Schaeffler India Ltd (SCHAEFFLER) Q3 FY23 Earnings Concall Transcript

Schaeffler India Ltd (NSE: SCHAEFFLER) Q3 FY23 Earnings Concall dated Feb. 17, 2023

Corporate Participants:

Gauri Kanikar — Head Of Investor Relations

Harsha Kadam — Chief Executive Officer and Managing Director

Satish Patel — Director-Finance and Chief Financial Officer

Analysts:

Ankur Shah — HDFC Life — Analyst

Vimal Gohil — Alchemy Capital — Analyst

Mukesh Saraf — Avendus Spark — Analyst

Sonal Gupta — HSBC Mutual Fund — Analyst

Mahesh Bendre — LIC Mutual Fund — Analyst

Sandeep Tulsiyan — JM Financial — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to Schaeffler India Limited Q4 CY22 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference to Ms. Gauri Kanikar. Thank you, and over to you ma’am.

Gauri Kanikar — Head Of Investor Relations

Good morning, everyone. Thank you for joining us today. We have with us from the management Mr. Harsha Kadam, our Managing Director and Chief Executive Officer and Mr. Satish Patel, our Director of Finance and Chief Financial Officer.

Mr. Kadam will first take us through a short presentation on the results, after which we’ll open the floor for questions. Thank you, and over to you Mr. Kadam.

Harsha Kadam — CEO & Managing Director

Hello. Good morning. This is Harsha Kadam and along with me is…

Satish Patel — Director-Finance & CFO

Hello, I’m Satish Patel.

Harsha Kadam — CEO & Managing Director

Yeah. I would like to take you through the presentation for this fourth quarter and year that has gone by. I would like to touch upon first some information on the economy and the industry, and I would like to throw light on the business of Q4 and the 12 months for the year 2022. I will then cover the financial highlights for the same period as well. And lastly, I would also like to touch upon how Schaeffler in India will continue our focus and commitment towards stakeholder value creation.

So, let me start, and I am referring to slide number three. And what you see on that slide is the economic indicators. And as you all are aware, the last quarter of last year we began to see stronger headwinds coming in our way, particularly in the global economy, monetary policies getting tightened up as well as the prolonging war in Ukraine.

And having seen these challenges, also the imposed [Indecipherable] of the economic sanctions in many of the countries, things began to weigh down on the economic outlook for India as well. But having said that, we also see strong traction in many of the industry segments plus the government’s initiative post the budget to up the economy and specific focus be brought upon which I will talk to you in the next couple of slides.

So with all that, the indications are that in year 2022, India will end the year with close to about 6.5% GDP. The only — the concern that is nagging all the business community is on the inflation side. And the last quarter, some of the increases in inflation began to moderate down. And that is going to be one of the key indicators to watch going forward as well.

One of the positive developments that we could see was in the passenger vehicles segment in the automotive industry. We saw strong traction coming back in the last quarter and that helped to shore up even our business performance to some extent.

I move to the next slide, number four, which — wherein I’m going to talk a little bit about the core industrial sector. And what you see here are some of the core sectors like cement, the mining, steel production and the power generation, as we can see.

Looking at the trend, strong traction on the cement sector and this is clearly riding on the back of the infrastructure push by the government. Not to mention, even steel began to see stronger traction in the last quarter, as we can see from the bar graph there. And mining and steel, which had gone down in the second and the third quarter, began to revive in the last quarter. And we began to see some stronger traction in the mining segment as well.

I move to the next slide, which is going to talk a little bit on the automotive sectors. And what you see is the two-wheeler and the three-wheeler sectors are where we saw contraction happening in the last quarter. As you can see, the dark green bar graphs began to reduce towards the month of December. And this was one of the factors which actually we saw some slowdown in the last quarter. However, the passenger vehicle segment continued its stronger run, even in the last quarter and [Indecipherable] commercial vehicles is to continue to keep its — the speed and momentum. Again, tractors — coming to tractors, this was one of the sectors where we saw the slowing down of demand in the last quarter again.

I move to slide number six, and I’d like to touch upon a little on the union budget that the government announced on the 1st of February. And what you see is the focus on seven areas that the government is clearly prioritizing. Having said that, what does it mean for us and I’m going to touch a little bit on some of the sectors where we see relevance to our business.

One, obviously is the focus that the government is wanting to bring in, in terms of infrastructure growth and one of the benefits of these sectors here is the railway sector wherein we having bagged some business wins in the Vande Bharat Express trains, and we believe that we see some positive movements coming in this area, what with the government announcing close to 200 Vande Bharat trains for this year alone. And that would result in a number of wagons and coaches, which definitely is going to be a big boost for the infrastructure industry and railway as sector. And at Schaeffler we see some good advantage there.

Talk about the other sectors, and that will be on the wind. The government revising its wind energy projects and setting 8 [Phonetic] gigawatts new-builds per year till the years 2030. Now, this would also enable the domestic wind capacity installations to move up, which has been languishing. And clearly, this is something that we at Schaeffler look forward to.

