SKF India: Q4CY12 Profits Down By 20%

SKF India (SKF), a bearing, sensors and related components manufacturing major, has posted its Q4CY12 results. The company's topline declined by 13.78% in the quarter ended December 2012 on a YoY basis, mainly due to a decline in the sales of manufactured products in this period. Further, in the said quarter, SKFfs operating expenses reduced by 6.54% to 496.18 crore on a YoY basis. This was on account of the reduction in raw material consumption by 4.79% as well as an 8.67% drop in Other Expenses. The employee cost remained almost the same at Rs 46.66 crore in Q4CY12.

However, though the company has cut down its total expenses, its operating profits saw a huge 37.80% decline to Rs 32.43 crore. In addition, due to an increase in tax expenses by 37.56%, the company's net profit dipped by 20% to Rs 32.19 crore for the December 2012 quarter from Rs 40.36 crore in the December 2011 quarter.

The company's margins have also been impacted due to the decline in its operating profit and net profit. The operating profit margin declined by 242 points to 6.26%, while the net profit margin declined by 50 basis points to 6.21% in the quarter ended December 2012.

SKFfs poor results were majorly due to a decline in demand from both industrial and automotive sectors, along with uncertain economic growth. The company is trying to overcome these challenges through cost cutting measures and changes in its product mix. On the valuations front, SKF is trading at a TTM PE of 14.31x of its EPS of Rs 36. Considering the poor FY12 performance and declined margins, we recommend that investors wait till its performance improves in the coming future.