SKF India Ltd Q4 FY2026 Concall Summary

Key Takeaways

• Margin reset, not structural damage: PBT fell 9% QoQ and 12.3% for the full year, driven by one-off gains reversal, mix shift toward lower-margin OEM, and demerger transition costs. Management expects normalization after a couple of quarters.
• OEM volume surge masks aftermarket pain: Full-year OEM growth of ~20% powered the top line, but aftermarket net sales declined on discounting to stay competitive, compressing the mix and gross margins.
• Capacity constraints force suboptimal sourcing: Automotive demand has outstripped in-house capacity, forcing SKF India to buy from SKF Industrial to fill orders. This inter-company trading adds no incremental revenue and dilutes margins.
• EV transition is a net pricing opportunity: EV bearings carry multifold pricing versus ICE, offsetting the volume reduction from fewer bearings per vehicle. Management disclosed ~50% share of business in 2-wheeler EVs.
• What to watch next quarter: Whether the price pass-through to OEMs closes the gross margin gap, how quickly inter-company trading unwinds, and if the promised margin recovery actually materializes.

Margin Compression: The Full Anatomy

• Q4 PBT drop: 9% decline driven by reversal of one-off Q3 gains in forex, FD interest, and employee cost provisions. These factors are expected to normalize going forward.
• Full-year PBT decline: 12.3% drop attributed to adverse mix (OEM-heavy growth), discounts in aftermarket, demerger-related costs, and comparability issues versus the prior year.
• Mix shift is the core structural drag: Nearly 20% full-year growth came from OEM, which carries significantly lower margins than aftermarket. Aftermarket net sales declined slightly as discounts were offered to hold volume flat.
• Gross margin pressure from raw materials: Raw material price increases have hit gross margins. Pass-through to OEMs and aftermarket has started but operates with a lag, creating near-term pain.
• Demerger transition costs: Management acknowledges EBITDA margin of 15.3% is slightly below the 16%+ previously seen for automotive, attributing the gap to transition costs, one-time costs, and capacity constraints.
• Cash flow conversion dipped: 85% conversion ratio was impacted by one-off demerger factors and is expected to smoothen.
• No royalty change post-demerger: Management confirmed there is no change in royalty or trademark fees from the pre-demerger settlement.

Sharma: "The statement which was made, that is true. We don't want to go back and we don't want to say, okay, that was not true. Everything is true, what we said. It's maybe a matter of time. It's just a transition time, which we are going through."

The Capacity & Inter-Company Trading Problem

• Demand has outrun capacity: After the GST cut, huge growth across all segments created a capacity shortage in automotive. SKF India cannot meet demand from its own plants alone.
• Trading from Industrial fills the gap: SKF India buys medium-sized DGBB and tapered roller bearings from SKF Industrial to supply automotive customers. This trading does not add incremental revenue since that revenue already exists at the group level.
• Margin impact of trading: Because Industrial is a "little higher margin business than automotive," per management, buying from Industrial and reselling into automotive compresses SKF India's standalone margins.
• Inter-company income provides partial offset: SKF India receives rent from Industrial (whose assets sit on SKF India's land) and certain service charges, effective from last October. Management declined to quantify these amounts, calling it too early.
• Two new Haridwar lines coming: Two new product lines will be added in Haridwar this year (FY26-27) to address capacity constraints.
• Trading will reduce over time: As the industrial business separates and automotive capacity expands, inter-company trading is expected to decline. Automotive otherwise remains highly localized.

EV Transition: Volume Risk, Pricing Offset

• Fewer bearings per vehicle in EVs: The number of bearings in an electric vehicle is lower than in an ICE engine. In 2-wheeler EVs specifically, SKF India's share of business is around 50%.
• Multifold pricing on EV-specific bearings: Motor bearings and insulated high-speed bearings for EVs carry multifold pricing versus ICE equivalents, offsetting the volume reduction. Chassis and wheel bearings remain common between ICE and EV.
• Performance requirements drive value: EV products demand much higher performance than ICE vehicles, creating an opportunity for premium-priced, higher-specification bearings.
• New business wins aligned to EV and regulatory shifts: Portfolio wins span 2-wheeler, 3-wheeler, passenger vehicles, and commercial vehicles, reflecting the market shift to EVs and OEM redesign for BS-VII and CAFE norms. Wins include electric motor bearings and wheel hub bearings for launches in FY26-27.

Kumar: "Certainly the performance of the electric vehicle products is much, much higher than the ICE vehicles... more positions are getting opened up in terms of, let's say, the motor bearings and also the electric insulation, high-speed bearings, which are multifold in terms of its pricing that will offset some of the losses that we might have in the revenue there."

Aftermarket & Distribution: Discounting to Defend Share

• Net sales declined despite flat volume: Distribution business net sales fell because discounts were offered to remain competitive. Volume was kept flat.
• Competitive intensity forced the discounting: Management's framing implies the aftermarket environment has become more price-competitive, requiring sacrifice of net realization to hold volume share.
• Price pass-through has begun: Aftermarket price hikes have started, which should help recover gross margins over time.
• OEM pass-through still in negotiation: Discussions with some OEM customers on raw material price pass-through are ongoing, with no resolution yet disclosed.

Strategic Priorities & Portfolio Direction

• Margin improvement is the number one priority: Management explicitly stated the focus is on margin improvement, not top-line growth, as the primary objective.
• Portfolio shift toward higher-value segments: Strategic intent to shift proportion toward passenger vehicles and commercial vehicles, and toward energy efficiency and emission norm-compliant products.
• White spaces identified: Unitized bearings for wheel applications in SCV and light commercial vehicles, plus new-generation transmissions for CAFE-3 norms with low-friction, low-weight portfolio.
• Amplify value selling: Management aims to deepen customer partnerships and shift the commercial conversation from price to value.
• Order book visibility extends to ~2030: The order book provides long-dated revenue visibility, anchored by new program wins across vehicle segments.

Kumar: "The focus would be on margin improvement."

Peer Comparison & the Standalone Auto Reality

• No listed pure-play automotive bearing peer exists: Management pushed back on comparisons to Schaeffler India and Timken, noting both are combined industrial-plus-automotive companies. Since SKF India is now a pure automotive play post-demerger, the comparison is "not apple-to-apple."
• Global auto margin benchmark is ~8% operating margin: Management stated that at a global level, 8% operating margin is considered very good for automotive including OEMs. In India, the plan is to remain in double digits.
• Industrial is higher margin than automotive: Contrary to an analyst's assumption, management asserted Industrial is a "little higher margin business than automotive," which explains why inter-company trading into automotive compresses margins.
• Pre-demerger margin promises stand: Management did not disown earlier communication suggesting 16-19% EBITDA margins for automotive, framing the current compression as a transition phase rather than a permanent reset.

Guidance & Commitments

Key Metrics