I would like to now move to the business highlights, and I am on slide number eight. Let me start with giving some [Indecipherable] performance in the last quarter. I must say that in spite of the stronger headwinds that we saw by way of some of the industrial sectors going down, particularly wind in the second half of. 2022 went down drastically, this is coming on the back of the economic sanctions that got imposed across the globe and the leverage slowing down the demand for wind equipments, which resulted in the export business of wind equipment manufacturers to slow down.

In spite of these kinds of headwinds, I must say I’m reasonably satisfied with the good performance that we have posted in Q4 of 2022. What has helped us here if is the balanced portfolio that we enjoy. As I said, if one of these segments were down, the other, the passenger vehicles in the automotive sector did very well for us in this quarter.

Also, a number of projects that we have been consistently working upon, we brought some of the projects to a closure [Indecipherable] business and start of civil [Phonetic] supplies as well. So with that, kind of, we have embarked on this journey of ESG. And this is the way that we believe we can create more value for our stakeholders, and that’s something we remain clearly focused upon. I will talk about the ESG program that we have launched in the next couple of slides.

And last but not the least, we are also happy to announce that the Board recommended a dividend of INR24 per equity share, which is at the face value of INR2. And the payout ratio screen stands at about 23% [Phonetic].

So, what are the risks that we see going-forward? Well, the macroeconomic challenges continue to remain. We definitely see some headwinds in terms of inflation and some of the input costs, although the input cost by way of steel needs a little lift in the last quarter of last year. But we believe that we still are wary with the inflation being higher, the input cost pressure will continue to state at us.

Having said that, I draw your attention to the performances. And as you can see for the quarter, Q4 2022, compared to the last year Q4 2021, we grew almost 17.8% in terms of the sales revenues and 2.2% [Phonetic] when compared to the preceding quarter. And the sales revenue for the quarter stands INR1,794 crores.

[Indecipherable] on the back of strong performance on the profitability as well. And we have been able to deliver a reasonably good profitability of 16.2% EBIT margin for the quarter and which is at the same level as it was in 2Q21 in spite of the headwinds that we faced during the quarter as well. And this takes the profits to — EBIT to 2,000 — INR291 crores for the quarter. And the profit-after-tax margin stood at 12.9% for the quarter and compare with the Q4 of 2021 [Indecipherable] 12.5% what it what’s.

The free cash flow, we were able to generate more cash in this quarter with consistent and sustained efforts by the entire team on cash — on generating more cash. The free cash flow was 32.7%. Compared to that, last year was definitely much stronger numbers. This is an area that we intend to keep the focus more. Going forward, we would like to address this.

I move to the next slide, which talks about some of the business wins that we have been able to generate. And I must say that one of the biggest breakthroughs that we have managed to get is with one of our reclusive business partners. We have as a first also in at a system-level for the electric vehicles, passenger vehicle application. This is a three-in-one E-axle with the power electronics unit as well, which has kick-started. The development is already underway with one off the major OEMs in the country. And once we are ready with the product, we anticipate that by the year 2024 we should be getting supplies to the customer on this.

Having said that, our focus on the EV vehicle continues to be [Indecipherable]. And even the bearings which go into these applications, we have managed to secure quite a few wins, be it in the [Indecipherable] applications or even in the transmission applications which is in the IC engines. We continue to get the new business wins on the automotive side.

Talk about the automotive aftermarket, we have started IC [Indecipherable] the reach and coverage on the new products that we have been launching. We have launched the wipers as — already as you know. And we have now started to exchange the reach of this product as well to the market, not to mention of course we continue to build on engine oil and the lubricants that we’ve already launched.

On the industrial side too, we have been able to get some new business wins on the spherical rollers, the three-wave TRBs [Phonetic], particularly going into the steel industry, and of course, railways where [Indecipherable] value of some of the kits on the [Indecipherable] and the eligible coaches

With all this, how did we — how did the financial results come out? I move to slide number 11 wherein the bar graph that you see is about the total revenue development. As you can see, we were able to post the highest sales revenues in the quarter compared to the last four quarters. And as I already said, we were able to deliver positive revenue of INR94 crores, which is clear 2.2% better than the preceding quarter. And if one were to compare it with last year, clear 17.8% better performance. With this at an annualized level, the turnover of Schaeffler India went up to INR6,867 crores, and this is, I must say, one of the strongest performances we’ve seen in the year 2022.

However, [Indecipherable] to look at the business divisions that we operate in, the strongest growth on this is in our export business. And as you can see, that clearly we in the quarter — over the preceding quarter, our export business grew by 17.5%. But on the industrial side, we did have a slowdown, particularly in the wind equipment and as we are a strong player in the wind sector. And it’s pulled down the industrial performance over the preceding quarter by 2%.

All in all, when you look at the annualized level, you will find that our export business has grown close to 60% compared to the same period last year and the automotive technologies grew by about 24%, automotive aftermarket about 18% and industrial overall 12.4%. Industrial, the initial forecast were pretty strong. However, in the second half of the year [Indecipherable] sectors where we saw lot of momentum loss due to the demand going down.

Having said that, the mix, as you can see, where we have been saying about the balanced portfolio that we enjoy, and at the end of — for the quarter of 2022, as you can see [Speech Overlap]…

Operator

I’m sorry to interrupt you. Sir, the voice is coming a little muffled. May I request you to speak through the handset?

Harsha Kadam — CEO & Managing Director

Yeah, can you hear me now better?

