18.2%
EBIDTA 1,242 1,887 2,540 2,204 1,836 2,417 3,053 4,198 6,821 7,396 6,336 21.3% 17.7%
PAT 655 1,215 1,760 1,592 1,218 1,529 1,975 3,183 3,885 4,198 3,676 19.2% 18.8%
Cash Flow from Operations 1,634 1,320 808 1,371 1,621 1,174 1,819 1,928 4,010 2,382 5,098 34.1% 12.1%
Cash Flow from Investing -444 -74 -1,244 -1,721 -519 -1,954 -2,221 -1,387 -3,050 -1,838 -3,658 13.4% 23.5%
Cash Flow from Financing -94 -96 -110 -206 -104 -126 -172 -218 -882 -522 -1,706 68.4% 33.6%
Equity 166 166 166 166 166 166 166 166 166 313 313 13.5% 6.5%
Total Net Worth 4,617 5,735 7,300 8,795 9,896 11,075 13,062 14,752 23,252 27,061 29,622 21.7% 20.4%
Gross Debt 0 0 0 0 0 0 0 0 694 577 0 N.A. N.A.
Gross Block 4,132 4,190 4,752 6,013 7,420 7,394 7,854 4,502 9,429 10,777 14,000 13.6% 13.0%
Cash & Current Investments 1,731 2,880 2,334 1,948 2,377 3,295 4,704 6,406 8,938 8,476 8,354 20.5% 17.0%
Key Ratios
EPS 39.4 73.1 105.9 95.8 73.3 92.0 118.8 117.4 124.3 134.3 117.6
ROE% 14.2 23.5 27.0 19.8 13.0 14.6 16.4 22.9 20.4 16.7 13.0
ROCE% 22.3 32.3 35.3 23.5 14.8 18.1 19.7 25.5 28.1 23.1 16.8
Net Debt Equity -0.4 -0.5 -0.3 -0.2 -0.2 -0.3 -0.4 -0.4 -0.4 -0.3 -0.3
Gross Asset Turn (x) 1.1 1.2 1.1 1.1 1.6 1.3 1.2 0.9 1.1 1.1 1.1
Inventory days 46 45 45 36 44 43 47 51 56 73 60
Receivable days 50 46 60 64 76 65 70 61 59 60 53
Payable days 56 62 49 45 63 48 51 51 55 63 42
WC Days 40 29 56 55 57 59 66 62 60 70 71
Dividend Payout % 11.4 6.8 9.4 5.2 8.2 8.2 8.4 6.2 7.3 22.3 29.8
Cost Matrix
RM/Sales% 61.8 58.4 57.9 62.7 64.0 61.1 57.5 55.7 60.6 63.0 63.1
Other Exp/Sales% 15.2 16.0 15.0 14.2 14.4 15.6 17.2 15.1 14.5 13.8 14.5
EBITDAM % 15.2 18.0 19.4 15.2 13.1 14.8 17.7 21.6 17.3 16.2 14.5
PATM % 8.0 11.6 13.4 11.0 8.7 9.4 11.5 16.4 9.9 9.2 8.4
# Due to Amalgamation of INA Bearings India Private Limited and LuK India Private Limited

Last two years have been tough for Schaeffler India led by general economic and
automotive slow down and under-utilisation of the incremental capacities that have
come in due to amalgamation of INA Bearings India Private Limited and LuK India
Private Limited. Nevertheless, the company‘s large scale, diversified and rich product
offering ranging from Bearings to Engine, Chassis and Transmission components to
Mechtronics both for the automobile as well as industrial applications, and thrust on
innovation and new product development augurs well for the future growth. The
Company‘s business consolidation drive over the last three years will start to pay-off the
economy starts reviving from CY21 onwards.
The stock has historically traded at average one-year forward PER of 29.6 for ten years
and 39.6 for five years.
At the CMP of Rs 3700, Schaeffler India trades at a P/E of 63.4x, 34.6x and 27.8x its
CY20E, CY21E and CY22E EEPS respectively. With strong balance sheet, healthy return
ratios and long-term growth visibility, Schaeffler India remains a strong play on the
Indian engineering space. We initiate coverage on Schaeffler India with BUY rating and
target price of Rs 4388 (33x CY22E EPS).
Exhibit 53: 5 years PE trend (1yr forward PE)
10000
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
01-Jan-16 01-Jan-17 01-Jan-18 01-Jan-19 01-Jan-20

