Schaeffler India Limited has informed the Exchange about Transcript of Analysts/Institutional Investor Meet/Con. Call
Schaeffler India Limited · Pune · Maharashtra
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Sub: Disclosure under Regulation 30 of the SEBI (Listing Obligations and Dis- closure Requirements) Regulations, 2015 – Transcripts of Analyst/Inves- tor Meet held on October 19, 2022.
21/10/2022
Dear Sirs,
With reference to our letter dated October 19, 2022, please find enclosed the tran- script of the Analyst/Investor meet held on October 19, 2022, for your information and records. The same is available on the Company's website - Concall Transcripts | Schaeffler India
Phone: +912068198464
Kindly take the same on your records.
Thanking you.
Yours faithfully, For Schaeffler India Limited
Ashish Tiwari, VP - Legal & Company Secretary
Encl.: As above
Schaeffler India Limited
Registered and Corporate Office: 15th Floor, (ASTP) Amar Sadanand Tech Park, Baner, Pune, Maharashtra, India – 411045 Tel: +91-20-68198400 | Fax: +91-20-68198405 CIN: L29130PN1962PLC204515, www.schaeffler.co.in, info.in@schaeffler.com,
“Schaeffler India Limited Q3 CY2022 Earnings Conference Call”
October 19, 2022
MANAGEMENT: MR. HARSHA KADAM – MANAGING DIRECTOR & CHIEF
EXECUTIVE OFFICER - SCHAEFFLER INDIA LIMITED
MR. SATISH PATEL – DIRECTOR-FINANCE & CHIEF FINANCIAL OFFICER – SCHAEFFLER INDIA LIMITED
MS. GAURI KANIKAR – HEAD – INVESTOR RELATION - SCHAEFFLER INDIA LIMITED
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Schaeffler India Limited October 19, 2022
Moderator:
Ladies and gentlemen good day and welcome to Schaeffler India Limited Q3 CY2022 Earnings
Conference Call. As a reminder, all participant lines will be in the listen-only mode and there will
be an opportunity for you to ask questions after the presentation concludes. Should you need
assistance during the conference call, please signal an operator by pressing “*” then “0” on your
touchtone phone. Please note that this conference is being recorded. I now hand the conference
over to Ms. Gauri Kanikar from Schaeffler India Limited. Thank you and over to you Madam!
Gauri Kanikar:
Thank you. Good day everyone. Thank you for joining Schaeffler India Limited’s Earnings
Conference Call for the third quarter and nine months ended September 30, 2022. We have with
us today from the management Mr. Harsha Kadam – our Managing Director & Chief Executive
Officer, and Mr. Satish Patel – our Director-Finance & Chief Financial Officer. Mr. Kadam will
first take us through a short presentation on the results after, which we open the floor for
questions. Thank you and over to you Mr. Kadam!
Harsha Kadam:
Good evening. This is Harsha Kadam, and I am joined with our CFO.
Satish Patel:
Hello good evening, Satish Patel here.
Harsha Kadam:
Let me start by briefly taking you through the presentation and I hope all of you are able to see
the slides. I am on the first slide where I will be covering the Q3 performance and the nine-month
period as well. I move into slide #2 where I would be throwing light on the economy and the
industry, and then I would talk about the business highlights for the third quarter and the nine-
month period of 2022. I would then move on to cover the financial highlights of the third quarter
and the nine-month period of 2022 and then a couple of topics of which I would like to throw
some lights as well.
Moving on, I will move to slide #3 where I would like to touch upon the economy and the
situation in India and as you can see from the chart on the slide, the GDP growth which posted a
very strong number in the second quarter of this calendar year at 13.5% moving into the third
quarter with the prolonging wars in Ukraine and the tightening up of the global monetary policy
and also imposing of the economic sanctions is certainly weighing down heavily on the economic
outlook in India as well. As you all know the World Bank has already downgraded the GDP
forecast for the current fiscal year to 6.5% which in the earlier forecast was 7.5%. With both the
international headwinds and the domestic headwinds coupled with the growing international
inflation as well as the domestic inflation, India is already feeling the impact in some of the
sectors and that surely is also reflecting on some of the sectoral performances within Schaeffler
as well. One in case is the wind energy sector where a number of our customers have cut down
their export orders due to the pressures on the ongoing situation in Europe. Also, the wholesale
price index which is at a double digit and twice that of the consumer price index also points that
while the credit and liquidity stimulus packages are in place, the retail inflation will continue to
be there for some time. With all this the forecast numbers of 6.5% of GDP growth, the index of
industrial production which is very subdued in the third quarter provisional number being at 0.7.
we have seen some uptick in the automotive production in some of the sectors while some of the
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Schaeffler India Limited October 19, 2022
sectors still have not picked up, all these points to a situation that the third quarter we had some
subdued demand situation in the country as such.
