Schaeffler India Limited analyst Q&A

Sir, should we begin the question-and-answer session?

Yes please.

Thank you very. We will now begin the question-and-answer session. The first question is from the line of Harshit Patel from Equirus Securities. Please go ahead.

Yes. Thank you for the question. And yes, rightfully we have started to localize the axle production. We have started to bring in machine s in a phased manner . And we are staying the course when it comes to our investment plans towards localizing the product here in India. What we are waiting for is our customers also to now launch the products so that we will begin to see traction in the market place. And we are hopeful very soon we are going to see the products operate on the roads.

Understood. Sure. Sir, secondly, you mentioned that you have been rationalizing the capex because of the slightly muted demand environment. So just wanted to check what are our capex plans for both CY’25 and CY'26? So, I understand that we have incurred quite a lot of heavy capex in the past four to five years, so will we maintain the same run rate or now there will be a moderation in the overall capex that we will do?

So, we will be moderating it a little bit, but not so much that it will reduce significantly like to a 50% level or something. So, we are having average capex over last four years of INR 500 crores. It will be slightly lower than that like 10 %, 20% lower than that per year. Now, the focus next two years is on capex efficiency that whatever we have invested, we want to realize to the full extent possible.

Understood, ma'am. Just lastly, if I can squeeze in one more question. Could you give us a broad mix of CY'24 revenues of bearings and industrial solutions segment in terms of two-wheelers, EVs, raw material sector, wind, railways, power transmission, as well as aftermarket?

Okay. So, as I think it was published in the segmental report that our B &IS, Bearings and Industrial Solutions stands at close to, of the total domestic sales it is at 44%. Total revenue is 44%, but if we do not consider intercompany then it is 51% , that is Bearings and Industrial solutions. And if we talk about engine and transmission , then within the domestic sales that is 39% and Vehicle Lifetime is 10%.

Understood, ma'am. But ma'am, what would be the contribution of segments like two-wheelers, EVs, raw material, wind, railways within the Bearings and Industrial Solutions? Because this segment is the amalgamation of so many end user industries, so if you could give us some flavor on this, that will be very helpful.

Yes. So, the quarter-on-quarter the range differs, but overall range for Wind is 15% to 20%, Rail is between 5% to 10%, Industrial distribution between 30% to 35%, Two-wheeler and Off road between 20% to 25%.

Understood. Perfect. Thank you very much and all the best for the future. I will come back in the question queue.

Thank you.

Hi. Good morning and thank you for the opportunity. My first question would be on the export side. So, while you did mention that exports are looking up and you are seeing some momentum, I just want ed to get some sense on which are the geograph ies you are seeing the pick-up happening? And while you look at it from a run rate standpoint, it's around INR 250 crores. We had touched about INR 300 crores per quarter revenue from exports a couple of quarters back. So, are you seeing a steady run rate of touching INR 300 crores as the first milestone, wherein which you will probably mention that exports has come back to its normalcy level?

Yes, if exports come back to normalcy, then we have capacity to cater the export market for INR 300 crores per quarter. And we are expecting that it is likely to return this year if the geopolitical situation is brought under control, and which is in the news also. So, INR 300 crores would be an achievable kind of target for us per quarter.

And what you see is just a moderation or a course correction that was required because of the slowdown in demand from Europe, which is the main market for us. But however, that does not mean that we are going to keep the investments at these levels. We are hopeful and optimistic that with the changing geopolitical politics situation in Europe , t he demand certainly would come back to the days of the last year, which we saw in '23 and very strong demand coming in at that time. And we hope that the demand comes back, and we will up accordingly.

Got it. Would it be possible to share the contribution from each end market, for example, what would be exports in proportion to Europe, the US and other geographies? The top four, if you can share.

I think normally our exports are to the US to Europe and to the eastern part of the world , the Southeast Asian market, and a little bit of it to China as well. I would say predominantly 80% would be in Europe, the rest is split against all the other countries.