Operator

Sir, it’s still a little bit muffled.

Harsha Kadam — CEO & Managing Director

Okay, let me [Indecipherable]. So when you look at the sales mix, what you’ll find is our export business, which is 19% [Indecipherable] other businesses that is reflecting in [Indecipherable], but definitely there has been a significant improvement in our export business, even in this quarter.

I move to slide number 12 and which is throwing some light on the working capital development as well as on the capex and that free cash flow. Now as you can see, our working capital, while the numbers look good, we have brought down the working capital as a percentage to sales to 17% in the quarter, which is one of the lowest numbers that we have hit. But then, well, this is something that we need to manage well to ensure that clearly our inventory management — while we continue to focus on managing the receivables, we need to manage our inventories in a much better shape as well.

Talking of capex, one of the milestones that we’ve hit in the quarter, as you can see, our investments have continued to progress and in the quarter, we already invested about INR183 crores, coming into our plants, particularly on the industrial side of our business. And we will continue to — continue our efforts in increasing our investment levels in the country as we move forward as well.

So, talking about the free cash flow, yes, there was a strong free cash flow generation and rightfully, as it has come only towards the end of the quarter, but I guess we’ll have some work to be here to ensure consistency in each of the quarters. And this is something we intend to take up as well moving forward.

I’ll move to slide number 14 where the indicators are throwing more light in terms of the margins. And as we can see, I already talked about the revenue growth. The EBITDA margin for Q4 was 19.2% and that the full year ended the year with 17.9%. And the EBIT margin for the quarter was 16.2% and for the full year it was 16%. And this is definitely better than the previous year, which was at 13.3%, as you can see.

And the profit after tax, as you can see in the quarter it was INR231 crores, resulting in 12.9% margin, while the full year effect, we have been able to bring in INR879 crores, which is at the same percentage as 12.8%.

I move on to the next part, which is stakeholder value creation, and I am slide 16. As I have shared in the previous call that we have embarked on the journey of ESG, which stands for Environmental, Social and Governance, as being the base of our business operations. And this is clearly with an intent to ensure that we create better value for all the stakeholders involved in our business. Having said that, Schaeffler as a has now framed clear targets and eight such targets have been chosen. And what you see is the first target being that as an organization, globally we want to become climate neutral by the year 2040. And this would include the entire value chain [Indecipherable].

The second target, as you can see, is all our production plants. Climate — they have to become climate neutral by the year 2030 and all efforts are being made, investments have been made in that direction to ensure that our plants become climate neutral.

Talk of sustainable suppliers, we have some clear targets there as well. 90% of the purchasing volume of production, the materials that we source, also will have to start to comply based on the self assessments that are going to be done by our suppliers. By this year — by the end of 2022 itself, we have an engagement of 90% of our suppliers to be completing this self-assessment.

The fourth target is on renewable energy, and clearly here all the power that we purchase for operating our plants and our operations have to be from the renewable source 100%. And this we have to achieve by the year 2024. Talk of diversity and getting women into the organization, including at leadership position, the Group target is 20% of the women in top management positions by the year 2025.

And you look at energy efficiency, one of the other targets, and we have a clear targets here to also start to cut down the amount of energy we used in our operations and the target here is 100 gigawatt-hour of cumulative annual efficiency reduction by the year 2024.

One other important target is to make our operations safe place to work in, and there the employees’ safety comes on top. And as a result, we have taken a 10% average annual reduction in the accident rates and as we measure by the year 2024. Last but not the least, the freshwater supply, the amount of water that we consume in our operations, the Group has set a target that we have to reduce our water consumption by 20% until the year 2030.

I move to the next slide, which throws light on the Schaeffler India targets with the same parameter, because we are in a different part of the world and different factors than on this part of the world. So, while some of the targets we are in full alignment with the Group targets, like carbon neutrality by the year 2040, our plans to become climate neutral by the year 2030 and sustainable suppliers with a 90% achieving volume, that is done, these are the targets where we are fully aligned with the Group targets.

Talk about renewable energy, and clearly we are — here too, we are aligned to get to a 100% [Indecipherable] power from renewable sources by the year 2024. While on the diversity, we have taken a target of getting 8% of the women and female employees by the year 2025, which is certainly a lower target considering this part of the world where we lag behind.

Talk about energy efficiency, the 100 gigawatt-hour that I talked about, and for India, we have taken a target of reducing the pro gigawatt accumulated annual efficiency by the year 2024. And the employee safety, the target fully aligns with the Group targets that we have said as well as the fresh water supply, which we have already said.

I’ll move to the next slide, and I’m happy to share that we have been consistently carrying out our Corporate Social Responsibility activities, particularly in the area of.health, in the area of preserving culture and environment, in the area of. up-skilling and educating our — the community and the society that we operate in. And in line with the one off — one such environmental project that we were running called Jal Sahara has won an award clearly. And as you can see here, the award was by CSRBox. And this was a very, very effective project that we were able to execute in a place called Khel [Phonetic] district in Satara, which was an arid region.

And the extensive engagement that we bid along with an external agency has resulted in 44% rise in the water level and thereby increasing the agricultural income for the community and the farmers who are operating there. And also what we have seen is the migration from the relates to the cities also have seen some reversals due to the projects that we have been effectively running and that’s why we’ve awarded with this award.

