Earnings Call Transcript Analysis Report #
Schaeffler India Limited Q4 CY'24 Earnings Call Analysis #
Financial Performance #
Key Financial Metrics:
- Q4 Revenue: INR 2,082 crores (standalone), INR 2,136 crores (consolidated)
- 12-Month Revenue: INR 8,076 crores (standalone), INR 8,232 crores (consolidated)
- Q4 EBITDA: 18.8% (INR 390 crores)
- 12-Month EBITDA: 18.5%
- Q4 Profit After Tax: INR 249 crores (12% margin)
- 12-Month Profit After Tax: 12.1% margin
- Q4 Free Cash Flow: INR 163 crores
- 12-Month Free cash flow: INR 224 Crores
- Q4 CAPEX: INR 55 crores
- 12-Month CAPEX: INR 691 Crores
- Dividend: INR 28 per equity share (45% payout ratio)
- KRSV (Koovers) Q4 Revenue: INR 542 million, restated as INR 52.4 crores.
- KRSV (Koovers) 12-Month Revenue: INR 158 crores.
- KRSV EBITDA, EBIT, and Earnings Before Taxes: Negative.
Comparison with Previous Results:
- Q4 Revenue: Up 12.2% YoY (vs. Q4 2023), up 0.5% QoQ (vs. Q3 2024).
- 12-Month Revenue: Up 11.8% YoY (vs. 2023).
- Q4 EBITDA: Improved from 18.5% in Q3 2024.
- 12-Month EBITDA: “a shade below the EBITDA of last year.”
- Free Cash Flow: Improved vs Q3'24, but down 8.3% YoY.
- Working Capital: Increased to 19.8% of sales vs 2023, but improved by 0.8 percentage point to 19% comparing 9 months.
Revised Guidance/Forecasts: No explicit numerical guidance, but expectations of returning export revenue to INR 300 Crores per quarter.
Areas of Growth/Decline:
- Growth: Automotive Technologies (11.3% YoY), Bearings & Industrial Solutions (14.3% YoY), Exports (23.5% QoQ, 11% YoY).
- Decline/Muted: Vehicle Lifetime Solutions (3% YoY growth, muted demand), Commercial Vehicles remained muted (-4.8%).
Strategic Initiatives & Business Updates #
- Strategic Announcements: Focus on capex efficiency, improving working capital and cash flow. Committed to dividend payout ratio between 30%-50%.
- New Products/Services/Markets:
- Automotive: Clutch and hybrid applications (planetary gear shafts), front-end auxiliary drives, timing kits, wipers, lubricants. Expansion of BS-VI product portfolio in the aftermarket.
- Industrial: Bearings for Off-Road sector and construction equipment, Arcanol brand grease and lubricants for Railways, linear guides for Industrial Automation.
- E-mobility: Localization of e-axle production, battery management systems, thermal management modules.
- Ongoing/Completed Projects: Digital connection project with Nord Drivesystems (electronic data interface). New product development with Voith Turbo Private Limited.
- Operational changes: Internal regrouping: auto bearings moved from Automotive technologies to B&IS (Bearing and Industrial Solutions).
Market & Competitive Landscape #
- Industry Trends:
- India GDP growth estimated at 6.8% for Q4.
- Manufacturing output showing signs of rebound.
- Index of industrial production up to 4%.
- Automotive sector rebounded in Q4 (4% growth).
- Food inflation a concern (CPI at 5.6%).
- Cement, Steel, Coal, and Electricity generation showed growth.
- Two-wheelers grew 15.5% YoY, Passenger vehicles 4.9% YoY.
- Competitive Positioning: Positioned as a “leading motion technology company.”
- Market Challenges/Opportunities:
- Challenges: Muted demand in the export market (particularly Europe). Liquidity and cash flow issues in the automotive aftermarket.
- Opportunities: Growth in cement, steel, coal, and electricity sectors. Rebound in automotive sector. Strong demand in two-wheelers and a pick-up in tractors. Regulatory changes (CAFE norms, TREM norms) creating demand for new products.
Risk Factors & Challenges #
- Concerns/Challenges: “Q4 was quite a volatile quarter for us in terms of the business environment with a lot of uncertainties.” “Challenging situation on the market front.” “Muted response of demand coming in from the export market.” “Liquidity crunch in the market” impacting aftermarket business.
- Regulatory Issues: Mentioned upcoming CAFE norms and TREM norms, requiring product re-engineering.
- Supply Chain/Operational Constraints: Prioritizing OEM demand over aftermarket due to capacity constraints.
- Market Uncertainties: “Entering into 2025, we still see some challenges.” Geopolitical situation in Europe impacting export demand.
Forward-Looking Statements #
- Outlook/Projections: Expectation of improved export market situation. “We are hopeful and optimistic that… the demand certainly would come back.”
- Commitments/Targets: Dividend payout ratio between 30% and 50%. Continued focus on working capital management and free cash flow improvement. Target of 80% localization in midterm.
- Planned Investments: Continued, but moderated, CAPEX spending, focusing on filling existing facilities. “We will be moderating it a little bit, but not so much that it will reduce significantly… 10%, 20% lower than that [INR 500 crores average] per year.”
- Strategic Priorities: Focus on securing new business wins. Expansion of product portfolio. Capitalizing on regulatory changes. Growing the Koovers platform.
Q&A Insights #
- Most Pressing Analyst Questions:
- Update on e-axle project and localization.
- CAPEX plans for CY'25 and CY'26.
- Revenue mix within Bearings and Industrial Solutions.
- Details on export market recovery and geographic contributions.
- Timeline for KRSV (Koovers) to reach profitability.
- Impact of Vitesco acquisition on India business.
- Reasons for decline in aftermarket business.
- Growth outlook for automotive segment given market conditions.
- Management’s Responses: Provided detailed answers to most questions, clarifying capex plans, export market dynamics, and strategic initiatives.
Management Tone & Sentiment #
- Overall Tone: Cautiously optimistic. Acknowledged challenges but emphasized resilience and positive long-term outlook.
- Changes in Language: More emphasis on “managing” and “moderating” investments compared to previous calls, reflecting a more cautious approach.
- Areas of Confidence: New business wins, product portfolio expansion, ability to adapt to regulatory changes, long-term growth potential.
- Areas of Concern: Export market volatility, aftermarket demand weakness, working capital management.
Key Takeaways #
Resilient Performance: Schaeffler India delivered double-digit revenue growth in a challenging environment, driven by strong performance in Automotive Technologies and Bearings & Industrial Solutions.
Cautious Investment: While committed to growth, the company is moderating CAPEX spending and focusing on efficiency, reflecting a prudent approach to market uncertainties.
Export Market Recovery: The company anticipates a rebound in the export market, particularly in Europe, contingent on the geopolitical situation stabilizing.
Strategic Focus: Schaeffler India is prioritizing new product development, localization, and capitalizing on regulatory changes to drive future growth.
Aftermarket Challenges: The company is addressing challenges in the aftermarket business related to liquidity issues and a shift towards OEM demand.
Long-Term Optimism: Despite near-term uncertainties, management remains optimistic about the long-term prospects, positioning the company as a leading motion technology player.
Koovers Turnaround: Expectation that Koovers will take 2.5-3 Years to turnaround financially.