Intrsting update by the company :
Disc : Invested.
Back to back updates about the company :
looks like a promising move.
Can someone (may be industry insider) help us in understanding it more.
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Looks intrsting, however in current times, how would Railways help them.
Schaeffler came out with very good numbers for September quarter. (q3 fy 21 as company follows December ending year).
Sales is highest every quarterly sales at 1488 crores. Net profit is highest every quarterly figure for the quarter at 171 crores. 9M EPS close to 141 per share.
Stock price has been stuck in a range of 7100 to 8100 since a long time and once it breaks out some strength can be seen.
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Sep 2021 presentation.
q3 fy 21 EPS 54. 9M fy 21 EPS 140.
schaeffler q3 fy 21 presentation.pdf (1.7 MB)
Interesting points to note from concall.
Industrial segment contributes 41%, auto technologies 38%
Stock split of 5 for 1. Dividend payout policy of 30-50% payout.
Electric mobility focus. Company expects globally 30% adoption of EV. In India, expectation of 7% of EV adoption. Company is focussed in participating in this shift.
Going ahead, see some headwinds due to chip shortages in automobile industry. Company constantly monitoring situation.
Market share gains… Improving content per vehicle. In range of 40 euro per vehicle but in LCV more traction seen.
Spent 140 crore capex and on the verge of total 200 crores capex this year . In 3 years, 1000 crores capex commitment maintained. Looking at more localisation of products, focus on exports, etc.
Plant set ups at Talegaon new plant.
New plant in Baroda to focus on industrial products. New Savli plant near Vadodara likely to be ready in 9 months.
Regarding subdued exports, growth in exports since past 3 quarters good and on 9 month basis quite good. Europe, South america, China etc export destinations. This quarter growth not significant because previous quarter base quite high. Plus situation of Covid globally is bad in export destinations. Roller bearings growth have good prospects. Newer products are roller bearings. some opportunities in clutch side. Target to increase footprint in asia pacific. Certain products will only be manufactured in India.
In railways, tendering process are still under works and hence growth lower. All other sectors like wind, industrial automation, off road sector, power transmission, raw material sector, etc doing well. Tractors have done well.
In industrial segment, some products that were imported earlier are now sourced locally by customers. Company remains focussed on identifying new customers and new opportunites. After market company has done quite well.
Price hikes pass through is a constant journey. Negotiations with clients continue. Other aspect is to control costs. Sourcing raw materials locally. OEM also have gone ahead and increased prices of vehicles so whole ecosystem is adjusting… In aftermarket, co has gone for price increase.
After market has grown strongly q on q and y on y. Used car segment is growing much faster and hence demand for after market products increased. Plus more products in clutches and bearings added in after market segment. Addition of new products like engine oil, greases, coolants, lubricants, shock absorbers. All these factors contributed to strong growth in after market sales.
Wind energy sector has grown significantly. Margins in segment are good .
There were some discussions about stock split and bonus.
OPTIME has won red dot award. In India this product was introduced to the market . Customers have received the product very well.
Schaeffler acquired Compact dynamics which makes motors for 2 wheelers EVs, Its technology could be brought to India and efforts are on in this regard.
Overall impressions regarding the company after the concall…
Management efforts are on to add new segments and new products within existing segments.
Some scuttlebutt from employee in Baroda. New lines are added at plants. Higher margin products are being introduced. Capacity utilisation remains high.
disc: invested.
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Leading industrial and automotive supplier, Schaeffler India Limited (BSE: 505790, NSE: SCHAEFFLER) today signed a Memorandum of Understanding (MoU) with Guidance, the nodal agency for the Government of Tamil Nadu (GoTN) for investment promotion and facilitation, to extend its production footprint in the state. The agreement was signed at the Tamil Nadu investment conclave in Coimbatore, in presence of Shri M.K. Stalin, Hon’ble Chief Minister of Tamil Nadu. Mr. Harsha Kadam, MD & CEO; and Mr. Satish Patel, CFO and Director of Finance, represented Schaeffler India at the signing ceremony.
Commenting on the development, Mr. Harsha Kadam, MD & CEO, Schaeffler India, said: “We have a long standing and productive relationship with Tamil Nadu Govt as we are already operating in Hosur for many years now. I am delighted to deepen our relationship today with this MoU. This expansion is in line with our strategic growth plans for India as we continue to localize and sustainably expand our footprint. We are certain that this agreement will further strengthen the relationship and take it to the next level.”
Under the agreement, Schaeffler India will invest over INR 3000 million in next four years to set-up a new greenfield manufacturing facility in Hosur, Tamil Nadu for manufacturing of transmission components and systems for Automotive and Tractor segments. The proposal will engender tangible economic and social benefits to state while generating direct employment for more than 300 individuals.