Moving forward, I would like to talk little more on the stakeholder value creation and that is about the dividend payout that was recommended by the Board. I’m happy to say that the dividend per share that we would be paying for the year 2022 stands at INR24 [Indecipherable] share. And this is a clear 50% increase over last year’s dividend, which was at INR16 per share. And as you all know, there is a clear target dividend payout ratio, which will be in the range of 30% to — 40% to 50% of the net income. And I’m happy to share, the Board of Directors of the Company yesterday in their Board Meeting has approved and have passed the resolution for this.

With that, I come to the last slide, and this is more to summarize. It was a strong performance in the year 2022. We did enjoy some tailwinds as well from the business side, also some of the headwinds in terms of inflation and it’s [Indecipherable] demands in some specific sectors.

Margins, obviously that’s supported by the increased volume growth that we were able to generate plus the mix between the business. And the kind of focus we’ve kept on the countermeasures that we started off and these activities that revealed exhaustively and we continue to keep the focus on ensuring that the countermeasures that we’ve put into deliver. Plus, the focus is on consistent capital deployment, it continues to remain, and also the strong cash generation, which is definitely helping to keep the balance sheet robust.

Coming into 20023, yes, we do see some strong headwinds as well, inflationary pressures and some slackening of the export demand, but we’ll have to wait and watch how the situation develops. But as of now, we as an organization remain committed to make India the place to be and to continue to put efforts to ensure that we grow our business here, but in the. Structured manner of ESG that we are very forward with.

With that, I’ve come to the end of my presentation. Over to you.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] Ladies and gentlemen, we will wait for a moment while the question queue assembles. [Operator Instructions] The first question is from the line of Ankur from HDFC Life. Please go-ahead.

Ankur Shah — HDFC Life — Analyst

Yeah, hi sir, good morning. Thanks as always for your time and congratulations on a good set of numbers. So three questions I had. So one was on the exports front where we’ve again seen in Q4 some momentum again being taken up in the topline numbers. And clearly, this comes in the backdrop of slowing global economy. So, if you could just help us understand, how do you see the broader picture on exports over the next few quarters? I remember last quarter also you mentioned that obviously Schaeffler is benefiting from relocation of manufacturing into India. So, if you could also touch upon that and give us some more color to it.

Satish Patel — Director-Finance & CFO

Yeah, thank you for the question. As far as — I am Satish Patel. As far as our exports strategy is concerned, we have been dealing with debt and that’s reflected in the quarter-on-quarter growth that we’ve recorded in terms of our overall exports. Yes, there is a global downturn and that goes slightly — our performance in exports goes slightly against that. But since we — yeah, sorry for the interruption because of some microphone issue, yeah. Hope I’m audible?

Ankur Shah — HDFC Life — Analyst

Yes.

Satish Patel — Director-Finance & CFO

Okay, thank you. So since we have the specific relocation strategies for our large-size bearings and also certain categories of the mid-size bearings, and those have been progressing quite well. We have also the investments earmarked for that, quarter three high ratio of investment, one of the contributor is also exports. And this has contributed because of the specific strategy on exports also in the revenue growth. This we would continue to have also in the future. So for the years to come, because of the investments that we have earmarked and because of the strong order position and also the strategy to actually recognize certain products, this will help in further improvement in the overall exports.

So yes, there is a global condition of the economy which is not so encouraging, but Schaeffler has particular strategy in terms of localizing of the products to the countries where there is high competence, both on the technology as well as on the cost. And India is in the [Indecipherable] and thereby we have that focus of having the exports. We have announced this also quite many times. What we are delighted to announce is that we have been dealing with that and we will stay on course with regard exports growth.

Ankur Shah — HDFC Life — Analyst

Sure. And sir, possible to break out the region-wise exports for you into, say, APAC, EU and the US or whatever region-wise breakup you can share?

Harsha Kadam — CEO & Managing Director

We do not have that number ready, but I can confirm that we do not have disproportionate ratio between the regions. So we have been exporting in all the continents. So, our exports to US, to North America is as much as to Europe and as much as to Asia for sure. So, it’s more on less balanced, yes. It is no — there is no single region which is significantly outperforming.

Ankur Shah — HDFC Life — Analyst

Sure. And just tying that up with your CapEx numbers, because this year if I look at your press release, you’ve done about INR480 odd crores of capex in CY22. If you could help us, what would be the capex numbers in CY23? What is it — is it more for the export market? I think you mentioned about industrial segment being where you were looking at putting up capacities. So if you could just help us there as well.

Harsha Kadam — CEO & Managing Director

Yes, so as far as 2022 is concerned, we have invested total capex of about INR500 crores for INR99 crores to be exact, so close to INR500 crores that we have invested already in this year. We will invest similar, about INR500 crores also in the next two 2 years to 3 years. So, we have been actually announcing that we would invest INR1,000 crores in 3 years in the past, which we’re now revising to INR1,500 crores in 3 years.

So, we will invest INR500 crores every year and the investments will be for relocations and the capacity expansion for exports, also for our domestic business growth, particularly industrial business. We are setting up a new plant with large manufacturing facility in Savli near Vadodara. And we are also setting up a new plant for automotive futuristic products mainly in Hosur. So, these two plants will contribute to domestic as well as export business growth.