I will move to the next slide where I would like to give some more details based on each of the
sectors and what you see on the slide #4 is the sectoral performance in the industrial space. When
you look at the cement production in the country month-over-month the first quarter of the year -
cement production was at its highest, but when you look at the third quarter you would see that
gradually there is a production drop that has happened in the third quarter. While at a year-to-
date level you still find that cement production is 10% better than the same period last year.
When you look at coal production it is lot more evident that the first quarter was a very strong
performance in coal production averaging about 85 million tons, when you look at Q3 that has
already come down to close to 55 million tons averaging in the quarter, but still because of the
strong performance in the first quarter at a year-to-date level it is still showing 14% higher
production rate of coal in the country. Talk of steel which contributes almost 18% to the industry
you would find that the steel production too has remained more or less at the same level as last
year in the third quarter. The power generation which is another strong indicator which
contributes close to 20% weightage, and you will see that even the power production or
electricity production in the country in the third quarter has reduced marginally. With all this yes
there were quite a few challenges and headwinds that we have been facing. Let us now look at
the auto sector as to how it has performed and for that I move into slide #5.
I am on slide #5 and here again what you see is a little different picture. The overall two and
three wheelers had a subdued second quarter performance, but when you look at Q3 the numbers
have started to pick up and the two and three-wheeler sector which had negative numbers posted
last year you will find has rebounded back with a 4% better performance at a year-to-date level.
Look at the passenger vehicles and you would find a strong growth in the third quarter in the
passenger vehicle segment and on a year-to-date level posting in year-to-date level of 22% better
than the last year’s performance. Commercial vehicles started off on a strong trajectory in Q1,
but when you come into Q3 the numbers are a little lower than Q1. One of the sectors where
there was hope and anticipation that it is going to recover has also started to show some small
signs of recovery and that happens to be the tractors, for the first time in many months we are
seeing the tractor numbers pick up marginally, but on overall year-to-date level it is still 9%
below when compared to the last year.
With this situation clearly when one was to look at the numbers and compare that with the 2019
numbers what it was, and we still see that we are not even there at the 2019 levels. However,
some of the sectors as I already said are showing positive signs of recovery. I will move to slide
#7 and there I would like to give a summarized picture on what happened in the third quarter of
2022 when it came to Schaeffler India. Despite all the challenges that we had in the market
environment and our sustained performance was due to the fact that we have a pretty balanced
portfolio mix between the auto and the industrial sectors. Not to mention of course both the
sectors have tried and in automotive we have definitely posted much better performance while
industrial for the quarter was a little below the same period last year. I will come to that in a
while.
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Schaeffler India Limited October 19, 2022
With all these challenges we have managed to sustain and hold our financial performance and
have been able to deliver the margins as you can see on the boxes on the right side. We continue
to keep our focus in engaging with our customers and as you know in every earnings call, I do
share the new business wins and the new initiatives that we take up in actively engaging with our
customers and this quarter as well we were able to launch the REPXPERT mobile technical
training van in the automotive aftermarket space. I will cover that in my succeeding slide. One
other highlight is the corporate governance scorecard where we went through an evaluation
process, and we continue to remain in the leadership position which I will throw light further
down in my slides.
We do believe that the headwinds what we are facing on the global market and the outlook as
well as the inflation would continue to dog us for some more quarters to come. However, with all
these challenges we have been able to post a reasonably good performance. In terms of the sales
growth as you can see, we were able to post 18.1% higher sales revenue over the same quarter
last year, but over the preceding quarter as things have got more challenging, we were able to just
post 0.4% clocking in INR 1,756 crores for the quarter this year. This resulted in an EBIT margin
of 15.7% for the quarter which definitely as you can see there is better than the same 14.9% that
was there in the same quarter last year bringing in an additional INR 275.6 crore to the bottom-
line. The profit after tax margins stood at 12.3% compared to the 11.5% of the same quarter last
year and bringing in INR 215 crores to the bottom-line. We did face some challenges on the free
cash flow within the quarter and we were 33.5% lower when compared to the last year same
quarter period. This is clearly attributable to the cash flow issues that we are facing as well as
some of the inventories that are piled up as well the working capital as well going up.
