Beware! The best performing MNC index stock is trading at expensive valuations, say analysts
The best-performing Nifty MNC Index constituent, Schaeffler India, is trading at expensive valuations, said analysts. Schaeffler India has delivered a one-year return of 64 per cent, which is the highest among Nifty MNC constituents. The index itself has risen a mere 3.3 per cent in the last one year. The multibagger stock has risen 173 per cent in the last five years.
While Schaeffler India shares witnessed some selloff, falling nearly 30 per cent from its cent 52-week highs, they have recovered nearly 9 per cent from recent lows in a snap of five trading sessions. Analysts said the stock trades at expensive valuations and that upside on the counter looks limited.
Kotak Institutional Equities said that the superior growth opportunities for Schaeffler India are already priced into the prevailing market price and the valuation of the company remains expensive at 45 times December 2024E EPS. The brokerage said it would await a better entry point for Schaeffler India. For now, it maintain its ‘sell’ rating on the stock with a revised fair value of Rs2,660 against Rs 2,600 earlier, based on 35 times March 2025E EPS.
On Monday, the scrip traded at Rs 2,936.15, down 0.26 per cent. Kotak’s target on the stock suggests a potential 9 per cent down.
JM Financial advised investors to switch to peers like Timken India, SKF India and Rolex Rings in the same segment due to lower exposure to Europe (Timken, SKF) and reasonable valuations (Rolex Rings).
“We downgrade Schaeffler India to ‘HOLD’ as we believe slowing sales in key segments (wind energy, 2W/3W, tractors) and higher imports/traded goods will result in slower earnings growth (16 per cent CAGR over next 2 years vs 33% CAGR in past 3 years), while the stock trades at rich PE multiples of 46x CY23E and 39x CY24E. Our revised TP stands at INR3,000, based on 40 times 2024E EPS,” it said.
Schaeffler India reported an all-time high quarterly revenue for the December quarter, aided by strong growth in auto and exports. It reported Ebitda margin of 19.2 per cent, up 30 bps YoY on drop in raw material cost and employee cost offset by increase in other expenses.
Schaeffler India, delivered inline results, with gross margins expanding 200 bps sequentially, said YES Securities, which expects product mix and decline in RM price to further support margins for the quarter. The brokerage, however, did not rate the stock that it said trades at 45 times 2023 and 39.1 times Bloomberg EPS estimates.
The company, Kotak Institutional Equities said, highlighted that the order book for exports continues to hold up, as the slowdown in developed economies will be offset by the reallocation of product lines by parent company in India.
“While we remain optimistic about the superior growth opportunities in the export segment, our reverse DCF analysis implies a 12 per cent CAGR in domestic revenues as well in the next 15 years, which, in our view, is a challenging task, given that the company’s organic revenues have seen only an 8 per cent CAGR over 2011-21. The company will introduce new products in the e-mobility space, which we believe will be offset by the decline in content due to the company’s presence in engine bearings as well as engine and transmission components in the domestic market,” Kotak said.
B&K Securities, meanwhile, has a target of Rs 3,219 on the stock. Considering the drive for higher localisation, increasing content per vehicle and new product launches, it expects Schaeffler India’s performance to improve with a structural shift in margin profile to 19-20 per cent levels going forward.
“We continue to maintain Hold rating on the stock with an upward revision in target price from Rs 3,101 to Rs 3,219 (44 times of 2024E EPS),” it said.
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