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Outlier in Focus – Schaeffler India. How Does The Company Look Post Merger


We come across a large number of interesting stocks in Capitalmind SNAP Outliers, our discovery tool for stocks with momentum. See a video of how Outliers works, and how to use Outliers to find all-time highs. Here’s a stock we found interesting that’s been an outlier. Catch them all here.

The Indian Auto Industry over the last decade has seen a steady growth in Sales enabling India to become the 4th largest in the world. Over the last ten years, Maruti has seen a compounded sales growth of 16% even as it has been able to maintain its operating margins over time.
One of the largest auto component manufacturers – Motherson Sumi has seen its standalone sales grow by 19% while once again operating margins have been maintained. With huge investments in Infrastructure, the Indian Auto Industry is definitely on the growth path.
The Auto Component Industry as a whole has grown at a CAGR of 6.83% over the last decade. The growth for most of the large players has come both due to the overall growth of the industry as well as by eating up the market share of the unorganized sector.
While Electric Vehicles are yet to become mainstream even in the developed markets, the investments being done by large players suggest that the growth there will come faster than one assumes it will. Electric Vehicles represent a paradigm shift for a whole lot of Auto Component manufacturers will suddenly find themselves out of the Original Equipment market and over time out of the total market unless they innovate.
Outlier in Focus - Schaeffler India.  How Does The Company Look Post Merger
One of the survivors when we shift to Electric Vehicles will be Ball Bearings. In India, the major companies in this area are Schaeffler India Ltd, SFK India Ltd, Timken India Ltd and NRB Bearings. In terms of both Market Cap and Sales, Schaeffler India Ltd which was earlier known and listed as FAG Bearings is the biggest company.

Brief history of the Company

FAG Bearings India, the earlier name of Schaeffler India Ltd was a 51% subsidiary of FAG Kugelfischer Georg Schfer AG, a German-listed company. In 2001, INA Group which is also from Germany  made a hostile takeover bid to expand its presence into Automotive Ball Bearings where FAG was the fourth largest player at that point of time.
Since FAG Bearings India was a subsidiary of the German company, INA was instructed by SEBI to make an open offer for 20% of the public shareholding. In 2018, NA Bearings India and LuK India, both 100% owned by the parent Schaeffler AG  merged into Schaeffler India in an all-stock deal.


The merger of the wholly owned subsidiaries into the company means that the historical growth and other financial numbers cannot be compared against the future numbers.
In 2016, the financial statement of INA Bearings & LUK India showcases that their combined sales were equal to that of Schaeffler India while they had a slightly lower EBITA. Net Profit Margin too was lower compared to Schaeffler India.
Outlier in Focus - Schaeffler India.  How Does The Company Look Post Merger

(Click on the Image to Enlarge)

Outlier in Focus - Schaeffler India.  How Does The Company Look Post Merger(Click on the Image to Enlarge)

The quarterly results from period ending March 2018 are representative of the new setup. Operating and Net Profit margins are in-line with historical trends. Advantages of the consolidation should start kicking in overtime and we anticipate a small uptick in margins going further.


Promoter Schaeffler AG held 51.33% stake in Schaeffler India prior to the merger and now holds 74.13%. Mutual Funds hold 14.04% stake in the new entity while FII’s own 2.76%. Rest is split between retail clients, corporates and other bodies.


2014 was a breakout year for the stock inline with much of the markets as the stock after being a steady riser doubled in price. 2018 for now has been more of a consolidation phase but with bullish bias.
Schaeffler India is not exactly the same kind of momentum stock that we showcase in this series. The stock has been range-bound for much of the year which itself is a positive sign given the weakness we have seen in the broader markets as well as Auto space. The process of integration of the new companies in well under-way and as the results start flowing in, Outliers should light up. At 21 times trailing four quarter earnings, its relatively cheap.
A stock that is in similar domain and making all time highs – NRB Bearings.

Price Chart:

Outlier in Focus - Schaeffler India.  How Does The Company Look Post Merger
Note: This is not a recommendation to buy this stock and we just want to highlight the company as showing strong price performance.
Disclosure: The authors at Capitalmind may have positions in the stocks mentioned, please assume our bias exists. This is not a recommendation to buy or sell securities. This is purely information about the company mentioned.


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