I move to the next slide, slide #8. I would like to share with you some of the new business wins
that we have secured within the quarter. In the automotive technologies space, we were able to
secure some business wins in the commercial vehicle sector for the double clutch systems, not to
mention of course some of the needle roller bearings and the ball bearings in the passenger
vehicle segment as well. Talk of the automotive aftermarket business, while we had no new
product launches but however of our efforts to consolidate our growth trajectory in the new
products that we have launched in the previous earlier quarters continues and we have been able
to secure volume wins for the newly launched products as well as the point that I shared we have
started to engage with the front-end mechanics and the garages to ensure that we create the pull
for our products from the market side through the REPXPERT effort that we are putting through.
The traded goods that we have launched in terms of shock absorbers, lubricants, and wipers we
continue to expand our market presence as well as the reach and the consolidation process
continues to go on. On the industrial side as well, we have secured some key businesses for the
cylindrical rollers, the spherical rollers and the taper rollers in our off-road segments not to
mention some of the large size bearing in the energy segments that we have bagged some good
orders as well as the linear guides, the quick center that we have put up has managed to rope in
big orders from our industrial automation machine tool industry customers and which is further
augmenting the demand situation which we see weakening in some of the other sectors.
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Having said that I move to the next slide to throw some light on the REPXPERT automotive
aftermarket mobile technical training van. What you see here is the van, which is self-contained
with all the training modules, hands-on training that is given by our expert engineers in the field
and this was officially launched on September 7, 2022. The plan is to cover roughly 9,000
kilometers across the country and addressing 1,100 garages and for 81 days this is going to be on
the road. We are going to run our training sessions for the repair garages, for the fleet workshops,
for even the multi-brand garages and the retail markets as such, and in total we would be
covering about 36 cities in all to ensure that we extend the reach further into the marketplace.
With this I move to slide #10 wherein I would start to talk about the financial highlights. I am on
slide #11 now and looking at the revenue from operations we have sustained our performance in
terms of sales revenue in the third quarter in spite of the challenges that we are facing both on the
domestic front and the global market situation as such. So, as you can see with INR 1,756 crores
that we have posted in the quarter which is a clear 18.1% growth over the same period last year;
however, as I have earlier said 0.4% growth over the preceding quarter. Now if I were to
compare the revenue bridge as to how did we move from last year to this year a lot of
contribution has come in terms of the volume growth from the auto tech space as you can see
INR 157 crores for the quarter coming in from the auto tech space and the rest coming in a large
part of it coming in from the export businesses which is another INR 107 crores another INR 5.5
crores coming in the automotive aftermarket space. Industrial was the only sector where we had a
dip in the sales revenue for the quarter coming on the back of some of the weak demand in the
wind sector and some of the steels raw material sector.
Well, if I were to compare the sectoral performance over a nine-month period I refer to the chart
on the right-hand upper corner there. When you look at the year-to-date period you would find
the automotive technologies in spite of the weakening growth in the first quarter and now a
recovery that we see still able to post 23.9% better performance for the same period last year.
The automotive aftermarket grew by 21.4% and industrial with a strong first quarter start but a
weak third quarter we still are at 17% better performance than the same period last year. Exports
on the other hand which is clearly a focused strategic direction that we have taken as you can see,
we sustained a growth of 62% over a nine-month period as well.
I will talk about the balance portfolio of the business that we are able to drive in the marketplace
and as you can see with the changes that you are seeing in the quarter our automotive
technologies contributes 41% to the sales revenue while the industry will contribute 34% and our
exports we have been able to sustain this in the last three quarters at 15%-16% level and the
automotive aftermarket takes the share of 9% of the total sales revenue.
With this I move to the next slide which is slide #12 and here I would like to touch upon the
earnings quality for the quarter and as you can see as I said earlier in the third quarter, we were
able to bring in INR 275.6 million as the EBIT value at a margin of 15.7% and this was clearly a
24.4% better performance year-on-year. I think even after nine-month period as you can see the
EBIT margin for 2022 still stands at 16% compared to 13.7% over the same period last year. If I
were to look at the EBIT bridge as to where do these margins come from - straight volume
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increase gross margin improved - INR 925 million or INR 92.5 crores and we did have some
smaller improvements in terms of employee cost, in terms of other incomes and taking the total
to INR 275.6 crores for the quarter this year. This resulted in a profit after tax, coming in to Q3
as you can see at a 12.3% profit of the tax margin which is a clear 26.1% better performance at a
year-to-date level and a year-on-year growth performance. If one were to look at the nine-month
period performance profit after tax stood at 12.8% and the same period last year was 10.9%.