Ankur Shah — HDFC Life — Analyst

Fair. And obviously, given the large scale of capex, you obviously see that kind of demand visibility. Therefore, we should expect good asset terms..

Satish Patel — Director-Finance & CFO

Fair.

Ankur Shah — HDFC Life — Analyst

Okay. And lastly sir, on the auto aftermarket, I think, if you could just help us understand a little bit more on your reach, new products, what kind of growth you expect there? I think after a very strong CY21 we see flattening of growth there. So, if you could just help us as well on the auto aftermarket. Thanks.

Harsha Kadam — CEO & Managing Director

Yeah, on the automotive aftermarket business, we have been consistently developing and launching new products. We started off on the journey when the transition of the engines went from BS4 to BS6. And now, post — 2 years or 3 years after the vehicles are on the road, we are seeing a traction in demand for the BS6 product applications. So accordingly, we continue to launch a lot of new products conforming to the BS6 norms.

Apart from that, of course, we also see very strong demand coming from the OEM spares, which is the original equipment spares business as well. Third being we continue to launch new products as well, which is more traded. So, the recent launch is already off the [Indecipherable], very soon we’re going to launch the batteries which is going to be coming into the market soon. Hopefully in the next earnings call, I’ll be able to share that happy news as well.

So, we will — we are expanding our portfolio of offerings that go on the automotive aftermarket and we will continue to do that as well. Also what is happening is — what we are doing is some of the new products that we’ve already launched like the wiper blades or the [Indecipherable] or even that shock absorbers and dampers, these were not yet pan-India, now we have started to extend the reach of those products going all across India. So, this is something we will continue and we believe that automotive aftermarket is an area where we can do more.

Ankur Shah — HDFC Life — Analyst

Fair. And just a last one if I may, if you could give us the full-year calendar split as you do between industrial — so breaking it out into aftermarket, two-wheeler, railway, wind, and similarly on autos, the transmission, engine, chassis, if you just give us that breakdown for the full year?

Harsha Kadam — CEO & Managing Director

Sorry, I actually couldn’t get your question. If you can repeat that [Speech Overlap].

Ankur Shah — HDFC Life — Analyst

Yeah. So, I was saying that, if you could give us the breakup of your full-year revenues, so for industrial — out of industrial how much is aftermarket, two-wheelers, railways, wind? And similarly on the automotive sales, how much is transmission, engine, chassis, the breakup you gave us in terms of percentages.

Harsha Kadam — CEO & Managing Director

I did talk a little bit about that already on slide number 11 where the sales mix I’ve already shown you that 39% of the business was from automotive technology, 22% was coming from industrial, 9% was coming from the automotive aftermarket and then we had of course exports 19%, which has grown compared to the last year and the last quarter as well. So, we already have that. Is there anything more [Technical Issues]…

Ankur Shah — HDFC Life — Analyst

Yes, so I was talking more on the sub-segments within industrial, so how much would have been railways, wind, two-wheelers? And similarly, within auto, how much would be engine systems, transmissions systems?

Harsha Kadam — CEO & Managing Director

I can give you broad numbers. Out of our automotive, aftermarket and industrial, if I take other than exports, domestic business [Technical Issues], automotive and aftermarket together are about 55%, industrial is 45%. And Amongst these, if I take automotive alone, the 70% of — automotive technologies alone is from engine and transmission, and automotive aftermarket I already said, about 10% in the overall revenue. Only from automotive, it will be about 17% to 18%. And industrial, 45% overall revenue and overall two-wheeler is about 8%. So if I say only industrial, it will be about 15% and likewise other sectors.

Ankur Shah — HDFC Life — Analyst

I understand. Got it. Okay, sir. Great, thanks.

Harsha Kadam — CEO & Managing Director

Thank you.

Operator

Thank you. Next question is from the line of Vimal Gohil from Alchemy Capital. Please go ahead.

Vimal Gohil — Alchemy Capital — Analyst

Yes sir, thank you so much for the opportunity. Sir, firstly on — my capex number has been answered, so thank you for that. On the margin front, we have been experiencing some bit of pressure on the raw material side, although it is very encouraging to see an expansion in this particular quarter. But is there any under-recovery that you are still seeing in terms of pricing with your OEM clients or in the aftermarket segment, etc.? I mean I’m just trying to see if there is any further scope of margin expansion here, because of under-recovery in pricing.

Harsha Kadam — CEO & Managing Director

Yeah, so I would not relate under-recovery in the margin expanse in some way — in any way on the fact of the matter. Well, our performance has quite many contributors. The first contributor is the revenue — consistent revenue growth and more so the quantity of revenues because the [Indecipherable] is better. We have larger contribution or improving the contribution for exports. Also, we have grown in domestic business in some sectors, which are relatively better in terms of the profitability. So that is one of the reason of overall improvement in the margin.

And second is the cost discipline and the cost level remaining within the normal range. We have been able to absorb the large portion of the inflation because of being [Indecipherable] and with — and there has been recovery also of the steep hike in the steel price. This is also to a certain extent — or I will say, to a large extent, neutralizing the negative or the adverse impact on the performance.

