Schaeffler India Ltd

Notes from Schaeffler concall for OND quarter and full year ending CY2022 whatever I could capture (E & OE):

1. The only concern is inflation, most other indicators are positive.

2. Strong traction in cement, steel is also beginning to revive.

3. Automotive sector – Strong run in PV and CV, Tractors slowing down.

4. Big boost for railways through Vande Bharat etc. good for Schaeffler.

5. Risks going forward – inflation, input costs (some of them).

6. We intend to keep focus on cash generation.

7. EV focus continues.

8. Automotive aftermarket – increasing reach and coverage for the new products we have launched.

9. Strongest growth in export business in recent times.

10. Seeing slowdown in wind business (industrial segment).

11. Working capital – brought down to 17% of sales, which is one of the lowest we have hit.

12. Capex – Investments were Rs.183 crores in this quarter. Continue to increase investments.

13. FCF was strong for the quarter.

14. Dividend – Rs.24 per share which is 50 % more than last year which was Rs.16 per share. Company has a stated dividend policy of 30 – 50 % of net income.

15. Expecting some flattening of the export demand in 2023.

16. Exports business going ahead – We have relocation strategy & localizing certain products. This will continue. But global slowdown may result in some lag. We are exporting to all continents and it is balanced, no single region which is disproportionately large.

17. Capex – Rs.500 crores in CY2022, same number in the next 2 to 3 years. We have announced Rs.1,000 crores in the past which we are revising to Rs.1,500 crores.

18. Automotive Aftermarket – We continue to launch new products. Expanding our product portfolio and reach to pan-India.

19. Industrial segment – About 10 – 12 % came from Wind. In H2 CY2022, demand was affected due to sanctions and project cancellations. Going ahead, GoI has planned for 8 GW power projects every year for the next 8 years. This will be good for us (for wind business). Core segments like steel, cement, mining etc. are doing well.

20. Tamil Nadu plant – MoU was signed in 2021, got allotment of land a month back. Have started work now. By end of next year, the plant will be completed.

21. Competitive intensity in bearings is increasing as all the players are expanding (mentioned by one questioner).

22. Localization – it is on the cards, currently at design stage. Will happen next year, not this year.

23. FX gains / losses: For CY2023, no adverse effects. We have some dollar exposure but even that is hedged, almost no EUR exposure. Imports are rupee denominated (surprise!).

24. Railway – we are making investments, working newer designs which are coming up, 200 KM per hour trains coming up. This will lead to higher value creation for our customers. Railway will remain focus sector for us.

25. Railway – Overall, 4 to 5 % of India business is from railway.
    a. Locomotives, passenger, freight trains – Well positioned in passenger applications, already made investments for productions, increasing localizations. Freight trains – it is a very cost driven segment. Currently we do not have a product but looking to come up with a new design.
    b. Metros – we are strongly positioned, doing good business there.

26. With EVs coming in, our content per vehicle will double.

On the whole, the results were strong and the concall did not disappoint. The new positive triggers from the concall were – Capex guidance raised from Rs.1,000 crores to Rs. 1,500 crores, TN government has allotted land and greenfield plant construction has begun, big business expected from government’s mega Railway modernization push.

(Disc.: Invested)