Key Risks
Significant downturn in the economic activities: Demand of bearing is heavily

dependent on the economic activities and slump in the economic activities can severely
dampen the demand of bearings. Schaeffler India, too will be impacted in case of
sharp downturn in the economic activities.
Sharp fluctuation in the input price: Although it operates at significantly higher

gross margin, a significant fluctuation in the Steel prices can severely impact the
margin either way.
Sharp Fluctuation in foreign exchange: 10.5% of Schaeffler India‘s revenue comes

from exports, while import of Raw Materials, Components and finished Goods account
for ~37% of revenue. Further, royalty fee accounts for a significant 1.4% of revenue.
Consequently, a large part of import does not have a natural hedge, exposing the
company to a significant forex risk.

Company Overview
Schaeffler India is a subsidiary of €14.4bn Schaeffler AG, a Germany based

Engineering giant. Schaeffler AG was established in 1946 and is a global supplier to
Automotive and Industrial and Engineering Components ranging from Engine Chassis
and Transmission Components to Bearings, Mechatronic Components.
The Schaeffler group’s global footprint consists of 70 manufacturing facilities,

presence at over 170 locations worldwide, 20 technology and R&D centers and a
workforce of 87,700 people. The Group owns majority stake in Schaeffler India. With
effect from 2017, INA Bearings India Private Limited and LuK India Private Limited
merged with Schaeffler India Limited (erstwhile FAG Bearings India Limited). The
objective of the merger was to consolidate the Group‘s India businesses and optimize
the potential of the merged entity. Schaeffler AG, the Group‘s flagship company, is a
publicly listed stock corporation incorporated under the German law, with its registered
office in Herzogenaurach.
Schaeffler India was incorporated as Norma Bearings in 1962 and was acquired by
FAG Bearings Germany in 1969 from Norma Hoffman. The company was an early
entrant of the Railway business and it established its Railway facility back in 1975. The
company expanded its offering to diverse fields like Automotive, Wind, Off Highway,
Process Industry, Textile, Materials etc. In 2017, the Schaeffler group merged all its
three Indian entities FAG, Luk and INA Bearing into one entity and rechristened it as
Schaeffler India. Schaeffler India employs 2,846 people across its sites and
offices.
Exhibit 54: Schaeffler India- Employee Strength
3500
2936 2904 2846
3000
2500
2000 1560 1525
1500
1000
500
0
CY15 CY16 CY17 CY18 CY19
Exhibit 55: Schaeffler India: A snapshot

Particulars
Manufacturing Facility 4
R&D Centre 2
Sales Office 8
Retail Network 29,000+
Distribution Channel partners 320+
Schaeffler India operates in India through four brands- FAG, LuK, INA and
Ruville. Ruville is an aftermarket brand.

Exhibit 56: Schaeffler India’s Brand Portfolio
The Automobile, Industrial and Exports accounted for 43%, 47% and 10.5% of the
consolidated respectively in 2019. Further, Automobile and Industrial after-Market
accounted for 7.7% and 15% of the total revenue, making its revenue stream
significantly de-risked.
Exhibit 57: Revenue Mix Exhibit 58: Geography-wise Revenue Mix
10% 10.5%
15.0% 35.2%
43%
47%
7.7%
31.6%
Automobile OEMs Automobile After Market
Automobile Industry Exports Industrial OEMs Indsutrial After Market
Exports
Product Mix:
Schaeffler India is present in two broad categories- Bearings and Engine, Chassis and
Transmission Components, which accounted for 60% and 40% of the consolidated
revenue respectively.
Exhibit 59: Product Mix
40%
60%
Bearings Engine & Transmission Solution

Exhibit 60: Segment wise Product Offering and Applications-Auto OEMs

Business Segment Served Industries Products
 Chassis components and systems
Commercial Vehicles
 Clutches and transmission systems
Automotive OEMs Passenger Vehicles
 Engine components and precision products
Tractors
 Drives for hybrid and Electric Vehicles (EVs)
Applications
Exhibit 61: Segment wise Product Offering and Applications-Industrial