I move to the next slide which is slide #13 which throws some light on the working capital
development and the capex. So, with the subdued demand that we saw we did definitely see some
increase in inventory levels hence you see some marginal increase in the inventories in the third
quarter compared to the preceding quarter; however, at a nine-month period as you can see also
the working capital as a percentage to sales stood at 19.9%. Same period last year was 18%. One
point which I would like to tell here is the volume growth obviously needs to be serviced as well.
So, some part of the inventory increases, and the working capital increases was already factored
in to ensure that we sustain the service levels to our customers. When we look at the capex spend
in the third quarter close to INR 100 crores was spent in the quarter alone and as you can see our
clear focused consistent investment effort that we have been doing every quarter continues and as
a percentage to sales over a nine-month period this year we are at about 6.2% and if one were to
compare to last year which was around 3.5%. I did mention about free cash flow in my earlier
slide that this could have been a better picture here. Well, we are making efforts to ensure that we
recover the lost ground in the third quarter of this year in this coming quarter and thereby getting
in line with the targets that we have set on the free cash flow as well.
I move to the next slide, slide #14 which is throwing some light on the key indicators and the key
figures. I did already talk about 18.1% growth in sales revenue in the quarter and if one were to
look at a nine-month period clearly a 25.6% growth over the same period last year and this
resulting in an EBITDA margin of 19% when compared to the 17.3% of last year. Rightfully the
EBIT margin closing in at 16% at a nine-month period compared to the 13.6% and this resulting
in a profit after tax margin of 12.8% compared to 10.9% over the nine-month period and as I said
earlier capex spend as you can see for the nine-month period has been INR 316 crores which
compared to last year the same period stood at INR 136 crores.
With this I move to the next slide, and I would like to touch upon a couple of highlight points. I
am on slide #16, we went through an evaluation by the Institutional Investor Advisory Services.
We had gone through this process way back in 2019 and clearly given that India is a member of
the G20 Forum this evaluation framework is built around the G20 and the OECD Principles of
Corporate Governance, which is a globally accepted benchmark practice for corporate
governance and we went through this process of evaluation by IiAS, but I am very happy to share
that we have sustained if not better or marginally better our leadership position by scoring 76%
percentage point the same number last year last time we went through the process we were at
75% and this is a clear commitment from our side that we will continue as an organization and as
a company emphasizing that we are very committed to high standards of corporate governance
and we will continue to keep our focus on corporate governance.
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Having said that I move to the last slide which is a summary slide and here what we see is
revenue performances in spite of the sluggish macroeconomic demand situation as well as the
local inflationary domestic situation. We have sustained our performance and we will continue to
make efforts to better this in this quarter. Our balanced mix obviously and the countermeasures
which we have continued to sustain in the last quarter have enabled us to deliver the margins in
spite of the headwinds that we have faced. The capex which is on track as per our commitment
and the strategy, we continue to ensure that we consistently deploy capital judiciously. While we
will remain cautiously optimistic in spite of the weakening global demand as well as a lot of
unpredictability and uncertainty. With that I come to the end of my presentation. I open the floor
for question and answer.
Moderator:
Thank you very much. We will now begin the question-and-answer session. The first question is
from the line of Mukesh Saraf from Spark Capital. Please go ahead.
Mukesh Saraf:
Good evening and thank you for the opportunity. My first question is on the revenues and you
did mention that the industrial segment revenue is kind of weak because of the wind energy
segment, but I am just trying to get some sense on how do you see the future because wind
probably is not that large in the overall scheme of things for us do you see some other segments
offsetting that in the future especially with the private capex in the country going up with the PLI
schemes, etc., could you give some sense on how this industrial segment for us can pan out?