Understood. One more question from my side, something on the reporting side. In the segmental financials of consolidated numbers , there's been a new statement in the calendar year '23 numbers. Just wanted to get a sense, that restatement is not visible in the standalone financial s. Is there any change with respect to reporting?

No, so the consolidated financials of 2023 had Koovers only for the last quarter because we acquired it in September.

Right. So, with respect to the reporting, if you can, if you see the CY '23 numbers , for the consolidated segmental it s hows that Automotive Technologies has declined on a 10% in CY '24.

Yes. So, we had announced, also there was a note in the financials that auto bearings have been regrouped from Automotive Technologies now to B&IS, the Bearings and Industrial Solutions.

So, this was the internal regrouping which was done. So that change you will see in the consolidated as well as in the sandalwood.

Right, I will take it offline then. After the reclassification it shows that the automotive declined 10% and bearings and industrial has grown by 40%, I will probably take it offline on this. Thank you for answering the questions.

So, in Automotive Technologies there is a double -digit growth over last year as well as in Bearing and Industrial Solutions. You can connect with Gauri; she will give you the details.

Thank you.

Sorry, I want to make a small correction. I did mention our majority of the exports, 80% is to Europe, it is 60% and not 80%. I just want to stand corrected.

Thank you. The next question is from the line of Pramod from Incred Equities. Please go ahead.

Yes. Thanks. So, coming to the export side where you talked about Europe war should be a tailwind for you. How do you look at the currency depreciation which has happened? How does it compare you versus the peer set of the Schaeffler? And does it give you a more scope for growth in the coming years?

Okay. So yes, when it comes to it, 60% of our business with Europe is in Indian rupees, so it does not impact us for this part of the world that is Europe , where the export as well as import both is in Indian rupees. When it comes to USA, we have only close to INR 100 crores worth..

Less than INR 100 crores.

Less than INR 100 crores, and I think appreciation or depreciation by 5 %, 10% is not going to impact much.

I would say the dollar strengthening is not making an impact on our export business.

Sure. Thanks. And the second one is with regard to KRS V, how much timeline you think will be required to turn it around on EBITDA or accelerate the momentum? What are the key factors to look at for this business?

Well, this is a new business for us, and we believe we will need at least another two, two and a half to three years for us to kind of bring this business to a substantial level of financial deliveries happening. And we have a clear strategy in place as to what needs to be done to get there. The time is required more from an execution point of view, because when we acquired the company, it had a very localized presence of Bangalore and Chennai, which we have now started to scale up across India, and that takes time.

Sure. And sir the last question is with regard to the Auto Expo, where you had a detailed display of your products, especially new ones like e-axles. What's the clients' reactions where you found more business opportunities for the next two years, three years' timeline? Any thoughts on the same?

Yes. I must say the portfolio of products that we have showcased at Bharat Mobility this year, derived tremendous positive response from a number of customers, specifically from our OEM customers. And I was there in the stall and I had a first-hand experience of our OEM customers walking into the stall and understanding and acknowledging our capability as a system level player, since we were able to showcase our capabilities in offering a co-axle, e-axle, three in one e-axles. Or at the same time, an off-axis e-axle solutions to the passenger vehicle segment. Apart from that, of course , we had a plethora of products, electronic products which were displayed there with the merger of Vitesco globally, we now have the capability to offer power electronics solutions, thermal management modules, battery management systems. With a lot of sensors and data acquisition diagnostic sensors that are there. So, this kind of opens up the game for us to play at a next higher level, which was very much visible and evident in the Bharat Mobility. I must say the response has been pretty good. We have started to get very positive responses from our customers as such, and there are a few project openings which we are beginning to explore post the Bharat Mobility already.

Sure, sir. Thanks, and all the best.

Thank you. The next question is from the line of Himanshu Singh from Baroda BNP Paribas Mutual Fund. Please go ahead.

Yes. Hi. Thank you for the opportunity . And congratulations on the good set of numbe rs. Sir just wanted to understand on the aftermarket side. So, why did we see a decline? And how do you see the segment ramping up post your more focus on the BS-VI product portfolio?