Business Segment Served Industries Products Range
Railways, Wind Energy, Off- Rolling and plain bearings, Linear guidance system
Highways, Industrial Automation Maintenance products, Maintenance services,
Industrial
(machine Tools & Textile), Mechatronics, Digital services
Raw Materials, Power Transmission
Applications

Exhibit 62: Segment wise Product Offering and Applications-Auto Aftermarket

Business Segment Served Industries Products Range
Replacement Parts –Transmission, Engine Components & Chassis
Components
Commercial Vehicles Intelligent Solutions- Repair and Service Points via platform such as
Auto Aftermarket Passenger Vehicles REPXPERT
Tractors
Touch Points- Repair Garages, Fleet Workshops, Multi-brand Garages,
and Retail Market
Exhibit 63: Automotive Product Line

Sub Segment Product Range
For Passenger Vehicles:
Standard Valve Train, Variable Valve Train, Camshaft Phasing Systems, Chain Drives, Belt Drives, Thermal
Management, Engine Shafts supported by rolling bearings
Engine Systems
For Commercial Vehicles:
Valve Train, Camshaft Phasing Systems, Belt Drives Water Pump Bearings, Exhaust/Air Management
Systems and Rolling Bearings in Engine Applications.
Bearings for Transmissions and Rear Axle Drives, Light-weight Differential, Clutch/Gearshift
System/Synchronization, Solutions for Double Clutch and Automated Transmissions, Torsion Dampers
Transmission
and Solutions for Automated Transmissions
Systems
For Commercial Vehicles
Main Bearings, Needle Roller Bearings, Clutch Release Systems, Gearshift Systems, Clutches, Torsional
Vibration Dampers, Hydraulic Torque Converters and Components for Auxiliary Drives.
Bearing for the Chassis, Bearings and components for the Steering Column, Wheel Bearings,
Electromagnetic Actuators and Space Drive.
Chassis Systems
For Commercial Vehicles:
Wheel Bearing Applications, Pinion and Differential Bearings, Kingpin Bearing Support, Components for
Brake Applications, Components for Drive Shafts, Auxiliary Drives and Interior Equipment.
Offers the full bandwidth of electrification options- from 48-Volt hybrids and plug-in hybrids to drives for
Hybrid and Electric
purely electric vehicles. Components and systems for hybrid modules, entry level hybridization, electric axle
Systems
drives and electric wheel hub drives.
For Passenger Cars Transmission products:

Clutch Systems, Flywheel, Release Systems and Transmissions. The Engine products include Front End
Auxiliary Drive, Timing Drive, Valve Train and Cooling Systems. The Chassis Products include Wheel Drives,
Axle and Wheel Suspension, Stabilizers and Suspensions, Steering parts and Engine and Transmission
Mounts.
After-market
For the Light Commercial Vehicles: quick repairs and the products offered are for Transmissions, Engine
and Chassis.
For Heavy Commercial Vehicles: solutions that extend service intervals and lower downtimes, which
increases vehicle utilization and lowers total cost of ownership. The solutions for Tractors offer Durability
and Efficiency with a long service life and high cost efficiency.

