Schaeffler India Q1 FY25 earnings call

Where management's figures differ from the filing

• Profit after tax (Q2): said ₹253 cr standalone, 12.2% margin; filed ₹245.45 cr consolidated, 11.7% margin. Management ₹253 cr appears to be standalone (excludes Koovers pre-breakeven losses); filed ₹245.45 cr is consolidated including Koovers; absolute gap of 3.1% on different bases.

What moved the numbers, as management explained it

• Volume-led growth in Bearings & Industrial (+17% YoY) and Automotive Technologies (+11.5% YoY) on content increase, market share gains and new business wins entering series production.
• Gross margin improvement contributed ~₹86 cr to EBITDA bridge; offset partly by timing-related employee cost (April increments, performance bonus) and integration expenses.
• Capex of ₹1,500 cr 3-year plan (CY22-CY24) on track; Q1 and Q2 capex got capitalized, driving free cash flow into negative territory. (one-off)
• Exports rebounded 15% YoY and 21% QoQ on European demand stabilization and India cost competitiveness; H1 still only ~4% YoY due to prior weakness.
• Working capital rose to 20.2% on inventory build (0.6pp higher than prior June, including in-transit inventory with 20-25 days longer transit times) and revised receivable payment terms.
• Koovers consolidated into results: Q2 revenue ₹35 cr (H1 ₹60 cr) growing 40% QoQ but pre-breakeven, marginally diluting consolidated margins.

The numbers management led with

• Q2 revenue milestone: ₹2,071 cr in Q2 CY24 — first time crossing ₹2,000 cr in a quarter (+12% QoQ, +13.3% YoY)
• Capex commitment: ₹1,500 cr over 3 years from 2022 announcement — on track, no changes
• Intercompany/exports growth: +15% YoY in Q2 CY24 (+21% QoQ); H1 CY24 +4%
• Bearings & Industrial Solutions growth: +17% YoY in Q2 CY24; +15% QoQ; H1 CY24 +16.5%

Guidance on this call

What changed since the Fri 26 Apr 2024 call

By business

Balance sheet, capex and funding

• Capex on track for ₹1,500 cr 3-year commitment (CY22-CY24); plans split across new plants/buildings, backward integration and finished-goods capacity.; we will be investing INR 1,500 crores
• Free cash flow negative as Q1+Q2 capex was capitalized in the quarter; CFO flagged cash flow and working capital as homework areas.; we did have some challenges on the free cash flow
• Working capital at 20.2%, elevated; inventory 0.6pp higher than prior June on projected business and 20-25 days longer transit times; receivables reset to new payment terms.; Our working capital has gone up in the quarter
• Investment (capex) rate at 8.4% of sales in Q2 (Q1 CY24 was 9.4%); prudent mix with no change to overall framework.; we have come down to 8.4% of sales when compared to 9.4%
• Koovers funding requirements met by Schaeffler India Limited as the B2B platform expands pan-India.; funding and all requirements are being fulfilled from Schaeffler India Limited side

The industry, as management sees it

India GDP ~7.3% per RBI; PV production +6.8% in Q2 CY24; CPI within RBI's 2-5% band; 2W/3W rebounding on rural demand (~60% rural share); tractors bottoming out on rainfall; cement and coal production sluggish on pre-budget hesitation.

Risks management named

• Working capital elevated at 20.2% due to inventory build (Red Sea / longer transit times) and revised receivable terms
• Free cash flow negative in Q1+Q2 due to capitalisation of capex — recovery work still ahead
• European demand recovery pace uncertain given lingering weakness flagged in parent guidance
• Pre-budget sluggishness in cement and coal production
• VLS H1 growth muted at +4.8% despite Q2 QoQ recovery

Not answered directly

• Vitesco India legal merger timeline
• Southeast Asia share of total exports
• Free cash flow recovery timeline

Asked for a number, answered without one

• Export as % of overall mix target (2-3 year): Stayed with the 10-15% range citing geopolitical vulnerability; no specific 2-3 year target.
• Vitesco India merger into Schaeffler India: Said global integration is ongoing; 'no plans to integrate legally in India' and that any such move will be publicly announced when timed.
• Southeast Asia contribution to exports: Said not at liberty to reveal percentages; only that concentrated efforts in the region have increased.
• Koovers scale roadmap and breakeven timing: Stated breakeven not expected before 3 years; pan-India expansion in 2 years; no revenue or margin roadmap given.
• Capex benefit reflection timing on sales/margins: Said incremental sales have already started; capex split into plants, backward integration and finished-goods capacity; no specific sales/margin uplift quantum.