There are a couple of reasons for that. One obviously is this strong, we have seen a strong uptick coming from the OEM side of the business. So obviously the OEM market garners a lot of production capacity , that happened as well and gets a priority in terms of supply. This is something we want to redefine going forward, we are working on that. The second obviously is also, we see some shift in the market from the pure automotive aftermarket business to the OEM demands as well going up, is rightfully in the right direction. As more OEM vehicles come into the market, the OEM cu stomers too are strengthening their service base in the market so that they stay closer to the customer, which I guess is the right thing to do and that's happened and beginning to happen as well. Last but not the least, we saw a little bit of slackening of demand in the automotive aftermarket business fundamentally, coming on the back of liquidity crunch in the market in terms of cash being available. So, we saw some weak situation there and we are hoping to see it improve now. We are seeing some signs of positivity already beginning to happen. I would say these three would be the main reasons of why the aftermarket business had some challenges.

Okay, sure. And sir, in terms of your Vitesco acquisition, so how does it impact our India business? And when should we start seeing , like are we going to see it getting merged within Schaeffler India or how is it like the business going to happen?

As I said earlier in my earlier comment , t he portfolio that comes from the Vitesco side is a complementing solution that we already have , because they bring in the electronics in the software side. And once we combine the mechanical and electromechanical system with the software and electronics, we are able to move up the value chain in terms of our offering of value to our customers, and which is something our customers also look out for to say, can we get a better value-add coming from technology players like Schaeffler. That said, the merger globally has been completed. Coming to the nitty-gritties, the functional integrations are well underway. We have started to leverage and complement our offerings already to the customers. I did talk about the customer response being very positive. And the customers do acknowledge the value enhancement that they see as a result of this merger. That said , as and when we graduate to the next level of engagement, the market will surely hear about it, will come to them.

Okay. Sure sir. I will get back into queue. Thank you.

Thank you. The next question is from the line of Sonal Gupta from HSBC Asset Management. India, please go ahead.

Yes, hi. Good morning , sir, and thanks for taking my question and congrats on a good set of numbers. Sir, basically just wanted to understand, right, at a broader level, like for the full year we have done good growth, double digit growth in Automotive Technologies. So, if you could just sort of give us some idea of what have been the drivers because the industry volume growth has been relatively muted. So which categories, I mean, we did make a lot of investments in Hosur, so how are we ramping up there? And how do you see the prospects, assuming that even if the industry growth remains at similar levels next year, if you could give some sense of how the business is progressing?

I suppose you are referring to the automotive space. And if I can break it up into the passenger vehicles segment wherein, we have made investments, and we will continue to make investments on the e-mobility side of the business. Since we are seeing the market gravitating towards electric vehicles already, and that's beginning to happen. So, we have rightfully made investments in the past, we will continue to do that going forward as well. Talk about the internal combustion engine, which is the main stay of the portfolio of products that our customers bring to the market, we do see with a couple of regulatory changes that are going to come in with the new CAFE norms. We believe that engineering investments need to be done here to reengineer the products to meet the new emission regulations that would come in as a result of the new CAFÉ norm. Now, that said, we are also hearing on the tractor segment, the TREM norms to be coming out. So regulatory changes is definitely going to also give us opportunity to bring new products, which means we will have to continue investing in the I C engine portfolio as well , whether it is in the engine applications or in the transmission applications or in the chassis applications, we will continue to invest there. So, although we have seen some sluggishness or no improvement in the commercial vehicle sector as such, we have continued to launch new products there as well , as a result of strong demand also coming in from new products such as the heavy duty clutch es we have continued to make and are bringing more products into the commercial vehicle segment. And while the segment is still weak , but we believe that we should continue to invest in better technologies , products for this segment as well. Tractors on the other hand, we are seeing some better upticks in the last quarters. And I guess it was only in the Q4 that we saw some drop in numbers. Fundamentally it's because of a business cycle that it follows . But however, here again with the new TREM norms that they have been talking about, we we believe that we have the opportunity, being a motion technology company, we have the opportunity here to reengineer our products to cater to the new regulatory needs from our customers' side. And that is something we will continue to work upon.