Harsha Kadam:
Yes, as you said it right, we have seen the export of wind equipments from the country has
become subdued fundamentally on the back of the sanctions that are getting imposed in the
Europe and the rest of the world. So having said that what we have seen is all the wind
equipment manufacturers who use India as a manufacturing base and export out of India we have
seen the demand going down as such, now is this going to remain I believe yes considering the
fact that with the sanctions going to be there until they find a different way to channelize the
products that have to go to those countries I believe that yes we are going to face headwinds in
this sector for some more time to come. However, we do also see that the domestic demand for
wind still continues to be there albeit it is not at the same high levels that used to be there in the
export market, but we have not seen a drop in demand for the wind equipments nor the products
that go into the domestic wind equipment supply so we believe to summarize that yes, this
headwind would appear to remain for some more time.
Mukesh Saraf:
In relation to that, given that export is kind of weak because of the global macro situation we
have still seen exports for us the direct exports for us still holding on strongly at 60% growth Y-
o-Y is there a reading here for us that this exports here might not sustain at this level in terms of
growth because of this global situation already impacted the wind segment?
Harsha Kadam:
All I can say at this point in time is third quarter our own exports did pretty well, and we see the
order books even in this quarter pretty good, so we see no signs of concern for this quarter as
well. As you know that this export is being done clearly with a very clear strategy and the
investments accordingly in line with that plus the relocation of the productions happening, all of
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this put together at least for this quarter as well we do see definitely see no cause for worries in
our own exports.
Satish Patel:
Just one more point regards the exports is the 1.3% growth that Harsha mentioned in the quarter
for exports and others. If you look into the real export growth because this total 1.3% includes
other revenue as well, the other revenue has declined by about 15% which is small in proportion.
The exports actually grew by over 7% quarter-on-quarter. So that in a way export there is a
growth, yes, the revenue decline is because of the timing difference of spread disposals and such
things, but when we talk about exports there was really a growth of about 7% for the quarter.
Mukesh Saraf:
Just last one if I may just squeeze in on the margins we are seeing a couple of things playing out
here with OEM revenues going up, aftermarket kind of flattening out and obviously raw material
cost steel, etc., coming off, so how do we kind of look at margins with these things playing out
where OE mix might actually impact margins whereas raw material might actually benefit
margins, do you think directionally there is a kind of flattening out in terms of the improvement
in margins from here?
Satish Patel:
Yes, as far as margins are concerned for the quarter margin is reflection of the mix as well as the
cost level sustenance of the previous quarter because the steel price actually did not increase
beyond what already increased in the preceding quarter. In terms of how the margins would look
forward, in terms of sustainability certainly would depend upon the mix going forward for both
the businesses - automotive and industrial as well as aftermarket and the exports. We are quite
confident that the cost level in terms of the level of countermeasures and the cost discipline that
we have brought in that would continue; however, we still keep our fingers crossed with regard
to the steel price and the inflation that might cause some impact going forward. As of now we do
not see because the current quarter there is a little sort of a reduction in the increase of the steel
price and inflationary impact not significantly impacting the overall performance so.
Mukesh Saraf:
Great thank you so much I will get back in the queue.
Moderator:
Thank you. The next question is from the line of Rishi Vora from Kotak Securities. Please go
ahead.
Rishi Vora:
Thank you Sir for taking my question. Just a followup on exports you did highlight that there is
some relocation of export that is happening maybe from abroad to India so can you just elaborate
on that on what is happening is parent shifting increment, is Schaeffler India winning incremental
orders is also parent looking to shift more capacities in India over the medium-term?
Harsha Kadam:
Yes, so as regards exports we had also mentioned in the previous call last quarter that there have
been certain relocation programs and those are progressing as per the plan, so those relocations
have been in progress and that is one of the contributors of actually increase in the content of
exports in the total pile. With regard to the overall demand situation, yes there would be certain
impact coming from the global scenario, but that is unlikely to impact the level of performance
that we have achieved in exports because large amount of that actually comes from the structural
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aspects of relocations. Coming to your specific question about relocation, yes, those are on track,
and we are expecting in fact those to progress also as per the plan. We have also earmarked
specific capex for exports for those relocation projects as well as further capacity expansion in
CRBs and similar other type of products and the capex is also on track. So, we are expecting
capacity also coming out of the plans for exports.
Rishi Vora:
Thank you for that and secondly on RM so from fourth quarter from this current quarter do we
expect RM basket to cool off or you expect that it will still remain at a flattish kind of a level and
on top of that additional question is how was our accounting like what is your agreement with
OEMs in terms of RM pass through so do you make a fixed percentage point margins on your
product or you make a fixed gross profit for bearing supplied to your end consumer at least on
the OEM front so any color on that would be helpful?
