Target: ₹3,328
CMP: ₹2,699.45
We upgrade our rating on Schaeffler India Limited (SIL) to Buy with an unchanged 12-month price target (PT) of ₹3,328, led by strong outlook for its automotive and industrial businesses, and comfortable valuations, post 18% correction in stock prices.
We remain positive on the company’s growth prospects, driven by a strong outlook for its automotive and industrial businesses and improving content per vehicle. The company has a strong R&D and technology bandwidth, which makes it well placed to garner benefit from the electrification and hybridisation trend in the domestic automobile sector.
The company has strong support from its parent company and has access to latest advanced technologies and relationships with global OEMs & Tier I suppliers. In addition, the company’s presence would benefit from the industrial and automobile aftermarket segments, strong growth traction in export markets, and better prospects for the bearings business.
We expect its earnings to report a 35.2 per cent CAGR during CY2021-CY2023.
The stock price has corrected 18 per cent from the peak in the last four months and thus, the valuation metrics are comfortable at P/E of 31.6x and EV/ EBITDA of 21.2x its CY2024E estimates. The premium valuations are justified, given the pedigree of its parent company and its capability to outperform industry and peers.