Further, according to MoU, GoTN will facilitate and help Schaeffler India to get the necessary infrastructural & regulatory support on best-effort basis including the Single Window facilitation as per Tamil Nadu Business Facilitation Act 2018.
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2021-12-03 | Herzogenaurach
- No agreement on alternative solution reached with employees despite extensive negotiations
- Negotiations on reconciliation of interests to start immediately
- Increasingly challenging market environment in automotive supplier industry makes structural adjustments inevitable
Automotive and industrial supplier Schaeffler is continuing to implement the structural measures announced in September 2020. The company was unable to achieve its objective announced back then of selling and partially relocating the Automotive Technologies division plant in Luckenwalde despite extensive negotiations between employer and employee representatives over a period of 15 months. As a result, the location, whose product and component portfolio is at the end of its lifecycle, will be gradually closed and its activities relocated by July 2023. Negotiations on a reconciliation of interests will be started immediately to provide employees with clarity as soon as possible.
Matthias Zink, CEO Automotive Technologies of Schaeffler AG, states: “We have held extensive discussions with the local employee representatives over the past 15 months. Although both sides did their best we did not come to a common solution in the end, much to our regret.”
In the context of its transformation toward electric mobility, the Automotive Technologies division is currently facing a particularly challenging market environment that makes structural adjustments and consolidation of locations essential.
The planned closure in Luckenwalde is part of the measures agreed upon in September 2020 that mainly affect twelve of the company’s German locations. At eleven locations, constructive discussions with employee representatives resulted in agreements on capacity reduction and consolidation.
“The closure of the Luckenwalde location is painful for all involved. Our focus now is on coming to the most socially responsible solution possible in negotiations with the employee representatives for Luckenwalde that are due to start as soon as possible,” said Corinna Schittenhelm, Chief Human Resources Officer of Schaeffler AG.
Disc: Invested
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One of the most important slides in the presentation indicates continued momentum in exports to Asia, Europe & Americas, going forward. This includes exports to group companies.
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Good read on past capex, RPT, Clean energy.
This is a very interesting company which I spent a lot of time analyzing but did not jump in. While the company has shown good growth including in exports, what I find missing is a clear-cut articulation by the parent to grow the India business, make it an export hub (at least for Asia Pacific, if not elsewhere) or ensure continued growth. Compare this to a Sumitomo Chemicals or RHI Magnesita, where the parent commitment is very explicit and unambiguously stated. Have I missed something?
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On the latest concall, management acknowledged that last few quarters’ outstanding results were indeed driven by “relocation” and demand from other parts of the parent entity. PFB my notes from the latest concall wherein I have tried to focus on exports as well as relocation.
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yes we are increasing the share of the Capex spend on exports or towards exports, the reason being the growth in export is envisaged as part of our strategy what revenue that you see in the quarter in terms of exports is likely to sustain. Also, for the future we have relocation of the products and we have also increasing demand from the other parts of Schaeffler world. So therefore, this area is going to remain in focus and yes increasing Capex also would be for exports, but it would be very difficult to allot a particular figure for exports.
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where did the growth come from we did very well on our export business and the growth momentum continued in our export business in this quarter which has helped to post a pretty good topline performance as well.
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we were able to deliver resilient margins during the quarter due to some of the continued focus on the counter measures that we had already deployed also coupled with our improved business mix with exports coming in stronger in the first quarter that helped us to post better EBIT margins than the preceding quarter as well.
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the automotive technologies contributed close to about 39% of our revenues as you can see on the pie chart and the industrial business had a contribution of about 37% leading the exports which inched up to 16% and the automotive aftermarket stayed at about 8%.
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Export as you can see was a phenomenal growth for us at about 61.4% better than the same quarter last year. Exports continues to hold up the numbers for us as well and when you look at the bridge, the contributions that are coming across the bridge below clearly explains the split between the business areas between Q1 2021 and the Q1 2022.
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we are focusing in growing more and more our export business
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Shyam Sundar Sriram: Hi! Sir, good morning. Thank you for taking a question and many congratulations on the very impressive results. My first question is on the export front, we had outlined INR 1,000 Crores Capex to be spent over three years, we are also hearing Schaeffler parents shifting some of the lines to India per se and even the last call you had spoken about that India could be a sole supplier for some of the product lines therein. I just wanted to get a sense from you how much of this INR 1000 Crores Capex is earmarked for export. So that would give us some directional trajectory in terms of where we are headed in terms of the export per se.
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as far as allocation of this Capex between different segments is concerned, for us it is very difficult to allot a figure to exports.
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Relocated lines from other parts of Schaeffler’s world to India is the Capex in the nature of plant and machinery and there is additional investment for Capex towards exports for the new machineries and the equipments
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Certainly, there will be growth in exports, so it would be difficult to say whether it would reach INR 1500, Crores but yes it would increase and it would increase at least in double digits going forward and that is actually going to build in terms of the overall export growth.