Every question, with its answer

1. 1. Exports outlook and target mix

   Mukesh Saraf, Avendus Spark

   Question. Exports posted another sequential ~20% growth this quarter. Have we moved beyond the prior global weakness and is this trajectory expected to continue? Any target for exports as a % of overall mix — we are still around 15%?

   Answer, Harsha Kadam, CEO. Two factors helping: (1) European economy stabilising with inventory clearance and demand resurgence; (2) own efforts into Southeast Asia. We are not yet at the 1.5-year-ago peak. Will continue to watch geopolitical risk. Exports will remain in the 10-15% range — prudent to keep at manageable levels given volatility.

2. 2. Auto Tech outperformance and employee cost

   Mukesh Saraf, Avendus Spark

   Question. Auto Tech grew 11-12% versus underlying production growth of ~6%. Is this content increase or market share gains? Separately, employee cost at ~₹140 cr standalone looks high — what drove this, Savli plant or bonuses?

   Answer, Hardevi Vazirani, CFO. Auto Tech outperformance is a combination of market share consolidation, content increase from new product launches/SOPs, and segment tailwinds (e.g., tractors recovering). Employee cost elevation is timing — Q2 includes April salary increments and performance bonus payouts; new hiring for Savli and Hosur expansion also adds. The relative percentage to sales should phase out through the year.

3. 3. Railway business localisation and share

   Harshit Patel, Equirus Securities

   Question. Is the railways portfolio fully localised or do we still import from parent/sister concerns? What is railways' share of revenue in Q2 and H1 CY24, and YoY growth?

   Answer, Harsha Kadam, CEO. Large portion is localised but some products still imported; localisation capex is on track. Railways is ~5-6% of the industrial business and ~3% of total revenue. Focus is locomotive, metro and passenger wagons; freight still needs new product development. YoY growth in Q2 was ~15-17%.

4. 4. Vitesco India merger update

   Harshit Patel, Equirus Securities

   Question. Any update on the merger of Vitesco India with Schaeffler India? Last time you mentioned due diligence and groundwork.

   Answer, Harsha Kadam, CEO. Still too premature — the global integration is a long process. Processes (ERP, financial) are being integrated; updates will follow in due course. No specifics shared on India-side structure.

   Not answered directly.

5. 5. Vitesco India merger confirmation

   Mahesh Bendre, LIC Mutual Fund

   Question. Will Vitesco India ultimately be merged into Schaeffler India? Are there currently no plans to integrate Vitesco India into Schaeffler India?

   Answer, Hardevi Vazirani, CFO. CFO clarifies 'integration' refers to global Schaeffler Group integration of Vitesco Group post-acquisition. No current plans for legal integration in India; awaiting the right time, will be publicly announced when it happens.

   Not answered directly.

6. 6. Capex benefit timing

   Mahesh Bendre, LIC Mutual Fund

   Question. Capex has been strong at ~₹500 cr/year for 3 years; we are now halfway. When will the benefit reflect in sales or operating margin?

   Answer, Hardevi Vazirani, CFO. ₹1,500 cr capex over 3 years (announced 2022) is on track. Split into (a) new plants and buildings, (b) backward integration/localisation to combat inflationary pressure, (c) capacity for finished goods. Incremental sales have already started flowing and were visible this quarter as well.

7. 7. Export run-rate outlook

   Mahesh Bendre, LIC Mutual Fund

   Question. Exports sounded cautious. Will the strong Q2 export run-rate sustain over the next 2-3 quarters?

   Answer, Harsha Kadam, CEO. Earlier peak was 16-18% of revenue before geopolitical disruption. Recovery underway but not yet back to that level; strong uptick in last 2 months. Dependency on Europe, Asia-Pacific and other regions warrants caution.

   Partly answered.

8. 8. Working capital rise

   Pramod Amthe, InCred Equities

   Question. Working capital shows substantial rise in inventories and receivables in H1. Is this market-driven or specific to Schaeffler? And will receivables stay at the new payment terms?

   Answer, Hardevi Vazirani, CFO. Inventory: typically a June uptick, this year slightly higher by 0.6 points of sales. Build is in line with forward demand projections and longer transit times (Red Sea, blank sailings) — transit times up ~20-25 days. Expect some easing in Q3. Receivables: payment terms aligned with market conditions and will remain so.

9. 9. Hybrid technology positioning

   Pramod Amthe, InCred Equities

   Question. From a Schaeffler and parent perspective, how do you see the opportunity/threat from hybrid technology? Will OEMs sharply catch up and what does that mean for Schaeffler?

   Answer, Harsha Kadam, CEO. Schaeffler globally has the competence and portfolio across IC engines, hybrids and BEVs (including system-level offerings). In India, volumes for some applications are not yet optimal for local production — imports continue where scale is missing, with localisation ramp as volumes emerge.