Exhibit 64: Product Line-Industrial

Industrial Cluster Product Range
For wind energy:
Rotor Shafts, Gearboxes, Generators and Wind tracking and Blade adjustment systems. They also
conduct Simulations, Calculations and Tests for their systems and products.
For hydro power:
Energy Bearing solutions and support to companies of every size as a development partner. They cater to
conventional hydro power as well as ocean energy (waves and ocean current turbines)
For the Solar power systems:
Varied range of rolling and plain bearings suitable for the tracking systems of solar power plants. These
bearings are used in both photovoltaic and solar thermal concentration plants.
Bearings for pulled cars and multiple units, Traction motors & gearbox bearings, axle-box bearings for
freight cars, axle-box bearings for passenger cars and locomotives, mechatronics among other bearing
Rail
supports. They also conduct testing, validation and reconditioning for bearings for its clients in the
freight, passenger traffic, high speed trains and locomotives space
Electric Motors:
Bearings for standard electric motors as well as highly specialized electric drives. The products supplied
include deep groove ball bearings, cylindrical roller bearings, angular contact ball bearings, spindle
bearings, axial self-aligning roller bearings, etc. They also provide designing and consulting services.
Fluid Hydraulic Systems:
These products are highly individualized and custom specific developments as they have to be extremely
Power Transmission
reliable and yet cost effective. Industrial Transmission:
Rolling bearings are an integral part in the constantly evolving power generation gearboxes.
Pneumatics:
Bundled applications for compressed air technology and thermal fluid technology: from compressors to
vacuum pumps to ventilators. Products here include high precision bearings for high speed machines,
custom specific special bearings with housing units and components along with rolling bearings.
Construction Machinery:
Rolling and Plain bearings products find applications in Mobile Cranes, Wheel Loaders, Vibrating Rollers,
Mining Trucks and other Special Construction Machinery. The bearings are supplied for travel drives,
slewing gearboxes, slewing bearings, cable sheave bearings, eccentric bearings and bearing
arrangements for pivotal joints.
Off-Road
Agriculture Machinery:
Applications are designed for Cultivation and Seeding technology, Tractors, Harvesters. Products include
Radial insert ball bearings and housing units, ball bearings, needle roller bearings, cylindrical roller
bearings, tapered roller bearings, track rollers-yoke type track rollers-stud type track rollers, spherical
plain bearings, spherical roller bearings.
Printing Machinery:
Industrial
Products include non-locating bearings, locating bearings, track rollers, oscillating bearings, linear
Automation
guidance systems, individualized solutions, direct drives.
The customer base includes all renowned manufacturers of aerospace engines, helicopters, turbo-pumps
and aerospace systems.
The company provides complete bearing systems for Trent 500 engine, BR 700 engine, Airbus
Aerospace Helicopters, Space Propulsion and the products include various jet engine bearing designs, helicopter
bearing, aerospace bearing and thin section bearings.
They also provide services like development and production of products and the performance testing of
bearing rig and pre-qualification rig testing as well as the diagnosis and repair of aerospace bearings.
Manufacturing Facilities:
Schaeffler India had two plants in Gujarat one in Savli and the other in Maneja.
However, the company‘s manufacturing footprints expanded to four on account of
amalgamation of two group entities- INA Bearings and LuK. The company has now four
plants, present in key Automobile hubs of India i.e., Pune and Hosur.
Exhibit 65: Manufacturing and Service Facilities

Units Location
Plant 1 INA-Pune – Talegaon
Plant 2 FAG-Vadodara – Savli
Plant 3 FAG-Vadodara – Maneja
Plant 4 LuK-Hosur

Further, the company has two R&D centres; one each in Hosur and Pune.
Year Events
1962 Incorporation of the company
1969 FAG Germany acquired shares from Norma Hoffman
1975 Expansion: Railway Bearing plant was established
1986 Name of the company changed to FAG Bearings India Limited
1992 Brand name changed from NORMA to FAG
JV between LuK and Rane for clutch systems in India
1997
Commissioned export-oriented unit for Cylindrical Roller Bearings
Commissioned India‘s first Wheel Bearing Plant at Vadodara
1999
Production of clutches for Tractors at LuK, Hosur
INA Plant set up at Pirangut, Pune
2001 FAG becomes a part of Schaeffler Group
Acquisition of Rane LuK to become LuK India
Production of HLA/RFF started at INA, Talegaon
2007 New INA Plant inaugurated at Talegaon, Pune. Introduced E1 Spherical Roller
Bearings
2011 Commissioned 3rd generation Wheel Bearing Plant at Vadodara
FAG Savli plant inaugurated with advanced Gen C production
2012 LuK: 2nd Plant extension
Production of hydraulic CRS at LuK, Hosur
2013 Production of OAP started at INA, Talegaon
2015 Schaeffler India – Schaeffler Technology Center
FAG Bearings India renamed as Schaeffler India Ltd
Announcement of merger of LuK, INA Bearing and FAG India erstwhile into one
2017
single entity
Commenced production of heavy clutches (Dia 395 and 430) at LuK, Hosur
Auditors
BSR & Co. LLP, Chartered Accountant
Credit Ratings
N.A.