Got it, sir. Sir just on the EV side, is that a meaningful portion for us right now? And I mean , other than the e-axle, are there any offerings that we have in this space?

I would say, yes, it's not just about e-axle, the e-mobility would also mean, we are working with our customers on battery management systems , on thermal management modules , and various other products. We are already supplying to them a variety of sensors, whether it be the NOC sensor or the NOX sensors and so on. So, we are already there. So, we will continue to build on it. As I said, with the regulatory changes coming in on the IC E engine side, I believe that the need for more innovation is going to happen even on the e-mobility side as well, equally. So, the portfolio of products that we have today is scheduling both to the IC E engine as well as to the e-mobility. And definitely it's not just at a system level that we are operating at , we also work with our customers.

Got it. And sir just on the two-wheeler side, right, l ike there was a press release recently and where we talked about, we are looking at more offerings again on the e-two-wheeler side and that two-wheelers and three wheelers is really the segment where we are seeing the EV penetration happening. So, I mean, like can you share something there in terms of how we are looking to capture some of the growth in the EV space in that segment of the market?

Yes. As you know, the two-wheeler has been the fastest segment to adopt electric vehicle technology with almost close to 30% that is all going to be electrics already. Now that said, we definitely have the capability and competency now to offer the electric mobility technology to the two-wheeler segment as well. And we are already present by offering a number of electronic solutions and sensors, which I talked about earlier to the two-wheeler segment and two-wheeler customers. We are already doing that. However, we are also now getting up to penetrate the electric two-wheeler space with our system level offering capabilities that we already have. What we also see is many of the OEM brands prefer to launch , develop their own technologies in- house as well. So, in the midst of all this, we will definitely find space going forward with our differentiation and the value that we bring forward. And our efforts are continuously on the two- wheeler space as well.

Got it, sir. And just lastly, could you share what's wind as a percentage of our overall revenue? I mean like how much is wind?

So, within the Bearings and Industrial space, it is 15% to 20%.

Okay. Got it, sure. Thank you. Thanks for taking the questions.

Thank you. The next question is from the line of Ankur from HDFC Life. Please go ahead.

Hi. Good morning, sir. Thanks, as always, for your time. Just on the industrial segment, if you could touch upon how are you seeing demand kind of shape up across all of your key verticals , wind, rail ? And the context really is , a re you seeing any there in any of these segments ? I remember wind of course has started to do well for the last few quarters, yes, so that's my first question.

First things first, we have seen our industrial business do very well in the last year. Almost all the industrial sectors have performed well for us compared to previous years, yes. Some of the strong performance obviously came in from the raw material sectors, as we call it, which is core processing or metal industries as such, and we are also seeing a good uptick coming from power transmission business. Our focus has been on the industrial distribution business. We have done some good work i n the last year by launching new programs which are bringing in more organized and structured way of working with the distributors of our distributors. And of course, that's only going to enable us to become more efficient in our distribution business . And I am hopeful that coming into 2025 we will see a stronger performance in our distribution part of the business as well. So, all in all, we are also seeing a good uptick coming from the construction equipment industry. Obviously, this is coming on the back of the infrastructure push by the Government of India, that is boding well for our business as well. The industrial automation or the machine tool industry too has seen some good performance last year. With the demand for some new products like linear guides going up, we are seeing some traction there as well. I was in the IMTEX, Bangalore recently and we saw very positive , everyone OEM was talking about doubling the production capacities in the next three to four years. So clearly the indications are, the industrial part of the economy is also doing pretty well at a pretty good growth rate. And I do not see any reason why we at Schaeffler, being a motion technology company , we play in almost every segment of the industry. We will be able to definitely ride the wave as it develops.

Okay, that's helpful. And also specifically on rail, and if we have any gaps there where we were not qualified, any segments where we are now looking to kind of increase our market share , if you could help with that?

