Buy SKF India, target price Rs 2890: ICICI Direct

ICICI Direct has buy call on SKF India with a target price of Rs 2890. The current market price of SKF India Ltd. is Rs 2230.35.

SKF India Ltd., incorporated in the year 1961, is a Mid Cap company (having a market cap of Rs 11007.12 Crore) operating in Auto Ancillaries sector.

Financials
For the quarter ended 31-12-2020, the company reported a Standalone Total Income of Rs 827.24 Crore, up 16.35 % from last quarter Total Income of Rs 711.02 Crore and up 14.19 % from last year same quarter Total Income of Rs 724.45 Crore. Company reported net profit after tax of Rs 128.11 Crore in latest quarter.

Investment Rationale
SKF registered a handsome beat for Q3FY21 across all parameters. The company posted highest ever profitability led by improvement in topline and highest ever gross margins. Revenue for the quarter came in at Rs 818.7 crore, up 15.7% YoY. Gross margins came in at 46.7%, an expansion of ~ 1230 bps. Consequent to the huge expansion in margins, SKF reported highest every bottom-line ending the quarter with a PAT of Rs 128.1 crore, up 150.3% YoY. Tax rate for the quarter was 26.2%. Taking cognisance from the recent auto numbers, we pencil in 17%, 24.5% & 25.9% revenue, EBIDTA & PAT CAGR for FY21E-23E, respectively. With improved outlook and enhance visibility, it assigns BUY rating to the stock valuing it at Rs 2890/share, 33x P/E on FY23E EPS.