Satish Patel:
So, I think your question is in two parts one is the impact of the steel price in RM and how long
this would be there so far how much and how long, the second part of the question was related to
how we recover from the market. As regards the impact in RM so far there have been sort of a
quite significant impact largely came last year already and that impact continues whatever
happened last year continued this year. Additionally, there were further steel price increases in
this year. However, in this quarter there have not been any further increase so that is good news
as far as the quarter is concerned that there has not been an increase and for at least another
quarter we are not expecting increase though it depends on several external aspects. Coming to
the recovery it would be very difficult to provide you a detail how exactly we recover but in
general we can comment that we do have a strong recovery mechanism both in terms of
indexation as well as negotiation and we have been able to actually so far persuade our customers
in the market to accept and pass on the steel price or the significant input cost increase. This does
happen because the input cost increase is significant, quite material it is not in the normal range,
and this has been the situation across the industry in fact our customers have also been able to
recover from the market as you would have seen the prices of the end products - automotive
vehicles have also been increased in the range 2% to 4%. And one of the major elements for this
is actually the commodity price increase. So, it is across and yes, we in the supply chain have
been able to in a way recover quite a significant portion of that.
Rishi Vora:
Just one clarity on the RM front steel prices have corrected over the last two quarters and still in
fourth quarter you are saying that RM basket will kind of remain flattish is it that we have some
inventory still there in the system and that is why we expect RM basket to remain flattish or there
are some other factors which is resulting in flattish RM basket?
Satish Patel:
No, the inventory turnover is quite fast for that category of raw material, so it is less than a month
actually whatever happens in terms of the price does impact whichever direction it moves does
directly impact the quarter.
Harsha Kadam:
I just want to clarify Rishi here that it is not that the steel prices have reduced. It is just that the
rate of steel price increase, which was there in the earlier quarters has reduced, it used to be in
double digit increases now it has come down to a single digit increase and that is the difference.
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Rishi Vora:
Understood thank you.
Moderator:
Thank you. The next question is from the line of Sonal Gupta from L&T Mutual Fund. Please go
ahead.
Sonal Gupta:
Hi! Good evening and thanks for taking my question. Sir, just on the export side wanted to
understand in terms of your contracts are these euro denominated, do we have any FX related
currency risk?
Satish Patel:
Large chunk of our exports happen in Euro currency and there are also two categories or two
types of transactions one is directly in Euro currency other is in INR currency because we do
have imports as well. Significant imports in Europe and on the imports also we have imports both
in foreign currency which is in Euro as well as in Indian currency which is INR. So, because of
this sort of a currency impact, because of the rupee currency and also because of the natural
hedge the volatility which is there in the currency is more or less neutralized, the impact of that is
neutralized, but yes, we do have higher chunk of our transactions in Euro than any other
currency.
Sonal Gupta:
On the RM side for these exports also do we have a pass through?
Satish Patel:
Yes, RM is a global impact be it imports or exports or domestic consumption or domestic
purchases is all around and all whatever is the impact we have been able to do that.
Harsha Kadam:
I think we do not directly pay here; we can directly sell…
Satish Patel:
Yes, our exports are to our group companies, our group companies in turn they sell in the market;
however, the steel price impact globally is factored in the cost, yes, that is what the clarification
that we used to provide.
Sonal Gupta:
Just lastly given that we have seen a significant bump up in capex as per your guidance, this year
we are clearly seeing a significant increase in keeping; do we see that we should start seeing a big
lift in revenues next year from the investments we are undertaking?
Satish Patel:
Yes, large chunk of capacity and capacity would mean a higher generation of output and thereby
revenue. That goes obvious without saying and we have been on track so far on the capex. We
also announced that we would be spending over INR 400 crores this year and we are very much
on track.
Sonal Gupta:
No what I was trying to understand is that the installation time and the ramp up time is like 12 to
18 months or is it longer than that, that is what I was trying to understand?
Harsha Kadam:
Yes, you have said it right it is about 12 to 18 months and the projects which we are already on
track we anticipate next year one of the projects to culminate into series productions to start so
the other one is at a little start stage right now, so I guess yes 18 months is the best estimation.
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Schaeffler India Limited October 19, 2022
Sonal Gupta:
Got it Sir, great. Thank you so much for taking my question.
