Manufacturing Localization In Pune And Ahmedabad Will Unlock Value

Key Takeaways

• Increased localization, segment expansion, and aftermarket services strengthen margins, drive growth, and enhance earnings stability amid India's infrastructure boom.
  
• Strategic innovation, targeted demerger, and sharper capital focus position the company to capture market share, improve efficiency, and unlock long-term value.
  
• Prolonged cost pressures, sector cyclicality, supply chain challenges, and shifting industry technology threaten margin expansion, revenue growth, and long-term earnings stability.

Catalysts

Engages in the provision of bearings, engineering services, and rotating equipment solutions in India and internationally.

• Localization of manufacturing via significant CapEx in Pune and Ahmedabad, expected to be fully realized by 2027-28, will reduce costs, improve customization for Indian clients, and enhance competitive pricing, likely boosting net margins and enabling sustainable top-line growth.
  
• Ongoing expansion into high-growth Industrial segments such as wind energy, railways (including high-speed and metro projects), and select heavy machinery leverages India's megaproject-driven infrastructure buildout, broadening the addressable market and supporting sustained revenue growth.
  
• Persistent double-digit growth in condition-monitoring, predictive maintenance, and reliability services-which are expected to become a larger share of revenues (aspiration: 20%+)-strengthens recurring, higher-margin aftermarket income and improves earnings stability.
  
• Strategic product innovation for the Indian market (fit-for-purpose engineering and value-selling through expanded distribution and service networks) positions SKF India to capture premium pricing and larger market share as domestic digitalization and automation accelerate, further supporting EBITDA margins and revenue growth.
  
• The demerger into independent Automotive and Industrial entities-along with focused capital allocation and management-should unlock operational efficiencies, allow each segment to adapt more quickly to industry trends, and potentially rerate valuation multiples once transitional costs subside, creating long-term EPS growth opportunities.

SKF India Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SKF India's revenue will grow by 10.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.5% today to 12.5% in 3 years time.
• Analysts expect earnings to reach ₹8.3 billion (and earnings per share of ₹168.4) by about August 2028, up from ₹5.3 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ₹7.5 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 43.7x on those 2028 earnings, up from 42.3x today. This future PE is greater than the current PE for the IN Machinery industry at 32.2x.
• Analysts expect the number of shares outstanding to decline by 0.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.54%, as per the Simply Wall St company report.

SKF India Future Earnings Per Share Growth

Risks

• Prolonged demerger process and associated recurring costs (such as IT investments, consulting, and asset transfers) are expected to compress margins for at least the next 1.5 years, limiting near-term earnings growth and potentially depressing net margins until after FY2027.
  
• Declining or flat growth in the Automotive segment-particularly in 2-wheelers, commercial vehicles, and exports-highlights the company's significant exposure to sector-specific cyclicality and industry transitions, which may hinder revenue stability and top-line growth over the long term.
  
• Greater localization of production and delayed capacity ramp-up, especially in Industrial bearings (with key expansions in Ahmedabad and Pune coming online only in FY2027–FY2028), constrains revenue growth and competitive positioning in the face of global supply chain uncertainties and rising local competition, potentially impacting long-term sales and asset efficiency.
  
• Ongoing margin pressure from a weaker rupee, less favorable sales mix (higher share of lower-margin traded goods), and inflation-linked cost increases (employee costs, depreciation, stamp duty, and environmental compliance) threaten sustained margin improvement and may erode profitability for several years.
  
• Expansion of maintenance-free, sealed-for-life, and advanced bearing technologies-along with OEMs increasingly optimizing for durability-could structurally reduce aftermarket and replacement-based revenue opportunities, limiting long-term recurring revenues and earnings stability.

Valuation

• The analysts have a consensus price target of ₹4952.889 for SKF India based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹66.6 billion, earnings will come to ₹8.3 billion, and it would be trading on a PE ratio of 43.7x, assuming you use a discount rate of 14.5%.
• Given the current share price of ₹4496.6, the analyst price target of ₹4952.89 is 9.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.