The board of directors of global Swedish company, SKF AB, has decided to separate its automotive business and also list it separately on Nasdaq Stockholm.
Given different business dynamics, end markets and success drivers for the industrial and automotive business segments, a separation will facilitate a clearer focus on distinct opportunities, to enhance customer value, accelerate growth as well as improve efficiency and competitiveness, it said in an exchange filing.
Benefits Of Separation
A separation would increase automotive business’ ability to adapt faster to transforming global automotive markets. This will also help allow the independent company make decisions and plan investments better.
A separate industrial company will have similar benefits as well. It is also the higher margin business for the company and this move will strengthen its long-term position as a global industrial focused technology leader.
Segmental Performance
The automotive division reported revenues of roughly 30 billion Swedish krona (roughly Rs 24,000 crore) for calendar year 2023. The current operating margin profile of the auto division was 5.6% in CY23.
The industrial segment is the major division of the company in terms of revenues and margins. For CY23, it reported revenues of roughly 73 billion Swedish Krona or approximately Rs 60,000 crore. Margins stood at 15.4%.
Timelines
The spin off is expected to be completed by calendar year 2025. The company is also planning to list the automotive business by first half of calendar year 2026.
The expected listing is going to happen on Nasdaq Stockholm.
Impact On SKF India
In a note, Nuvama mentioned that SKF AB wants to unlock value via creation of two independent focused and performance-driven companies. They believe SKF India shall benefit from the split of the parent company and be potential beneficiary of enhanced profitability on the automobile division.
While details and clarification from SKF India are awaited, a global separation of two divisions of automotive and industrial, respectively will also lead the same structure to be followed in India. It remains to be seen if the separated automotive division will also be listed in India.
Benefits of the separation outstrip the costs, according to Nuvama.
Analyst Views
Of the 12 analysts covering SKF India, nine maintain a 'buy' and three recommend a 'hold', according to Bloomberg data.
Fiscal 2023 was significantly impacted by global inflation, hence the company took significant pricing action, Nuvama said. Whereas in fiscal 2024, these actions have stabilised. That’s the reason margins from traded goods were higher in fiscal 2023, whereas fiscal 2024 relatively remained stable.
Nuvama has a target price of Rs 5,825 per share on the stock, an 8% potential upside.
Incred retained an ‘add’ rating on the stock despite a slow start in the first quarter of fiscal 2025. It has a target price of Rs 5,784 per share.
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