Moderator:
Thank you. The next question is from the line of Sandeep Tulsiyan from JM Financial. Please go
ahead.
Sandeep Tulsiyan:
A very good evening. First question is pertaining to the Q-o-Q growth that we have reported the
numbers are largely flat while given the steel price increase that we would have seen as per the
standard practice we would have passed it through where it is company indicated prices, so if you
could break down what kind of price hikes ruled out over the last two quarters and if we assume
that there would have been a sequential volume decline sequentially so is that a correct
assumption if you could share some more insights on that?
Harsha Kadam:
If you can clarify the last part of the question sorry, we could not get that.
Sandeep Tulsiyan:
Yes, so basically if we look at the sequential growth sales has remained flat even if you assume a
nominal price increase company would have taken in low single digits it implies there was a
volume decline overall on a sequential basis so if you could highlight the key reason for same?
Satish Patel:
Yes, so to answer your question when you compare Q3 vis-à-vis Q2 both the quarters have
recovery. So therefore, the growth whatever minimal that you see is actually the volume growth
as well because both the quarters have the impact of the recovery. So, because of recovery taking
out you would not find decline in volume because you would take out from both the quarter and
then there would still be increase in the performance in the revenue which would be because of
the volume.
Harsha Kadam:
Our recovery effort continues whatever is the case but what we see is the big impact is due to the
slowdown in some of the sectors, wind and the raw materials we have seen a bit of slowdown
predominantly on the industrial side even tractors we saw some drop, so these have contributed
to the topline being flat when compared to the preceding quarter but the steel price whatever it is
those recovery efforts parallelly are going on.
Sandeep Tulsiyan:
Second question is pertaining to the auto aftermarket if you look at the quarterly run rate over
past five quarters it has largely been around at INR 150 crores per quarter revenue that we are
doing and in this meanwhile over the past five quarters I am sure there would have been
significant number of price increases that have gone by plus we have expanded our product
basket including lubricants and other products as well which we have been highlighting every
quarter, so why this segment is stagnating at this current level, how should we look at other
growth in this segment, where can it increase to, what are the key reasons why we are not able to
expand, any dealer expansion issues we are facing if you could give some perspective on
automotive aftermarket?
Harsha Kadam:
Well first let me make two points here the automotive aftermarket has a business cycle of its own
that is one. So, you would normally see when you look at the trend quarter-on-quarter you will
find the last quarter of the year being pretty strong in terms of demand as well that is one. The
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Schaeffler India Limited October 19, 2022
second point I wanted to make was more to clarify that the automotive aftermarket topline has
not been flat if you were to look at the second quarter performance over the first quarter of this
year you would have found 20% growth we have demonstrated. So now the third quarter over the
second quarter is just about a percentage point more and we anticipate that the last quarter of this
year definitely should be much stronger as such.
Sandeep Tulsiyan:
But I was more overlooking at the trend over past five quarters it is averaged at 150 Crores so
kind of it has not grown on a year-on-year basis as well so that is what the point, I am asking that
question?
Harsha Kadam:
Well, the numbers I am looking at is last year the average used to be about INR 125 crores a
quarter if you look at it now the average is a little better than that.
Sandeep Tulsiyan:
Fair enough alright, it is kind of lumpy and there might be some fluctuations on quarterly basis.
Last question if I can squeeze in is on the content per vehicle which we have been highlighting
that content per vehicle from €40 per vehicle to €80 that remains where we are in that cycle and
in previous call you highlighted that the companies are taking some particular orders at
subsystem level from component level we are trying to move up in the value chain again some
examples where we have been successfully been able to continue, what to do to our overall
content per vehicle target, how should we look at this entire transition and that is my last
question.
Harsha Kadam:
Yes, as I said earlier the content of vehicle, we have a clear plan to grow the content per vehicle
and accordingly there are products which are moving into more into the subsystem level and that
is happening. Some of the new business wins in terms of our transmission business which you
see recently that we have secured on the dual clutch transmissions, you will find exactly moving
in that direction to improve the content per vehicle offering. What I would like to also point out
is these could vary - the content per vehicle varies between the segments within the automotive
space the light commercial vehicles, the heavy commercial vehicles have different content per
vehicle and depending on the products we have and the offerings and we have the new business
wins that we make clearly determines what is the content per vehicle so we have varying content
on the vehicle growth happening in the different segments so to say. Tractors we were having the
dual clutch was a growing market and if one were to look at Q3, the demand for dual clutch
actually went down because the specific models were not being produced in that quarter so that
had an adverse impact on the content per vehicle in the tractor segment whereas in the others we
were in a much favorable situation where we have grown a bit so you have a varying mix coming
out when we look at the content per vehicle.