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yes there would be growth in exports and margin level that we have attained
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we have reached certain level of margins and we are trying our best to actually sustain the level of margins that we have realized.
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Exports largely for industrial business. So, our experts are as you know automotive business is highly localized and I think that is how the automobile model works actually yes. So automotive business is largely localized so our exports are largely for industrial business in fact over 90% would be industrial business only and in terms of geographical spread, it is more or less balanced now so we have a business of exports to Europe, North America and Asia Pacific and all these three would be more or less similar yes Europe would be highest and North America and Asia Pacific would be slightly lower than that in terms of the share of the pie. So that is how the whole structure is and we do have exports also to China a certain portion of exports to China there is more or less balanced across the continents.
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Vimal Gohil: My second question was you mentioned something on reallocation of some product lines from your parent entity I am not aware of the same could you please help me understand this better?
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Satish Patel: So those were the industrial sort of business some of the relocation of some of the lines and those were mainly on the large size bearings as well as TRBs, Tarol bearings for railways then large size bearings for wind applications, tech bearings for machine tune applications and TRB’s for heavy commercial vehicles.
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Vimal Gohil: Predominantly the relocation that is being done is for bearings.
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Harsha Kadam: Yes. That is most of the change that are happening and also catering to different sectors so to say industrial automation definitely is one of them, rail and wind is also on the agenda for us to bring in those product lines.
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Vimal Gohil: So basically, this will incrementally contribute to our export business one of the drivers there.
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Harsha Kadam: This is going to contribute mainly to that.
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Rishi Vora: On the export bit, export part you said that almost most of it is industrial, so like what are the products which you export and like what is the end consumers who are your end consumers in that segment.
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Satish Patel: they are largely bearings, in the bearings space both small and large size bearings, medium sized bearing so we have CRBs, TRBs, DGBBs and Tarol bearings, then large size bearings up to 2000 mm then we have stacked bearings and certain small bearings for robotic applications as well as axle taper roller bearings for the machine tool applications. So those are the products that go for exports and largely bearings only.
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Rishi Vora: This large size bearings which we export from India are also completely manufactured in India or is there any traded component.
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Satish Patel: Whatever we have exports here that is entirely manufactured in India only, yes, but we have certain components that would be imported where again we are working on localizing the component and we are even working for further localization. So, what we call as true localizations, localization of finished goods as well as depth of localization inclusive of the components.
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Rishi Vora: And last bit on export front only, why are we not in the automotive segment is there any specific reason for that or maybe over timing we will focus on that segment?
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Satish Patel: The point is that let me clarify once again that automotive space across the globe is a localized sort of a manufacturing. Whichever country you go, automotive production and auto component is largely localized because OEs expect just in time deliveries. OE expect best in class service level that can only be enjoyed by local manufacturing. So, this is a very common parlance across he globe and that is how it works also in auto component sector in India, and we have our automotive in both automotive OE we as well as automotive aftermarket largely localized. Yes there is some space in automotive aftermarket where we have imports because of the expansion of the product range because of the new product launches and the range expansion otherwise automotive is largely localized. A very, very small portion in our export is contributing from automotive space.
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Chaitanya Shah: Hi! Thanks for giving me the opportunity. Coming to export, I had a question generally from the entire Schaeffler group including the parent now more than 50% to 60% of the manufacturing capacity of the parent is in Europe. So internally is there any target of what can come to India or possibly are you guys working with a target of what portion of that can come to India and again with that because of the geopolitical situation there are a lot of talks of supply chain reconfiguration going on. So, I just want to understand where does India stand in terms of priority of setting up a significant manufacturing base for the parent outside of Europe?
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Satish Patel: Whether you talk about exports or you talk about relocation, the whole phenomenon was basis competence. So, we in India amongst the entire Schaeffler group have competence for certain range of products, have established both cost and technical competence and therefore those products are localized, those products are also manufactured in other part of the world but are actually relocated to India because of this competence. Same thing is happening for certain other range of products also, it is not that India is getting all the products of Schaeffler and that is just not possible. So, we have competence established for certain range of products in some other part of the world and those countries have actually manufacturing and relocation there and thereby the overall cost and the competence is actually improved across the group. Now coming to this geopolitical conditions, as Harsha also mentioned before that we have our export spread across the globe it is not only for Europe, it is for Europe, for America and as well as for Asia Pacific and therefore this geopolitical condition is no doubt a risk, but that could not be a significant risk in terms of achieving what we have targeted for our exports as well as what Schaeffler has globally targeted for different relocations across the Schaeffler world.
Disc: Invested & added recently.
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My notes on the co. with some insights from Schaeffler India’s latest concall.