Directors‘ Remuneration as 10.1% PBT:
Exhibit 66: Business evaluation matrix
Schaeffler
India

Exhibit 67: Key Management Personnel

Board of Directors
 A Mechanical Engineer by qualification.
 Has vast experience in the Automotive Industry.
Chairman &  A freelance consultant who advised on strategic matters to Indian automobile
Mr. Avinash Gandhi
Independent Director component manufacturers.
 At present, a member of supervisory Board of Ashok Minda Group and also a
Director General of India Republic of Korea Friendship Society.
 Started his professional career as a trainee banker at the Dresdner Bank and
Non - Independent, subsequently studied business administration and economics at the University of
Mr. Klaus Rosenfeld Non – Executive Muenster.
Director  He has over 20 years of Experience in Banking and Finance.
 He is currently CEO of Schaeffler Group.
 He is the CEO and Managing Director of Schaeffler in India. In addition, Mr.
Kadam is also responsible for Schaeffler‘s Industrial business in India.
 He has studied Mechanical Engineering at Bangalore University and later acquired
further qualification in business management, specializing in Marketing, Finance &
HR.
 He joined Schaeffler in 2018, as President – Industrial Business, a role he
continues to hold. Prior to Schaeffler, Mr. Kadam was the CEO of AGI Glaspac
Mr. Harsha Kadam Managing Director
(India). Before AGI Glaspac, he was with SKF India till December 2016 as Director,
Automotive Business and held several key leadership positions in the organization
across manufacturing and sales, for over 20 years.
 He has more than 25 years of experience in functions including Sales,
Manufacturing, Product Design and Development. Besides leading business
successfully, he has filed for several patents and won global awards for innovation
excellence in his professional stint.
 He is Director-Finance & CFO of Schaeffler India Limited. In his role, he is
responsible for the complete finance and controlling functions of the company.
 He is associated with the company since 1992 and has a vast experience of over
28 years in the field of controlling and finance management. He brings in rich
experience in the areas of controlling, budgeting, accounting, taxation, corporate
finance, reporting, treasury, risk management, internal controls and corporate
Director – Finance & affairs.
Mr. Satish Patel
CFO  He has played a crucial role in strategy development and execution. He is a key
member of the Executive Leadership Team of Schaeffler India. He has held various
incremental leadership positions during his long tenure with the company and has
been in the leadership role since over 12 years.
 Prior to joining Schaeffler, he had worked with Elecon group for two years.
 He is an Associate Member of the Institute of Cost Accountants of India and holds
a Master‘s degree in Commerce. He is based out of Vadodara
 He is a Mechanical Engineer from University of Mumbai and holds the TRIUM
Global Executive MBA degree from Stern School of Business, NYU; London School
of Economics and HEC Paris.
 He began his career as a product engineer with Maruti Suzuki and joined General
Motors where he worked in the areas of product engineering, supply chain and
purchase. Dharmesh Arora held key senior management and global leadership
positions at General Motors in India, Thailand, Mexico and USA in a career
Non-Executive, Non- spanning over two decades.
Mr. Dharmesh Arora  In 2012, he joined Schaeffler as the CEO India and President Automotive business.
Independent Director
Under his leadership, Schaeffler India has consolidated its position as a leading
supplier of high-quality components and systems for industrial and automotive
applications through three product brands – FAG, INA and LuK. He successfully led
the merger of 3 Indian entities to form one strong Schaeffler entity in India.
 Since October 2019 he has been Regional CEO Asia/Pacific for the Schaeffler
Group and is based in Singapore
 She has over 25 years of experience in business leadership, technology, consulting

and financial services industry. She has held various roles in technology companies
- global line-of-service leadership, CXO collaboration, P&L ownership, large
account management, business consulting and product development. She
Ms. Eranthi Sumithasri Independent Director
possesses multi-cultural experience of living and working in 11 countries including
Germany, India, USA, UK and The Netherlands.
 As a young consultant, she has also previously worked on a project for (INA)
Schaefﬂer.

 Has studied business administration at the AKAD University in Germany.

