SKF India- 29.06-2010

1 Company Overview SKF india is a part of the AB SKF Group of Sweden, a global supplier of bearings and seals . The offerings of SKF india range from products, solutions and services in the areas comprising bearings, seals, mechatronics and lubrication systems. The company has a strong presence in the billion Indian bearing industry with a market share of nearly 30 per cent. The company supplies bearings for automotive and industrial applications. With more than 200 distributors across the country, the company has a wide reach, enabling access to its key user segments. Its manufacturing facilities are spread across various locations which are major automotive and industrial hubs. The company manufacturers around 60 per cent of its total bearings requirement indigenously, while the rest are imported.

2 Key Business Highlights Leader in ball bearings industry in india Ball bearings are the largest segment of india s bearings industry which accounts for nearly 60 per cent of the total industry output. SKF india commands a 41 per cent market share in the ball bearings market. New facilities in key locations SKF india has set up two new factories one in Haridwar, Uttrakhand, which is a major automotive hub in india and another in Ahmedabad, with a total investment of Rs. 450 crores. While the Haridwar plant will extensively supply to the automotive sector, especially the two wheeler industry, the Ahmedabad factory will provide inroads into the large size bearings market, which are used for industrial applications.

3 On becoming fully operational, these facilities will result in nearly a 40-50 per cent capacity enhancement for the company. Long-term supply contracts with Hero Honda and Suzlon SKF has a five year contract with the largest two wheeler manufacturer - Hero Honda for supply of bearings from its Uttrakhand plant. The company also has a five and a half year contract with Suzlon Energy, worth Euro 303 million for supplying bearings for Suzlon s wind turbines. SKF india will also provide services such as grease, customized housing, generator bearing and reliability services to Suzlon. Strong balance sheet With negligible debt and cash & cash equivalents amounting to Rs. crores as on December 31, 2009, SKF india s balance sheet strength is attractive relative to its peer group.

4 Key Risks Rising commodity prices may put downward pressure on margins Increasing presence of imported spurious products may pose threat to market share Better product quality, improved road infrastructure, prohibition on vehicle overloading will gradually impact aftermarket sales Valuations The stock is currently trading at a P/E multiple of on its LTM EPS of Rs. and 11x EV/EBITDA multiple based on LTM EBITDA of crores. June 18, 2010 BSE Code500472 BSE IDSKFHigh/Low 1Y (Rs.)504 / 218 Avg. vol (3m)38,688 Market Cap (Rs Cr)2,526 Net IB Debt (Rs Cr)(289) Enterprise value(Rs Cr)2,237 Shareholding % Fis/ & Chart ( Relative to Sensex)Stock Perfm.(%) Rel. to Sensex( ) Financials ( )12/0712/0812/09 Revenue1,579 1,630 1,584 208 160 (Dil.)

5 (x) P/E(x) (x) IndiaSensexFinancial Year ends at December 31 Qtry Fin 06/09 09/09 12/09 03 All figures in Rs. crores except for per share data CMP Rs. 479 SKF india Limited Industrial Goods -2- SKF india Limited Business Description SKF india is a per cent subsidiary of AB SKF, Sweden, a global supplier of rolling bearings and seals . SKF in india provides products, solutions and services in the areas of rolling bearing , seals, mechatronics, lubrication systems and related businesses. Its products find wide application in automotive, electrical and industrial applications. The company domestically manufactures around 60 sizes of deep groove ball bearings and 70 sizes of taper roller bearings.

6 It also produces machinery components for the textile industry. SKF s product platforms Source: Company Annual Report With a presence spanning nearly 85 years, the company is an established player among the key bearing manufacturers in india . As of FY09, the company operated from its two plants located in Pune and Bangalore with a total annual capacity of nearly 132 million bearings and employed over 1900 people. The company has recently opened two plants; one in Haridwar and another in Ahmedabad at a total investment of Rs. 450 crores. The Haridwar plant has an annual capacity of 60 million units of bearings (small Deep Groove Ball bearing ) built at an investment of Rs. 100 crores. The company will target the automotive industry, as Hardwar is fast becoimng an automitive hub.

7 The Ahmedabad plant will cater to the industrial segment. In addition to this SKF india associate company, SKF Technologies ( india ) Pvt Ltd provides sealing solutions. Revenue Composition The company organizes its sales into one segment Bearings and related component. Sales from Roller and Ball bearings account for 95 per cent of the total revenue. Bearings manufactured domestically account for nearly 50 per cent of the total revenue while traded bearings form nearly 44 per cent of the total revenue pie. The company divides its units strategically into four categories viz. Automotive Business Unit (ABU), the Electrical & Two-wheeler Business Unit (EBU), the Industrial Business Unit (IBU) and the Service Business Unit (SBU). In FY09, the company recorded a revenue of , 584 crores, marginally lower than Rs.

8 1,630 crores posted in FY08. Revenue derived from four lines of businesses aligned as SBUs SKF s offers five platforms of product offerings Deep rooted presence with strong global parentage Increasing presence in automotive and industrial segment through setting up of new plants -3- SKF india Limited Break up FY09 Revenue (Rs. 1,584 Crores) SBU-wise Revenue distribution Ball an d roller bearing s 95%Textiles machinery components1%Others4% Automotive 28%Electrical and two wheeler22%Industrial24%Service26% Source: Company Annual Report, Company Website, ICRA Online Research Products and services offered by SKF covers a wide range of Automotive and Industrial applications Source: Company Website, ICRA Online Research Business unit Industry Served Product services offered Automotive Automobile Industry Wheel hub bearing units Taper roller bearings Small deep groove ball bearings Seals Special automotive products and complete repair kits for the vehicle service Electrical & Two-wheeler Electric equipment and household appliances industry Two-wheeler industry Deep groove ball bearings Manufactures all deep groove ball bearings and bearing seals within SKF Industrial Industrial OEMs Railways, Aerospace Lubrication systems Actuation and Motion control Spherical and cylindrical roller bearings Angular contact ball bearings.

9 Medium deep groove ball bearings and high precision bearing Service Industrial aftermarkets Sales via a network of distributor locations Support industrial customers with knowledge-based service solutions to optimize plant asset efficiency Provide mechanical services, predictive and preventive maintenance, condition monitoring, decision-support systems and performance-based contracts Textile Machinery Component OEMs and textile millls Precision textile machinery components Help textile mills modernize existing machines. Clients spread across diversified sectors -4- SKF india Limited Growth Drivers Growth in user segments holds the key to SKF s growth: Demand for various types of bearings is derived from its key user segments viz.

10 Auto & auto ancillaries and other industrial applications. Auto and auto ancillary sector contributes nearly 45 per cent of the total bearings demand while the industrial application segment accounts for the remaining 55 per cent. Nearly 40 per cent of SKF s sales have been contributed by the automobile sector. o Auto sector is on the path of revival: Indian auto sector has shown signs of revival since early 2009-10 after showing negative growth in 2008-09. Reflecting signs of recovery in the economy, the commercial vehicles segment is also reviving with demand arising from the infrastructure sector. o india targeted as major outsourcing hub by many automobile companies o Growth of IIP shows demand from the industrial sector is up: The IIP index has shown consistent double-digit growth since November 2009.