Vimal Gohil — Alchemy Capital — Analyst

Understood, sir. Thank you. Sir, on the industrial front, there has been a lot of talk in the country around private capex picking up very, very meaningfully. However, if we were to look at our numbers for the industrial, they’ve been sort of flattish over the past couple of quarters. This — of course, you did mention that there is some portion of wind that has impacted, but given the fact that it has turned our performance to be flattish for the last 3 quarters means that wind is very, very material in our numbers for Industrial. So, if you can just quantify how much is wind and what is the outlook — I mean, when is wind expected to pick up?

Harsha Kadam — CEO & Managing Director

Let me take the first part of the question. The wind itself, if one were to look at our performance on the industrial side in the first half of the year, Q1, Q2, we have very strong traction in industrial growth fundamentally because we are strong in the wind sector and approximately close to 10%, 12% of the total revenue is coming from wind. And so, in the second half, what we saw was a drastic reduction in demand because of the economic sanctions that got imposed on most of the countries in Europe because of the war, as a result of which a lot of projects from the customers in India were all put on hold or on the back burner, so to say. So with that, we have seen a dramatic drastic drop in demand in the second half of the year, which resulted — and that is the reason you’ve see industrial being a little bit flattish.

Coming to the second part of your question as to will this situation change, well, that’s something time will only tell because I don’t know when the sanctions will get lifted or when we wind as a segment pick up. However, looking at within India, the domestic need, the recent budget where the Government of India announced that they are now going to open up bids for 8-gigawatt-hour every year for the next 8 years, tenders, and also there is a talk of — mention of some kind of incentivization to propel the wind segment to grown in India. We are, of course, strongly positioned to — in this sector and we look — certainly look-forward to this getting implemented. So, we’ll have to wait-and-watch how things develop here.

Vimal Gohil — Alchemy Capital — Analyst

Understood, sir. But sir, the core domestic sectors like steel, cement, mining, which are the bread-and-butter for core industrial for us, those segments are doing well, right?

Harsha Kadam — CEO & Managing Director

Yes. If you see the core industrial segments like steel, cement, mining where we operate has done well and that is also one of the reasons that we have been able to — from the industrial business side, have been able to post 12% growth over the last year, because the other sectors have done well, except the wind energy, which has been languishing.

Vimal Gohil — Alchemy Capital — Analyst

Understood, sir. Next was on Tamil Nadu plant. What I recollect is you had signed the MOU somewhere in 2021, and correct me if I’m wrong. If you could just give us some updates on how is the ramp-up of the plant or where are we in terms of commissioning — how far away from commissioning that particular plant, because I guess Mr. Patel highlighted that there is — we are planning to be make futuristic automotive products in that plant. So, if you can just give us some update over there.

Harsha Kadam — CEO & Managing Director

Sure, you are right that the MOU was signed way back in 2021, end of 21. And finally — we got the final allotment of the land about a month back and we have already initiated or started off the work towards bringing this project up now. So currently, as I’m speaking, there is leveling activity that is happening at our site. And we expect by end of next year we should have the plant, the buildings everything to be completed. So, this is already work-in progress. Investments have already done towards this project. And soon we’ll share the details once the plant goes on-stream.

Operator

Thank you very much. Vimal, sorry to interrupt you. I’ll request you to come back in the question queue for a follow-up question. A request to all the participants, please restrict to two questions per participant. If time permits, please come back in the question queue. The next question is from the line of Mukesh Saraf from Avendus Spark. Please go ahead.

Mukesh Saraf — Avendus Spark — Analyst

Yes, sir, good morning and thank you for the opportunity. My first question is on the capex itself. In some of the previous comments, you had mentioned that you’ll be expanding the TRB capacities here in India. I do notice that some of the competition is also looking to expand into, say, CRBs and SRBs. So basically, the bearings sector, you’re seeing a lot of capex happening from companies outside of their core historical strong areas. So, do you see a situation that in the next, say, couple of years to 3 years competitive intensity can actually significantly intensify in some of these areas and probably have some impact on margins, etc.?

Satish Patel — Director-Finance & CFO

So, we couldn’t — got your question so clearly. Can you please clarify the last part of the question. What we understand [Speech Overlap] product ranges and we are also investing, so a move that costs some profit pressure. Was that the question?

Mukesh Saraf — Avendus Spark — Analyst

Yeah, on those lines. So, my point is that you are expanding more into TRBs, which has probably not been one of your strong points in the past. While competition is, say, expanding into CRBs and SRBs where they have not been strong in the past, so just basically capex happening in all the sub-segments within bearings. And so, how can that impact the market?

Satish Patel — Director-Finance & CFO

Maybe the — I think my — what I said we heat clearly, I also said, we are expanding the SRBs and CRBs here. So, that was what I mentioned. And I mentioned the major investments. There are investments in other product segments as well. So, we are in fact investing everywhere, but these are the areas where we are investing quite significantly and that was also in connection with exports. So, we are not only for domestic, we are investing for exports as well where there is a significant growth opportunity and relocation opportunity. So, there is no sort of the side that we have as regards sort of additional pressure of the investments that we are making and thereby some sort of a margin pressure going forward.

