Schaeffler India Ltd

Notes from Schaeffler concall JFM quarter 2023 whatever I could capture (E & O E):

1. Business win from prestigious a automotive player in the EV space (passenger vehicles)
   Production expected to start in H2 next year. The product is 2 in 1 e-axles (apart from usual bearings etc. which we supply anyway)

2. Industrial sector witness degrowth due to wind sector impact

3. Exports – There were some headwinds, could not fulfill some export orders

4. Would love to maintain working capital at 19-20 %, which is the present level

5. Plan to remain FCF positive every quarter, achieved in Q1

6. Capex will be around 6 to 7 % of sales which is where we are in current quarter also

7. Exports

• 30 % exports to Germany (within 48 % to Europe), 40 % to Asia and 10 to 15 % to North America
• Relocations happening from Europe to India
• 30 % capex is going into that
• Customers doing inventory correction in Europe. So, there is slowdown in demand.
• Some global demand decline also but not a major factor
• Order book is strong – 1 year’s order already there so outlook is very positive
• Base is also high since last year export growth was 60 %

8. Wind Sector

• Wind segment is substantial for us, 25 % of Industrial segment
• Of the wind production equipment, 80 to 85 % is exports which is put on hold
• That is causing the slowdown

9. Industrial (ex-wind)

• Railways – good business wins, Vande Bharat deliveries started
• Now getting into Freight wagons segment
• Making gains into Steel, Cement sector and Construction sector also
• 2-Wheeler segment is muted but there was an uptick in March. Need to wait and see if the recovery sustains.

10. Automotive aftermarket

• It is cyclical, there will be YoY growth always, but QoQ there will be a drop
• There is a spike in the last quarter every year
• We have strong order book

11. e-mobility solution win

• We have strong lineage in this in Europe
• The new business win is worth 300 million EURO over the next 7 years just from this business win
• This gives us the confidence we have learnt how to crack this market
• We will initially source it from Europe but gradually make this in India entirely
• We have already qualified for the PLI scheme

12. Volume growth for the quarter

• Same as value growth, there were no pricing changes

13. Railways share in total revenue

• Rail is part of Industrial segment
• Rail is 8 % of industrial in the current quarter

14. Margins

• Seeing no impact of lower RM prices
• We have a wide mix of RM and overall, there have been no lower costs
• Some softening is expected in the coming quarter but as of now we have not witnessed any such thing

15. Industrial Segment contribution has come down from 40 % to 32 % over a period of time

• Our exports are largely Industrial
• So actually, the mix is 48 – 50 % for industrial
• Decline this quarter is due to sectors like Wind

16. Localization

• Currently it is around 72 %
• We plan to reach localization to 80 % in next 2 – 3 years

17. Industrial Segment

• Segment wise details = please refer to a detailed document put up on our website and then reach out to our IR cell if required

18. Depreciation has not increased despite large capex

• Lot of assets have been used for longer than their life cycle

19. Content per vehicle

• We are now at 45 EUR

20. Schaeffler Lifetime Solutions & Mechatronics (mentioned in the Annual Report)

• Ensures Plant reliability and efficiency uptimes for the customer
• Software which analyses health of the equipment using handheld devices
• Keeps health check of the products and ensure optimum performance, improve reliability
• Industry agnostic application but used more in process industries such as steel, cement etc. and now expanding to food and beverage etc.

21. Mechatronics

• We have a Mechatronics Center here with 250 engineers working on various projects

22. Seeing strong traction in Cement and Steel sector due to infra push by the government

23. Recovery in industrial sector – H2 may have better traction, especially in wind

24. Bearings to non-bearing business ratio

• Will become 50 -50 going ahead in the long run, may be in distant future

(Disc: Invested)