 Has around 38 years of experience in working in different countries and has
Mr. Jürgen Ziegler Non-Executive, Non-
experience in the fields of sales, logistics, project management, financial
Independent Director
controlling, strategic planning, business restructuring etc.
 Mr. Ziegler is currently Regional CEO-Europe, of Schaeffler Group.
 Holds a Bachelor‘s degree in Mechanical Engineering from BITS Pilani, a Master‘s
degree in Manufacturing Systems Engineering from Stanford University and an
MBA in Finance from Wharton School, University of Pennsylvania.
 He presently holds the position of Joint Managing Director of Lucas-TVS Limited
and Managing Director of India Nippon Electricals Limited.
Mr. Arvind Balaji Independent Director
 Prior to joining Lucas-TVS, he worked in the investment banking division of Bank of
America in the General Industrials group where he focused on helping automotive
companies in financing and M&A transactions. Mr. Balaji also worked at Bank of
America and Oracle Corporation and was President (2015-16) of the Automotive
Component Manufacturers Association (ACMA).
 Holds Master‘s Degree in Economics (Gold Medalist) from University of Lucknow.
 Has worked with State Bank of India (SBI) Group for over 38 years, holding top
Mrs. Renu Challu Independent Director management positions like DMD (Corporate Strategy and New Business) SBI, MD
State Bank of Hyderabad, President & Chief Operating Officer, SBI Capital Markets
Ltd and MD & CEO, SBI DFHI LTD.
 Holds a B.E. in Mechanical Engineering from Bucknell University, Pennsylvania,
Mr. Amit Kalyani Independent Director USA. He is also a Harvard Business School OPM graduate and a YPO member.
 He is the Deputy Managing Director at Bharat Forge Limited.

Financials (Rs mn)