- Exports have been growing well since Sep 2020.
What is significant about the Sep 2020 quarter? Why did exports grow despite covid induced challenges?
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With the benefit of hindsight, in Sep 2020, the German parent, Schaeffler AG, decided to cut jobs and move manufacturing to lower cost locations (such as India).
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Exports have been growing at a much faster clip than overall sales. Rolling 4 quarter overall sales growth of 28% vs exports growing at 63%.
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Rising exports have led to a better margin profile.
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Exports are now to all the continents, including Asia Pacific and North America and South America, where they did not have a significant presence in the past.
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Their export product portfolio has been expanded as well.
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A large portion of 150 Crs Capex in the June 2022 quarter was spent to increase export capacity.
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They have a clear strategy for exports for the next few years depending on what product lines they want to manufacture in India.
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Geopolitical issues in Europe could benefit Schaeffler India.
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Scalability - To put things into perspective, Schaeffler India’s total sales (domestic + exports) were a tiny 6% of Schaeffler AG’s worldwide sales and how much of that could come to India is anybody’s guess.
It all depends on how much the parent gives to the Indian co and whether or not Schaeffler India has a cost advantage in manufacturing those products vs Schaeffler AG’s manufacturing locations outside India.
To summarize, growth is likely to come from
- New customers from new geographies
- New products
- Better margins due to an increasing share of exports.
Disc: Invested from lower levels. No transactions in the last 30 days.
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Do you think this is a structural trend of companies moving out of China and expanding their manufacturing in India or just temporary tailwind driven by strong infrastructure push world wide ?
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Schaeffler did not move out of China but out of Europe.
In general, yes the China+1 theme seems to play out in some sectors, such as Pharma, Specialty chemicals, etc., sometimes structurally, sometimes occasionally.
Also depends on whether the given co. has a niche of some sort when it comes to their specific LOB.
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More of a Ukraine+1 and Europe+1 theme. Even SKF did the same and a lot of machinery has been moved to their unlisted subsidiary.
Disc: invested in Rolex Rings
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Notes from Schaeffler concall for OND quarter and full year ending CY2022 whatever I could capture (E & OE):
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The only concern is inflation, most other indicators are positive.
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Strong traction in cement, steel is also beginning to revive.
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Automotive sector - Strong run in PV and CV, Tractors slowing down.
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Big boost for railways through Vande Bharat etc. good for Schaeffler.
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Risks going forward - inflation, input costs (some of them).
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We intend to keep focus on cash generation.
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EV focus continues.
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Automotive aftermarket - increasing reach and coverage for the new products we have launched.
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Strongest growth in export business in recent times.
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Seeing slowdown in wind business (industrial segment).
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Working capital - brought down to 17% of sales, which is one of the lowest we have hit.
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Capex - Investments were Rs.183 crores in this quarter. Continue to increase investments.
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FCF was strong for the quarter.
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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.
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Expecting some flattening of the export demand in 2023.
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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.
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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.
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Automotive Aftermarket - We continue to launch new products. Expanding our product portfolio and reach to pan-India.
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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.
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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.
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Competitive intensity in bearings is increasing as all the players are expanding (mentioned by one questioner).
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Localization - it is on the cards, currently at design stage. Will happen next year, not this year.
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FX gains / losses: For CY2022, no adverse effects. We have some dollar exposure but even that is hedged, almost no EUR exposure. Imports are rupee denominated (surprise!).
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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.
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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. -
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)
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Notes from Schaeffler concall JFM quarter 2023 whatever I could capture (E & O E):
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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) -
Industrial sector witness degrowth due to wind sector impact
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Exports - There were some headwinds, could not fulfill some export orders
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Would love to maintain working capital at 19-20 %, which is the present level
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Plan to remain FCF positive every quarter, achieved in Q1
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Capex will be around 6 to 7 % of sales which is where we are in current quarter also
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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 %
- 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
- 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.
- 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
- 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
- Volume growth for the quarter
- Same as value growth, there were no pricing changes
- Railways share in total revenue
- Rail is part of Industrial segment
- Rail is 8 % of industrial in the current quarter
- 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
- 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
- Localization
- Currently it is around 72 %
- We plan to reach localization to 80 % in next 2 - 3 years
- 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
- Depreciation has not increased despite large capex
- Lot of assets have been used for longer than their life cycle
- Content per vehicle
- We are now at 45 EUR
- 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.
- Mechatronics
- We have a Mechatronics Center here with 250 engineers working on various projects
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Seeing strong traction in Cement and Steel sector due to infra push by the government
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Recovery in industrial sector - H2 may have better traction, especially in wind
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Bearings to non-bearing business ratio
- Will become 50 -50 going ahead in the long run, may be in distant future
(Disc: Invested)
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