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.