Mukesh Saraf — Avendus Spark — Analyst

Right, understood. On the second question on the e-mobility wins that you had mentioned during the presentation, could you give some sense on the localization levels we are at right now? And what are our target levels, say, in the near-future, especially for the power electronics that you had mentioned?

Harsha Kadam — CEO & Managing Director

Let me take that. And yes, we have the developmental work initiative with working with our customer. And localization plan definitely is on the card, but I guess it will happen. We need to first agree and come out with the right design, which is exactly what is happening. In the next few months, hopefully the designs will be frozen and we will get into the prototype stage. So localization definitely is there, but not this year, we don’t see it happening this year.

Mukesh Saraf — Avendus Spark — Analyst

Okay. So right now, it will be more dependent on imports?

Harsha Kadam — CEO & Managing Director

That’s true.

Mukesh Saraf — Avendus Spark — Analyst

Right. That’s about it, sir. I’ll get back in the queue. Thanks.

Harsha Kadam — CEO & Managing Director

Thank you.

Operator

Thank you. Next question is from the line of Sonal Gupta from HSBC Mutual Fund. Please go ahead.

Sonal Gupta — HSBC Mutual Fund — Analyst

Hi, good morning, and thanks for taking my question. Congrats on a good set of numbers. Sir, just wanted to understand, one, I mean, given the FX volatility, would we have any FX gains or losses that are there in the other operating income or in the other expenses in this quarter?

Harsha Kadam — CEO & Managing Director

Yeah, so for the whole year put together we have nearly no negative adverse impact because of FX. Large amounts of our [Technical Issues] are in INR currency because the currency that we have determined with our purchasers — our sellers, sorry, and the other companies is in INR. We will have exposure in dollars. Euro exposure is very minimal because of INR currency. Dollar exposure we do have, but we have exports as well, so there is a natural hedge. And the net exposure of foreign currency is not so significant and for that also we have a structured hedging policy. So, we have been able to mitigate the volatility and the overall impact of FX during the whole year is not [Technical Issues].

Sonal Gupta — HSBC Mutual Fund — Analyst

Got it. So you’re saying the euro your exposure is fairly low and most of our exports to that region are rupee denominated, is that the way to understand it?

Harsha Kadam — CEO & Managing Director

Most of the imports are rupee denominated and exports in the same countries are also [Technical Issues].

Sonal Gupta — HSBC Mutual Fund — Analyst

Okay. And sir, could you also touch upon — my next question is on the railways side. So could you sort of — I mean, how much is it as a percentage of revenues for you currently and like you talked about and where we seen a significant increase in government capex on the railway side, so how do we see this business over the next couple of years?

Harsha Kadam — CEO & Managing Director

Yeah, on the railways [Technical Issues] that yes, [Technical Issues]…

Operator

Sonal, may I request you to mute your line from your side.

Harsha Kadam — CEO & Managing Director

Thank you. So, on the railways side of the business, and as I said earlier, that yes, we’ve been making investments here as well, right. And also, we’ve been working on new designs of our products for the new trains that are coming up. As I’ve said, the Vande Bharat train, which is already launched and now the government has announced 200 trains this year. And the next train which is already — is yet to be named, but then the speeds are going to be roughly about 200 kilometers per hour. With this, new technology definitely will be required in our products as well. And this is exactly our focus here, to look at the higher value creation with our customers in the area of performance, in the area of reliability, both these [Technical Issues]. And that’s exactly where we are focusing on.

Yes, we do have some of the applications, like the freight trains which is where we still have to get our act together to do — bring a good product to the market. But I must say that our focus continues to remain on better performing products for the demanding applications where as you know the railways is transforming and we want to be on that growth trajectory. So, having said that, railways will continue to remain our focus sector for us going forward and we’ll certainly want to bring more digital content into our solutions and offerings. And there are projects that we’re already engaged with the railways to bring in our digital solutions as well. So as I said, we will stay focused on bringing technology products to the railways as of September [Phonetic].

Sonal Gupta — HSBC Mutual Fund — Analyst

Great, thank you sir.

Mahesh Bendre — LIC Mutual Fund — Analyst

Thank you. The next question is from the line of Mahesh Bendre from LIC Mutual Fund. Please go ahead.

Operator

Hi sir, thank you so much for the opportunity. Sir, you talked about the CapEx or find it crores per year for next three years. So is it possible.

Mahesh Bendre — LIC Mutual Fund — Analyst

Hi sir, thank you so much for the opportunity. Sir, you talked about the capex of INR500 crores per year for next 3 years. So is it possible — I mean, could you elaborate it? Are we setting up more plans? Is it a greenfield or brownfield expansion and so on?

Satish Patel — Director-Finance & CFO

Yes, so I already mentioned about the focus of big capex in different areas within product segments as well as plants. So, the plants that we have already now decided to go for, which is mainly the new plant near Hosur for automotive business and significant expansion in the Savli plant, in addition to these two plants, at least in the next 2 years we do not have plan to set up any further plants.

So the investments that we mentioned are, one, in these two plants, as well as in our existing other plants, which are located in one Talegaon near Pune and another is in Maneja in Vadodara.

Mahesh Bendre — LIC Mutual Fund — Analyst

Sure. Sir, what is the current capacity utilization across our factories in India?

