/** Title: SKF India Q4 FY26: Strong Sales, Profitability Under Pressure */

SKF India Q4 FY26: Strong Sales, Profitability Under Pressure

SKF India ended Q4 FY26 with its highest quarterly sales of the year, but profitability moved in the opposite direction. The quarter delivered net sales of INR 5.55 billion, up 3 percent sequentially and 14.8 percent year on year, supported by better volumes in cars, two-wheelers and powertrain applications. For the full year FY26, sales grew 12.8 percent to INR 20.3 billion.

The pressure point was profit before tax. On the company’s presentation basis, PBT margin (excluding exceptional items) fell to 9.0 percent in Q4 FY26 from 16.7 percent in Q3 FY26. For FY26, PBT margin was 12.3 percent versus 19.2 percent in FY25. Management repeatedly described the quarter-on-quarter margin drop as a function of one-off gains in the previous quarter and cost headwinds, and indicated that the near-term sustainable PBT margin could be around 11 to 12 percent.

Q4 FY26 performance: growth led by volumes and OEM mix

The company’s quarterly bridge made one point clear: volumes were the driver of growth. In the Q4 year-on-year walk, sales moved from INR 4.83 billion in Q4 FY25 to INR 5.55 billion in Q4 FY26, with a price and mix contribution of INR 148 million and a much larger volume contribution of INR 569 million.

Revenue mix in Q4 FY26 leaned heavily toward OEMs. OEM contributed 66 percent, distribution 20 percent, exports 8 percent and SKF Industrial 6 percent. Management also noted that distribution was weaker versus the growth seen in OEM channels.

The concern for investors was less about demand and more about earnings quality. The Q4 PBT walkthrough showed that cost was the largest negative driver versus both Q3 and the prior-year quarter.

Profitability reset: one-offs, cost headwinds, and pass-through lag

Management attributed the sequential decline in profitability to one-off gains in Q3 FY26 that did not repeat in Q4. These included forex transaction gains, higher income from fixed deposits and reversal of employee cost provisions. In effect, Q3 set a high base, and Q4 reflected a more normalized run rate.

For the full year, management emphasized that the profitability decline was driven by a mix of factors including product mix and discounting, and also highlighted that the reported prior-year financials have been extracted from the erstwhile combined entity and may not be fully comparable due to demerger-related assumptions.

A second issue investors focused on was raw material inflation. Management confirmed that steel and other raw material prices were moving up. The company has initiated pass-through actions, with price increases already taken with a couple of customers and discussions ongoing with others. In the aftermarket, management stated that price hikes have started but acknowledged that near-term gross margin pressure can occur due to the lag between cost increases and pricing actions.

This pass-through lag matters because the company has guided to a near-term PBT margin band of 11 to 12 percent. If raw material inflation stays elevated, the speed of price recovery will influence whether the company can return to that range consistently.

FY26 mix shift and cash flow: OEM strength, distribution pressure, and working capital

FY26 sales were INR 20.3 billion. OEM grew strongly and represented 66 percent of sales for the year, while distribution was 23 percent, SKF Industrial 4 percent and exports 7 percent in the presentation.

The management commentary on distribution and exports was more mixed. On the call, the company acknowledged that automotive aftermarket sales were slightly down in value terms, and it used discounting to remain competitive. On exports, management indicated exports were broadly steady, though the presentation shows exports at 7 percent of FY26 sales.

Cash flow was one of the steadier elements of the year. The company reported operating cash flow of INR 4.058 billion and a cash conversion ratio of 85 percent. However, net working capital was a point to watch. NWC as a percent of sales was 24.3 percent in Q4 FY26, and management described the increase as driven by one-off factors that should normalize.

Strategy and investments: RACE framework and capex visibility

SKF India positioned its strategy through the RACE framework toward 2030. The pillars are centered on product innovation for more efficient vehicles, commercial excellence, building capability and capacity across the value chain, and faster execution.

On execution indicators, the company highlighted major business wins of around INR 656 million across two and three wheelers, passenger vehicles and commercial vehicles. The wins include bearings for EV motor applications, wheel hub bearings, and transmission-related bearings. Management also linked several wins to the shift toward EVs and upcoming regulatory changes, including references to BS-VII and CAFE norms.

The company also provided a capex roadmap. Management guided that the company plans investments of up to INR 500 crore over 2026 to 2028, with around INR 200 crore expected to be spent in FY26-27 (with some spillover into the first quarter). Part of this is intended to reduce inter-company trading dependence by adding automotive capacity. The call also included a statement that revenue growth assumptions around 6 to 8 percent CAGR can be considered in the context of the capex and growth outlook, though the company did not quantify the revenue potential of the full investment program.

Key investor takeaways

SKF India’s FY26 story is split into two halves. Demand and volumes were clearly supportive, especially in OEM channels, and the company delivered double-digit sales growth for the full year. But profitability has reset lower than historical levels shown in the presentation, and management is currently anchoring expectations to a near-term PBT margin of around 11 to 12 percent.

The next few quarters are likely to be shaped by three operating variables: how quickly raw material pass-through catches up, whether working capital normalizes from elevated levels, and how effectively the planned capex improves capacity and reduces inter-company supply dependence. If these levers move in the right direction, investors may see a steadier earnings profile that better matches the underlying growth in the business.