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.
The company is seeing order book improving, while
there
is need for conscious efforts to get new
order book from Asia Pacific which has contributed growth in Q1CY2024.
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