Sandeep Tulsiyan:
Understood thank you so much for taking the questions.
Moderator:
Thank you. The next question is from the line of Manjeet Buaria from Solidarity Investment
Managers. Please go ahead.
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Schaeffler India Limited October 19, 2022
Manjeet Buaria:
Thank you for taking my question. I had one question which relates to the exports business for
the company when I read the call transcripts and management communication before July 2020
what was explained was Schaeffler globally has a philosophy that every region has its own
manufacturing facilities for those regions, and it was expected that exports out of India will
remain at 8% to 10% of company sales for the India entity. So, I just wanted to understand what
has structurally changed over the last two years like this kind of seems to not hold anymore
where exports suddenly have become a big opportunity for us and even the parents seem more
okay with us exporting more out of India for other geographies versus localizing the money
merchant? Thank you.
Satish Patel:
Yes, your point is very valid a couple of years back we would have said that exports would be in
the range of 10% and Schaeffler does have strategy and philosophy of producing in the quarter
for the quarter and that remains unchanged even now also that strategy philosophy remains
unchanged we do have sort of a production in the region and this is obviously because of the
content of their steel in the raw material which is A category cause and that remains above 50%
and the price level of that is not significantly different across the globe. However, during those
calls in those years, we have also mentioned that as a strategy Schaeffler also focuses on products
for the country where there is a critical mass and where the competency exists. And carrying that
story further we have in subsequent calls also clarified that as far as India is concerned there are
certain products where India has a critical mass, India can serve the other global Schaeffler
countries and also the competence exists in India - cylindrical roller bearings and certain other
type of bearings was a very good example. In addition to that when Schaeffler did the global sort
of a review of the strategy it was actually found appropriate that in other countries this type of
products are in not so much of critical mass and requires to be relocated to India and the second
was in addition to the competencies also the cost for certain products we have developed the cost
competence in addition to the engineering competence and that actually makes also relocations
quite feasible so that is the main focus. In addition to that, yes, one more point is that some of the
markets which were not so much accessible in the past have actually opened up more than what
were there in the past and one good example is the Asia Pacific market. And Asia Pacific now we
have quite a high ratio of exports inclusive of all the South Asian countries, Southeast Asian
countries and also in China so that has also opened up some more opportunities unlike in the
past.
Manjeet Buaria:
Thank you. I have one followup question. If we take this total pie of products where India stands
out either for cost advantage or critical mass advantage or for some technology advantage
everything put together is globally the 500 for Schaeffler are parent what percent of that are we
supplying right now so I am just trying to understand our penetration for these products where we
have some edge in the global scheme of things?
Satish Patel:
Yes, I understood your question, but I do not have that sort of number ready but yes where we
have the competence actually the contribution of our exports is significantly higher. So, it is
significantly higher so I would say it can range in 30%-40% of the global requirements at least
20% of the global requirements but I would not be able to give the exact number for those
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Schaeffler India Limited October 19, 2022
products. I do not have that data in front of me but yes wherever CRBs for example the
contribution of Schaeffler India is significantly higher.
Manjeet Buaria:
One followup final question if you take really long-term perspective a decade two decades can
you structurally go up to like 60%-70% of global contribution for parent or are there certain
strategic reasons for which the parent would not want their share to be so high? Thank you that
was the last question.
Satish Patel:
No there is no limit to that, as long as we are able to sort of sustain that level of competence both
cost, engineering, and technology and able to serve I think there is no limit; however, how much
would that be that would be very difficult to answer.
Manjeet Buaria:
Thank you.
Moderator:
Thank you. As there are no further questions from the participants, I would now like to hand the
conference over to Ms. Gauri Kanikar for closing comments.
Gauri Kanikar:
Thank you everyone. Thank you for joining us today. If you have any further queries, please do
reach out to me on gauri.kanikar@schaeffler.com. Thank you and have a good day.
Harsha Kadam:
Thank you all.
Moderator:
Thank you. Ladies and gentlemen on behalf of Schaeffler India Limited that concludes this
conference call. Thank you for joining us. You may now disconnect your lines.
(This document has been edited for improving readability)
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