Schaeffler India conducted a conference call on 26 April 2024 to discuss its financial results for the quarter ended March 2024. Harsha Kadam, MD&CEO of the company addressed the call:

Highlights:

The company was recognized with awards by customers such as TAFE and John Deer for the exemplary customer centricity that the company demonstrates both in terms of service level as well as value add to customers. The company has also received award in the area of corporate social responsibilities.

On the economy front, the GDP growth is expected to be healthy at 7.2% in Q1CY2024 driven by demand in the domestic basket both the manufacturing and the service sector. RBI projects GDP growth close to 7% for FY2025.

The automotive industry production growth was about 5.2% in Q1CY2024 on the back of a strong growth in the passenger vehicles and the light commercial vehicles. However, the medium and heavy commercial vehicles and the tractors showed a decline or flattened performance.

Restructuring

The company has carried out a restructuring in the organization with the split of 3 divisions into 4 divisions considering emergence into the Electric Mobility play. It has created a new business division called e-mobility and other three business divisions have been now restructured and renamed.

The earlier automotive division is now split into e-mobility as one of the vertical divisions and then the power train and chassis as the second division. The bearings segment under automotive division is transferred under the industrial business.

The automotive aftermarket division has been renamed as vehicle lifetime solutions.

The industrial division is now renamed as bearings and Industrial solutions. Along with renaming the industrial division, the company has reallocated plant, machinery and the employees from the bearings business under automotive division to the industrial division.

The new structure has come into effect from 1 April 2024

All four divisions would continue to operate across all the four regions where the company operates.

Performance for Q1CY2024

The company still faced some headwinds and challenges in the marketplace, it has been able to post robust yoy performance driven by 12.4% growth in domestic market supported by all sectors baring of couple of sectors.

The margins remained resilient driven by initiatives of the company to manage operating costs as well as ensuring that the company continues to secure new businesses.

There were some challenges on free cash flow generation as first quarter has a muted free cash flow numbers and the focus is to recover the situation in the coming quarters.

The working capital has been in the reasonable range and the focus is on improving it going forward.

The company is able to sustain the topline growth driven by efforts to continuously keep striving to win business.

The vehicle life and solutions division is further expanding coverage in terms of reach as well as in terms of the more traded products that the company want to add to portfolio. The company will continue to keep the focus on winning new businesses and adding new products to win new businesses.

In the bearings and industrial solutions division, the company has won some new businesses particularly in some specific high engineered sectors. The company has won some new businesses from the railway sector for cylindrical roller and roller bearings.

Financial highlights

The automotive technologies have contributed almost Rs 56 crore incremental revenues in Q1CY2024 compared to Q1CY2023, vehicle lifetime solutions Rs 14 crore and industrial Rs 107 crore.

The exports has exhibited drop over a year ago due to the sluggish demand from the western sectors. However, the export business showed strong uptick of 19.6% on sequential basis in Q1CY2024 from Q4CY2023.

The domestic business growth is strong at 12.4%, while the company has push it forward to sustain growth momentum.

Vehicle lifetime solutions business is a cyclical business and the first quarter will always be lower when compared to the preceding quarter. The Q4 is always the highest business. The business has grown 9.7% over Q1CY2023.

Bearings and Industrial solutions business has exhibited strong 16% growth over Q1CY2023.

On the industrial part, the company has seen a strong demand coming up in the first quarter from wind and two wheelers segment. The cement and steel sector also exhibited good demand coming back.

Post restructuring, the bearings and industrial solutions segment is garnering about 42% of the total revenue, automotive technology 35%, vehicle lifetime solutions 9% and exports continues to be around 14%.

The working capital went up to Rs 1352 crore due to tactical increase in inventories to meet business demands. The company expects many of sectors showing recovery and this kind of inventory need to be there to service customer needs. The company expects to operate optimum level of working capital at 17-19% range.

Railways is a growing business and very relevant for play of things. The company has portfolio of products where it is strong and can compete in new applications.

The commodity prices have stabilized and pricing is always linked to the commodity price movement.

In the aftermarket segment, the company does not pass on any benefit of reduction in the commodity prices.

Capex

The company has been consistently investing over the last few years to ensure that it continue to localize a lot of production in India and increase localization content. The capex was high at Rs 173 crore in Q1CY2024 as against Rs 118 crore in the same period last year

The capex as a percentage to sales was at 7% in Q1CY2024.

Among other, the capex investment is into the capacity investment in setting up of new plant of Hosur and investment is into backward integration, localization in Savli plant.

The benefits of capex would reflect strongly performance when the market comes back in tractors and commercial vehicles segment.

At Hosur plant, the first hall construction is underway and the once the building is completed the machines would start to roll in. By the end of this year the entire project would be completed

Subsidiary

The recently acquired subsidiary KSRV has posted a revenue growth 24.6% in Q1CY2024. The EBIDTA still remains negative as the company is in the ramp up mode by way of expanding the footprint to pan India. The company has started now to move into the west and the northern region from southern part of India more so in Bangalore and Chennai. The company expects to see the positive results soon.

Exports

The exports have showed healthy rebound on sequential basis in Q1CY2024 and the company is watching cautiously for next couple of quarters for clear trend.

The capex commitment continues and the strategy of investing to grow and localize more in India is strong and on the right track.

The sequential growth in exports came from all the regions. The stocks that Europe was consuming have reached optimum level and thereby they have started placing the orders. The company has also put efforts to acquire Asia Pacific markets which fared well.

The order book looks promising at this point of time.

The company is seeping strong uptick in export business in Q1CY2024 and almost a 70% demand is seen coming back. In the wind, there are two application - equipment itself and gearbox. The company is seeing is a very strong demand coming back from the gearbox manufacturers. Hopefully the wind equipments too would start to make a recovery as seen in the gear box.