Y/E (Mar) CY18 CY19 CY20E CY21E CY22E Y/E (Mar) CY18 CY19 CY20E CY21E CY22E
Net sales 45,615 43,606 33,702 38,838 43,572 PBT 6,317 5,343 2,436 4,469 5,555
Raw Materials Non-cash adjustments 880 1,157 1,919 2,265 2,534
15,877 17,466 12,605 14,820 16,767
Expenses Chg in working capital -2,528 231 1,944 -1,067 -994
Purch. of Traded Goods 12,859 10,030 9,329 9,243 9,629 Tax Paid -2,287 -1,633 -625 -1,137 -1,411
Operating expenses 6,305 6,323 5,190 5,826 6,536 Cashflow from operat. 2,382 5,098 5,674 4,529 5,684
Staff expenses 3,179 3,452 2,865 3,107 3,486 Capital expenditure -2,439 -3,199 -2,500 -2,250 -2,250
Total Expenditure 38,219 37,270 29,988 32,997 36,418 Change in investments -17 -1,030 7,195 - -
EBITDA 7,396 6,336 3,714 5,841 7,155 Other investing cashflow 617 571 0 0 0
Depreciation 1,485 1,587 1,892 2,243 2,517 Cashflow from invest. -1,838 -3,658 4,695 -2,250 -2,250
Operating profit 5,911 4,749 1,822 3,598 4,638 Issue of equity - - - - -
Other income 908 632 641 892 934 Issue/repay debt -112 -541 - - -
- - - - -
Exceptional items -432 -3 0 0 0 Loan Funds
Profit before tax 6,317 5,343 2,436 4,469 5,555 Dividends paid -340 -1,130 -1,319 -1,508 -1,696
Tax 2,119 1,666 613 1,125 1,398 Other financing cashflow - - - - -
Profit from discount.ops 0 0 0 0 0 Cashflow from finan. -522 -1,706 -1,346 -1,529 -1,713
Minority interest 0 0 0 0 0 Chg in cash & cash eq 22 -266 9,022 751 1,721
PAT 4,198 3,676 1,823 3,344 4,157 Open. cash & cash eq 1,403 1,425 1,159 10,182 10,932
EO Items 0 0 0 0 0 Clsg cash & cash eq 1,425 1,159 10,182 10,932 12,653
Reported Net profit 4,198 3,676 1,823 3,344 4,157 Free cash flow to firm -56 1,899 3,174 2,279 3,434
Share O/s mn 31 31 31 31 31
Adj. EPS Rs 134.3 117.6 58.3 107.0 133.0 Ratios
Y/E Mar CY18 CY19 CY20E CY21E CY22E
Balance Sheet PER SHARE
Y/E Mar CY18 CY19 CY20E CY21E CY22E 134.3 117.6 58.3 107.0 133.0
Adj. EPS Rs
APPLICATION OF FUNDS: CEPS Rs 181.8 168.4 118.8 178.7 213.5
Non-Current Assets 10,712 13,570 14,216 14,263 14,036
Book Value Rs 865.7 947.6 963.7 1022.4 1101.2
Fixed Assets 7,307 8,946 10,591 10,660 10,393
Cap. Work in progress 1,617 1,663 625 563 563 VALUATION
Goodwill 0 0 0 0 0 EV / Net Sales 2.4 2.5 3.1 2.7 2.4
Noncurrent investment 0 0 0 0 0 EV / EBITDA 14.6 16.9 28.4 17.9 14.4
Deferred tax assets 0 0 0 0 0 P / E Ratio 27.6 31.5 63.4 34.6 27.8
Long term loans & adv. 87 95 105 115 127
Other non-current asst 1,701 2,867 2,895 2,924 2,954 P / BV Ratio 4.3 3.9 3.8 3.6 3.4
Current Assets 33,689 29,841 21,425 23,769 26,980 GROWTH YOY%
Current investment 0 0 0 0 0 Sales Growth 16.0 -4.4 -22.7 15.2 12.2
Inventories 9,101 7,205 5,569 6,384 7,163 EBITDA Growth 8.4 -14.3 -41.4 57.3 22.5
Sundry debtors 7,513 6,319 4,884 5,639 6,327
Adj. Net Profit Growth 8.1 -12.4 -50.4 83.4 24.3
Cash and bank 1,425 1,159 10,182 10,932 12,653
Other bank balances 7,051 7,195 0 0 0 Gross Fixed Asset Growth 14.3 29.9 25.3 13.2 11.3
Short loans & adv. 43 78 86 95 104 PROFITABILITY
Others current assets 8,555 7,885 704 719 733 EBITDAM (%) 16.2 14.5 11.0 15.0 16.4
Total Assets 44,400 43,412 35,641 38,032 41,016 NPM (%) 9.2 8.4 5.4 8.6 9.5
Raw Material/Net Sales (%) 63.0 63.1 65.1 62.0 60.6
SOURCES OF FUNDS:
Share Capital 313 313 313 313 313 Int/PBIT (%) 1.2 0.7 1.5 0.6 0.4
Reserves 26,749 29,309 29,813 31,649 34,110 ROE (%) 16.7 13.0 6.1 10.8 12.5
Shareholders’ Funds 27,061 29,622 30,125 31,962 34,423 ROCE (%) 23.1 16.8 6.1 11.7 14.1
ROIC (%) 24.4 17.6 7.6 17.8 21.9
Non-Current Liab. 117 220 254 291 333
Deferred tax liability -325 -235 -247 -259 -272 TURNOVER
Other Long-term Liab. 10 34 37 41 45 Net Working Cycle 70 71 70 71 71
Long-term provisions 384 421 464 510 561 Debtors Velocity (Days) 60 53 53 53 53
Current Liab. & Prov. 10,170 6,376 5,262 5,778 6,260
Inventory (Days) 73 60 60 60 60
Short term borrowings 529 0 0 0 0
Trade payables 7,878 4,992 4,016 4,520 4,989 Creditors Velocity (Days) 63 42 43 42 42
Other current liabilities 1,613 1,198 1,078 1,089 1,100 Gross Asset Turnover 4.1 3.1 2.0 2.0 2.0
Short term provisions 151 186 168 169 171 Total Asset Turnover 1.3 1.2 0.9 1.1 1.1
Total Equity & Liab. 37,349 36,217 35,641 38,032 41,016 LIQUIDITY
Net working capital 15571 15112 5981 7059 8067
Gross Debt-Equity Ratio 0.0 0.0 0.0 0.0 0.0
Total Gross Debt 577 0 0 0 0
Total Net debt -7,899 -8,354 -10,182 -10,932 -12,653 Net Debt-Equity Ratio -0.3 -0.3 -0.3 -0.3 -0.4
Total capital employed 27,314 29,387 29,879 31,703 34,151 Interest Coverage 96.9 155.1 92.6 211.0 327.3
Current Ratio (x) 2.6 3.6 4.1 4.1 4.3
Quick ratio (x) 1.7 2.4 3.0 3.0 3.2
PAYOUT
Payout % 22.3 29.8 60.0 37.4 33.8
Dividend % 300.0 350.0 350.0 400.0 450.0
Yield % 0.8 0.9 0.9 1.1 1.2