Harsha Kadam — CEO & Managing Director

Some of the plants which have very high volume standard products are utilized 85% to 90%, so Maneja plant is in that range. And automotive plants are utilized 75% to 80%.

Mahesh Bendre — LIC Mutual Fund — Analyst

Okay. So for incremental growth for next year, capacity constraint should not be there?

Harsha Kadam — CEO & Managing Director

Yes, not at all.

Mahesh Bendre — LIC Mutual Fund — Analyst

Sure, thank you so much sir.

Operator

Thank you. The next question is from the line of Sandeep Tulsiyan from JM Financial. Please go ahead.

Sandeep Tulsiyan — JM Financial — Analyst

Yeah, a very good morning. First question is pertaining to the railways segment. Firstly, if you could dissect within railways, broadly which are the segments that we are catering to now? How much of revenue is coming from locos, passenger cars, metro trains, if you could give us some sense? And what percentage of our total revenue is railways today?

And also regarding the recent order that you have got from Vande Bharat train shares [Phonetic], if you could highlight which are these bearings — are we doing the UIC130 bearings over there or we are doing the SRBs over there? If you could just give us some more color and explanation of what type of products are we catering to these Vande Bharat trains?

Harsha Kadam — CEO & Managing Director

Yeah, let me take the first part. As you know, when we talk about railways, that there are paths to it, one is the Indian Railways, which is you have the locomotives, you have the passenger trains and [Technical Issues] freight trains. The other part is the urban metros, metro trains, which — with urbanization increasing, metros coming into every city. So, these are the two broad segments within that sector.

And let me start with the metros, and we are strongly positioned there and we have been working with our customers to ensure that we offer not just a bearing, but the impact sub-assembly with the axle boxes. And we have been doing a pretty good business in that direction.

One other application on the metro train is the traction motors and — wherein specially quoted bearing is required, and we are one of the pioneers to be manufacturing this product locally in India. And we continue to do well there. We are trying to augment capacity in there as well looking at the growth in that [Technical Issues] sector.

Talk about the Indian railways itself, and we are pretty well-positioned in the passenger vehicle application as such, that is where the Vande Bharat and LHP coach is common. We have developed products. Field trials are getting concluded with the customer. And we will be starting to see supplies into that effect. We have already made the investments for the production. And we also will continue our localization as some of the products still come from Europe. And clearly, we have plans to localize them as well as the momentum picks up.

On the freight train, the challenge there is it’s very cost-driven segment within the railways sector. And there we currently do not have any product, but then we hope to come out with a new design, which is going to certainly get us to play a stronger game within that freight wagon application.

Sandeep Tulsiyan — JM Financial — Analyst

Got it. And what all — would be railways as a percentage of our sales today?

Harsha Kadam — CEO & Managing Director

Overall at Schaeffler India level, about 4% to 5% would be that number.

Sandeep Tulsiyan — JM Financial — Analyst

Understood. And second question, sir, is on E-Mobility win that you have highlighted, that this was a systems order. If you could also just explain it in a similar way, what other components go into it on a per passenger vehicle basis, per — I’m assuming this is for B2B and not plug-in. What is the content per vehicle for the entire systems that we are supplying? And within that entire value of the equipment, how much is done in-house and what is being traded or bought-out from other companies over there? If you could broadly just split-up to give us a better understanding.

Harsha Kadam — CEO & Managing Director

So the product I talked about for the — system-level product for the passenger vehicle, three-in-one E-axle system which entails, first an electric motor and then a gearbox to go with the — coupled with the motor. And then we of course have the power electronics field.

What is Schaeffler offering is the electric motor, which is our own design of the motor, and the gearbox. The power electronics, we are working with a partner who is going to give us the power electronics, which is customized to suit the motor and the axle, the gearbox that we are referring. So as Schaeffler, we are offering this three-in-one E-axle to the customer. That’s what it is right now. And the start of production is still some distance away, which is I guess in 2024. And right now, we are at a stage where the designs are almost getting frozen and we will be moving to prototype stage.

Sandeep Tulsiyan — JM Financial — Analyst

What will — the value per vehicle of this entire system, broadly if you could just give us a range to understand?

Harsha Kadam — CEO & Managing Director

Yeah, I did share this in my earlier investor call as well. When we start to get into a system-level offering, our content per vehicle, we believe, is going to more than double. And earlier with IC engines, our content per vehicle used to be in the range of 30s and we then further did up with the marketing applications coming in and the [Indecipherable] to 40 — mid 40s. But. I would say, with the EVs coming in, our content per vehicle is only set to double.

Sandeep Tulsiyan — JM Financial — Analyst

Got it, so maybe around EUR60 to EUR70 [Phonetic] per vehicle is ready [Phonetic] to double and — is that okay? Yeah. Got it. Thank you so much for taking all the questions.

Operator

Thank you very much. Ladies and gentlemen, due to time constraints, that will be the last question. I now hand the conference over to Ms. Gauri Kanikar for closing comments.

Gauri Kanikar — Head Of Investor Relations

Thank you, everyone. Thank you for joining us today. If you have any further questions, please do reach out to me at gauri.kanikar@schaeffler.com. Thank you, and have a good day.

Sandeep Tulsiyan — JM Financial — Analyst

[Operator Closing Remarks]