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SKF India Demerger

ICICIdirect Research 27 Dec 2024 DISCLAIMER

SKF India board has approved a scheme of arrangement to demerge its industrial business into a wholly owned subsidiary, creating two listed companies with mirror shareholding. The resulting company (SKF India Industrial) will have the industrial business and the exiting SKF India will have the automotive business

As part of the demerger, SKF India Industrial will issue 1 equity share for every share held in SKF India. The proposed transaction is subject to approvals from statutory and regulatory authorities

We believe that the scheme of demerging Industrial business will create better visibility and understanding of both the businesses

Industrial business, which contributes 63% to total revenues as of FY24, is witnessing relatively better growth led by strong double-digit growth in segments like railways, heavy industries & metals. On the margins front, company remains focused on increasing localisation in industrial business which will help in securing more orders and margin improvement

We believe that this demerger will unlock more value to shareholders considering the expected improvement in capital allocation and operational efficiency in the two separate businesses. Also, industrial businesses generally command better valuations

We have a target price of Rs 6060 on SKF India

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