10. 10. Content per vehicle under CAFE/BS-VII

    Divyanshu Mahawar, Dalal & Broacha Stock Broking Private Limited

    Question. With new emission norms like CAFE and BS-VII, how do you see content per vehicle trending — upwards or stable?

    Answer, Harsha Kadam, CEO. Content per vehicle moving from low double-digit euro range to triple/quadruple digits as Schaeffler shifts from components to subsystems and systems (hybrid electromechanical devices, full E-axle with motor and controller). Strategic shift already showing wins; will require continued capability investment.

11. 11. Industry 4.0 growth and brand-agnostic digital solutions

    Divyanshu Mahawar, Dalal & Broacha Stock Broking Private Limited

    Question. What growth/opportunity do you see from Industry 4.0 and any new product additions? Also — can your digital solution be deployed independent of the bearing/product brand in the customer's application?

    Answer, Harsha Kadam, CEO. Two Industry 4.0 dimensions: (a) offerings — digital machine condition monitoring, smart lubrication devices, OPTIME sensing devices used by customer maintenance teams; (b) shop-floor services in continuous process industries (steel, cement) including uptime management. Digital twin initiatives in own plants. Yes, the digital solution is brand agnostic — it can be deployed on competitor products in the application.

12. 12. Exports vs Schaeffler AG; SE Asia contribution

    Anish Rankawat, Haitong Securities

    Question. Schaeffler AG has cut guidance largely on weak Bearings & Industrial Solutions — yet you flag European demand improvement. Is India's contribution to global exports rising? What is Southeast Asia's contribution to exports?

    Answer, Harsha Kadam, CEO. Believes cost competitiveness from India is a key reason for demand uptick — sluggish Europe benefits India-sourced supply. Wind sector (80% of Indian wind production is exported) also shows strong traction, though Schaeffler does not book that as direct export. Southeast Asia %: not at liberty to disclose, but concentrated efforts in the region have increased materially.

    Not answered directly.

13. 13. Koovers roadmap and breakeven

    Anish Rankawat, Haitong Securities

    Question. Koovers roadmap and timeline to contribution at consolidated operating level?

    Answer, Hardevi Vazirani, CFO. Start-up with no breakeven for at least 3 years; was south-India focused at acquisition, now expanding pan-India. Q2 vs Q1 sales growth +40%. Funding and other requirements are being met by Schaeffler India. Breakeven not expected before three years.

14. 14. E-axle program and new wins

    Anish Rankawat, Haitong Securities

    Question. Update on the E-axle program — new order wins and localisation progress. Is the H2 CY24 series production start on track?

    Answer, Harsha Kadam, CEO. New E-axle business secured, customer is validating samples supplied. On track with commitments; no changes in customer launch plan. Engaging with multiple other EV OEMs for additional wins; updates will follow.

15. 15. Bearings growth drivers and Wind

    Saif Sohrab Gujar, ICICI Prudential AMC

    Question. Bearings & Industrial Solutions posted 16-17% YoY — is this purely volume given steady commodity pricing? What segment drivers and how is Wind doing?

    Answer, Harsha Kadam, CEO. Purely volume-led growth. Drivers: engine application bearings (robust Q2 demand), power transmission sector, railways, raw materials and renewable/wind sector. Tractor recovery on monsoon is an upcoming positive.

16. 16. Exports to Europe and railway scaling

    Bharat Sheth, Quest Investments

    Question. Export to Europe improved despite European weakness — is it cost competitiveness driving orders? Separately, railway is at 3% of revenue — what is being done to scale it meaningfully?

    Answer, Harsha Kadam, CEO. Sister-company model — orders flowing in point to demand resurgence in Europe plus India cost competitiveness. Railway: strong in metro and locomotive applications (insulation-coated bearings for electric locomotives made locally); passenger wagons via axle boxes and gearboxes with new products nearing validation; freight cars waiting on next technology shift.

17. 17. Non-bearing business mix and powertrain evolution

    Rishi Vora, Kotak Securities

    Question. Roughly what is the contribution of non-bearing products today and what are the key components? As multiple powertrain solutions emerge, how will this business evolve — any significant tailwinds/headwinds?

    Answer, Harsha Kadam, CEO. Mix: ~60% bearings, ~40% non-bearings. Non-bearings primarily transmission clutches (200-430mm, single/double, clutch release mechanisms) and engine applications (cam followers, valvetrain, belt/chain drives, FEAD, ISG mechanisms). Hybrid: planetary gear systems and intermediary mechanisms. EV: secured 3-in-1 E-axle (motor + gearbox + controller) with H2 CY24 SOP. Next-gen hydrogen fuel cell competence sits in Germany.

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In their words