Indian Bearings-Sector Update
DCB Bank Limited /4QFY14ResultUpdate

Recommendation rationale Sector rating
Buy: Potential upside of >+15% (absolute returns) Overweight: The sector is expected to outperform relative
Accumulate: >+5 to +15% to the Sensex.
Hold/Reduce: +5 to -5% Underweight: The sector is expected to underperform
Sell: < -5% relative to the Sensex.
Not Rated (NR): No investment opinion on the Neutral: The sector is expected to perform in line with
stock the Sensex.
Disclosures
This Report is published by Asian Markets Securities Private Limited (hereinafter referred to as ―AMSEC‖) for private circulation. AMSEC is a
registered Stock Broker with National Stock Exchange of India Limited and BSE Limited in cash and derivatives segments. It is also having
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different or contrary views on stocks and markets.
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Analyst Certification:I, Md Shaukat Ali, the research analysts and authors of this report, hereby certify that the views expressed in this
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Schaeffler UpdateCoverage
India Ltd. - Initiating
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Automobile Sector Report

Indian Bearings Industry

Engineering prowess at play

SKF India-Initiating Coverage with BUY, Target Price- Rs2084

Timken India-Initiating Coverage with BUY, Target Price-Rs1333: Timken India is

Exhibit 2: Peer Comparison: Key Ratios

Exhibit 3: One Year Forward PE Chart-Superior PE Multiple Commanded by Timken

Schaeffler Timkn SKF

Source: Company Reports, AMSEC Research

September 23, 2020 2

Sr. No Particulars Page No.

September 23, 2020 3

Bearing Companies at a glance

Exhibit 6: EBIDTAM% Exhibit 7:Net Earnings

Exhibit 8: ROCE % Exhibit 9: ROE%

SKF India Timken India Schaefller India

Source: Company, AMSEC Research

September 23, 2020 4

Exhibit12: Cumulative Bearing Industry Revenue Trend (For 3 Companies)

Source: Company, AMSEC Research

Macro View: Medium term headwind to persist, long-term opportunity intact

Bearing industry has strong correlation with automobiles, infrastructure and

September 23, 2020 5

2. Railways Investments: On strong capex binge

Exhibit 14: Growing Investment in Railways

Source: Company, AMSEC Research

3. India’s Infrastructure Investment, IIP, Core Infrastructure, and manufacturing

September 23, 2020 6

Source: Company, AMSEC Research

September 23, 2020 7

Indian Bearing Industry

Types of Anti-Friction Bearing:

Exhibit 19: Types of Anti-Friction Bearings

September 23, 2020 8

Exhibit 20: Types of Ball and Roller Bearing & Applications

They are easy to maintain and not as sensitive to operating conditions

Characterized by a contact angle. This means that forces are transferred

Work on the same principle as Self-aligning bearings with the exception

September 23, 2020 9

Ball Bearings Tapered Roller Bearings Cylindrical Roller Bearings

Spherical Roller Bearings Needle Roller Bearings

Source: Timken India Presentation, Reports, AMSEC Research

Exhibit 22: Load Carrying Capacity

Because of versatility of the Tapered Roller Bearing, it is gradually replacing the

September 23, 2020 10

Global Bearing Industry: A Primer

Exhibit 23: Global Bearing Market

Domestic Bearing Market Structure

September 23, 2020 11

Exhibit 26: Domestic Bearing Industry- Market share of leading players

Source: Company Reports, AMSEC Research

Exhibit 27: Key Players profile

Exhibit 28: India forms a small part of global Bearing demand

Source: Company Reports, AMSEC Research

September 23, 2020 12

Exhibit 29: Key comparable markets and Bearing penetration

Diverse application keeps the demand relatively stable…

Exhibit 30: Domestic Application Mix

Automobile Industrial Railway

Source: Company Reports, AMSEC Research

Exhibit 31: Application Mix of Top MNC Bearing Companies

September 23, 2020 13

Railway remains a key area of growth for domestic Bearing Companies…

Freight Wagon Passenger Wagon Locomotive