So, if I were to look at railway, even railways too did pretty well last year, we performed very good I must say, in spite of some challenges on specific product portfolios where we see that we definitely did flip a bit on some of the product portfolios. Now what's happening is , the Indian Railways per se themselves are transforming in terms of technology, in terms of comfort, in terms of reliability, in terms of performance. And that is helping us to bring more new products, and we are optimistic that even in the railways we will play a stronger game as we move into this year. We have already got some approvals for some of the new product. And our investment in terms of capacity build up for the new products is well on course as well. So, both from a capacity investment point of view as well as getting approvals from the customers, both are on track. And we are confident that in th e railways segment as well we see an improved situation in 2024, will continue to see an improved situation going forward as well.

Fair. And just the last question if I may. Given the outlook on largely the auto market s being flattish or maybe a slight single digit growth is what we are hearing from most OEMs as we head into this calendar fiscal. Possible for Schaeffler to get into a double -digit growth given your market share gains in products, how are you thinking in terms of growth for this year on the auto side?

I did mention that one of our key focus has always been securing new products and new businesses, and that definitely is something that will help us to continue to stay ahead of the curve. And our vision has always continued to stay the double-digit growth rate curve, and we will continue to do that. So , one definite approach we adopted here is to secure new business which we shared with you on the earnings call. Apart from that, of course, as the changes come in in terms of technology, I spoke about it, whether it be electric mobility technology or whether it is regulatory changes driving us to reengineer our existing products to stay relevant in the game and how quickly can we get these products to the market . With both the capabilities and the strengths we have we, I believe, are positioned in a much better way to play the game better. And we will continue to work on this strength, we will continue to play to our strengths in this area.

Okay, fair. All right, sir. Thank you and all the best.

Thank you. The last question will be from the line of Salil Desai from Marcellus Investments Manager. Please go ahead.

Yes. Thank you , sir. My question is on the on the capex moderation, you mentioned that you want to kind of be more efficient with the capex already done, and maybe from a demand outlook point of view also it isn't as great as it earlier was.

Sir, we have lost the connection of the current participant. The next question is from the line of Samyuk from Marcellus Investments Manager. Please go ahead. Sir, I would request you to unmute your line and speak please.

Yes. So, my question was, so you earlier mentioned that you are moderating your capex so ahead due to the demand moderation on the domestic front or the export side, if you could give some color?

No. So, on both sides we have registered double-digit growth, as you have seen. So, it is not that the demand is moderating. We are not focusing on capex and personnel efficiency because we have set up the buildings in Hosur, in Savli , in Talegaon. Now it will be only filling up them with the machines which are required for production. So, in fact, whatever capex we had up close to INR 1,500 crores, over INR 300 crores was into buildings and infrastructure . So that investment will not happen, but rest of the investment close to INR 400 crores will continue to happen per year.

Got it. So, it would be mostly for the machinery and all?

Yes, for capacity.

Capacity, got it. Thank you. That's it from my side.

Thank you. The next follow-up question is from the line of Himanshu Singh from Baroda BNP Paribas Mutual Fund. Please go ahead.

Yes, hi. Sir just one thing on the localization side, so where would we be on the localization front as of now? And like what are your targets in terms of localizing your product portfolio in India?

So, as of December 2024, we were at 76% of localization. The value of our own production and the sales from own production has significantly increased. However, our top line growth is even more than the production growth , so we are at 76% . In the mid -term we are aiming for 80% localization.

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.

Thank you everyone. Thank you for joining us today. If you have any further queries, please do reach out to me or drop me an e -mail at gauri.kanikar@schaeffler.com. We now close the call. Thank you and have a good day.

Thank you. On behalf of Schaeffler India Limited, that concludes this conference. Thank you for joining us. And you may now disconnect your lines. (This document has been edited for improving readability) Registered Office: 15th Floor, ASTP (Amar Sadanand Tech Park), Baner, Pune – 411045, Maharashtra

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