SKP Bearing Industries Ltd Q4 FY2026 Concall Summary

Key Takeaways

• Revenue nearly doubled, but margins collapsed: Standalone revenue grew ~99% YoY (half-yearly) and ~53% for FY26, yet Q4 standalone EBITDA margins fell to ~23% from ~40% in the September quarter, driven by one-time labour code provisions and a low-margin traded goods surge.
• Labour code and auditor provisions hit hard: New labour code requirements for gratuity, provident fund, salary liabilities and leave conversion, plus auditor-recommended double depreciation, compressed margins across both the roller division and the consolidated entity.
• Traded goods masked underlying margin profile: A new, low-margin traded goods opportunity added ~₹10 cr in Q4 purchases, pulling down the overall margin of the standard MS segment while inflating the ball plant's apparent profitability.
• French turnaround is progressing but incomplete: The acquired French subsidiary is still loss-making and has not reached breakeven, though premium customers have rejoined, order visibility is positive, and a key global customer with ~₹100 cr potential by FY30 has been secured.
• What to watch next quarter: Whether the ball plant utilization reaches the targeted 50-60%, whether the French entity loss narrows meaningfully, and whether standalone EBITDA margins bounce back from 23% toward their prior levels as management promises.

The Margin Collapse: Labour Code, Depreciation & Traded Goods

• Labour code provisions were the primary drag: New labour code implementation forced one-time provisions for gratuity, provident fund, salary liabilities and leave conversion, as required by auditors. These provisions will now continue on a routine basis but at a lower recurring level.
• Double depreciation compounded the hit: Auditors recommended double depreciation in H2 based on plant utilization levels, adding to the margin pressure in the roller division specifically. In H1, only single depreciation was booked.
• Roller division profitability fell in H2: Finance costs rose due to unsecured loans taken, and extra provisions for bonus and gratuity under the new labour law were booked. Management insists the underlying model and profitability ratio are unchanged and margins will bounce back to original levels.
• Traded goods surge distorted segment margins: Purchase of traded goods jumped from under ₹1 cr to ~₹10 cr in Q4, driven by a global opportunity linked to the existing product line. These goods carry "very small minimal margins" and pulled down the overall margin of the standard MS segment.
• Ball plant margins appeared higher due to traded goods booking: The traded product (low value-add, high volume) was booked through the ball division, inflating its apparent margins. The underlying margin profile remains unchanged: ball lower, roller higher.
• India business gross margin collapsed to 37%: An analyst flagged that gross margins fell from above 70% to 37%. Management could not immediately explain the drop and said they would analyse and revert.

Palshikar: "One of the main reason, which I am aware that is the reason is because of the new labour code. This particular things which is there are many provisions we have to make for gratuity, provident fund, the salary liabilities, many things."

The French Subsidiary: Slow Recovery, Big Potential

• Customer loss on acquisition: When the entity changed from Valette et Gaurand to SKP, many customers left due to legal entity change, credit concerns, and the perception that an Indian company taking over a European loss-making company would struggle. Revenue dropped from EUR 0.8-0.85 crore to roughly 25% of that level.
• Recovery is underway: Multiple top-tier customers have been added, some former customers' volumes have increased from 20% to 50-60% share of business, and some customers have returned. Cost improvement strategies are working.
• Key customer win anchors the outlook: A key customer has been secured with potential of ~₹100 crores by FY30, spanning multiple entities and plants globally. This single relationship could eventually rival the size of the entire company.
• Breakeven remains elusive: The subsidiary is still loss-making because it has not yet reached breakeven and has not received all customers back. Management is targeting a turnaround in FY27, at or near the breakeven threshold of EUR 0.36-0.37 crore revenue, but cannot quantify whether the loss reduction will be 50%, 25% or a full turnaround.
• France is helping the India entity: The French subsidiary is assisting the India entity with global clients, creating a two-way strategic benefit beyond its own P&L.

Palshikar: "We have been successful to match to some of the customers and the volumes have come back. Now, slowly, slowly we are attacking these all customers, trying to convince them. The visibility is there. I see a very positive outlook."

Capacity Expansion & Utilization

• Roller expansion driven by order visibility: Existing customers have increased their share and new global customers are coming with bigger volumes. Management expects a better estimate of the revenue impact in Q1 and Q2 FY27.
• Ball plant ramp-up taking longer than expected: Management acknowledged the timeline has slipped but insists the direction is right. The focus is on customers who are major importers of steel balls, with volume and customer visibility in place and commercials settled with many customers.
• Global customer strategy underpins capacity absorption: SKP is focused on global customers bringing huge global volumes, with exports from India even to China possible, an opportunity management calls "almost impossible" for an engineering good.

Palshikar: "We are focused on global customers and these global customers coming huge global volumes. So, it will be like from India being exported even to China. So, that is opportunity what we are knocking to, which is an almost impossible task, which engineering good being exported from India to China."

Traded Goods: A New, Low-Margin Overhang

• What triggered it: A global opportunity linked to the existing product line emerged in H2, materializing in Q3 and Q4. SKP is providing a basket offering to global customers, with minimal value addition on some items classified as traded goods.
• How it is classified: SKP classifies this as traded (not manufactured) because very little value addition is done. Management shows it separately for transparency, noting that many companies would club it into main revenue.
• Margin impact: The traded goods carry "very small minimal margins" and pulled down the overall margin of the standard MS segment. Management could not provide a specific margin percentage when asked.
• It is here to stay: Management confirmed this is a long-term, good business that will continue going forward at roughly the same quantum, around ₹10-12 crores annually.

Palshikar: "This is like a very small minimal margins. This is not the focus. The focus is the main core business."

Customer & Market Diversification

• Defence presence spans two decades: SKP has been in defence for more than 20 years, catering to artillery equipment, frontline movement equipment and defence equipment. Management declined to disclose specific applications on a public platform.
• Aerospace entry underway: The company was recently contacted by a major aerospace company and has been awarded something. Discussions on aerospace application bearings are ongoing, with standard product already being done.
• Customer concentration is manageable: No single customer exceeds 15% of revenue. The top 5-7 customers represent ~50-60%, and the top 10 represent ~65-70%.
• BIS/QCO implementation creates tailwind: Management sees a good market opportunity in view of advanced stages of BIS and QCO implementation, creating a positive market situation ahead.
• Export mix is small but growing: Standalone export revenue was 4% of total in FY26 vs 5% last year, but absolute export value increased because overall revenue grew. The strategy for growing exports is playing out well.

Margins: The Promise of a Bounce-Back

• Management calls all cost effects temporary: The margin decline is attributed entirely to one-time labour code provisions, auditor-recommended double depreciation, and the low-margin traded goods mix. Management insists there is no change in the sales pricing pattern or manufacturing cost structure.
• Roller business margins were 19% for the full year: Management says there is no reason for fluctuations beyond temporary higher costs, and margins will come back to original levels seen one year back.
• No estimate for ball plant reaching company-level margins: When asked when the ball plant would reach consolidated company margins, management gave no estimate.
• Transparency as a principle: SKP emphasizes clear segmentation and transparency to investors, even when it makes the numbers look worse in the short term.

Palshikar: "I can assure you one thing, all our models are very stable. No change in top, the sale pricing pattern or manufacturing cost is all already optimized. So, there is no change in effect on margins or anything."

Guidance & Commitments

Key Metrics