Schaeffler India Ltd Q3 FY24 Earnings Conference Call Insights

Key highlights from Schaeffler India Ltd (SCHAEFFLER) Q3 FY24 Earnings Concall

• Industry Update
  • Indian economy expanded 7.6% year-over-year in Q3 2023, following strong 7.8% growth previously.
  • Manufacturing sector soared 14%; construction up 7%; utilities grew 10%; mining up 10%.
  • Index of industrial production contracted in Q4 2023, likely due to seasonal effect.
  • Cement production grew 7.5% over previous year; coal mining up 12%.
• Automotive Sector Performance
  • Two-wheeler exports down 20% though domestic production up 4% due to business cycle.
  • Passenger vehicle production up 8% for year and 5% for Q4; commercial vehicles up 6% for Q4.
  • Tractor sector declined 2% year-over-year due to weak monsoon affecting agriculture.
  • Good growth seen in engine, transmission and clutch business areas.
  • Sustained market share in bearing business but slower growth there.
  • Commercial vehicles business seen strong traction with new product focus.
• Business Highlights
  • Secured new businesses in both automotive and industrial for growth and balanced portfolio.
  • Board proposed 45% higher dividend payout ratio at INR 26 per share vs. last year.
  • Revenue grew just 3.4% in Q4 over last year amid weak export market and global slowdown.
  • Exports declined 30% in Q4; full year exports down 15%.
  • However, strong rebound seen in wind sector; auto seeing demand in SUV segment.
• New Business Wins
  • Won new businesses in passenger vehicles and aftermarket to enable growth.
  • Offering value-add emission reduction and reliability products in passenger vehicles.
  • Launched products for commercial vehicles to meet stringent emission norms.
  • Growing aftermarket portfolio with e-commerce platform as growth enabler.
• Financial Performance
  • Q4 revenue up 0.4% over previous quarter; full year growth at 5.2%.
  • Q4 EBIT margin at 14.9%, down 2 percentage points versus last year.
  • Full year EBIT margin at 15.7%, down from 16% in 2022.
  • Q4 profit after tax 11.7%; full year at 12.6%, down 0.2% year-over-year.
  • Capex spend doubled in 2023 to INR 610 crores for localization.
  • Working capital holding steady at optimal 17% of sales.
  • Localization levels currently at 75%; will increase further.
  • Margins dropped from 39% to 37% over last 2-3 quarters largely attributed to 15% drop seen in export share.
• Export Market Outlook
  • Exports declined due to war in Ukraine and Israel; largely exports to Europe currently.
  • Exports in Q4 2023 lowest in 9 quarters at INR 211 crores.
  • Hope Q4 2023 was bottoming out; optimistic of improved Q1 2024.
  • Looking to expand to Southeast Asia (Indonesia, Vietnam, Thailand) to offset Europe weakness.
• Industrial Sector Growth
  • Mixed performance in Q4 2023; some sectors like construction equipment slowed.
  • But seeing rebound in wind (up 11% in Q4) and continued railways growth.
  • Optimistic of demand uptick in infrastructure and allied sectors like mining, energy.
• Capex Allocation
  • Investing significantly for localization, especially on industrial side currently.
  • Auto capex to increase with focus on electric mobility subsystems make in India.
  • Overall capex run-rate to continue across both automotive and industrial.
  • Holding to earlier guidance of INR 500 crores capex over 3 years.
• Railways Business Growth
  • Current business in axle boxes, bearings and traction motors for electric locomotives.
  • Won orders for Vande Bharat trains with upgraded specifications.
  • Investing to expand capacity, engineering capabilities and testing infrastructure.
• Capacity Expansion Plans
  • Investments on track to expand industrial capacity in Savli and new Hosur facility.
  • Savli seeing phased expansions; additional production hall under construction.
  • Hosur greenfield facility to commence production from Q1 2025.
  • Overall capacity utilization levels seem optimal currently.
• Inorganic Growth Strategy
  • Actively looking for inorganic opportunities after Koovers acquisition.
  • Strategy to pursue inorganic growth for Schaeffler India continues.
  • Significant cash balance available for further acquisitions.