Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Schaeffler India Ltd (BOM:505790, Financial) achieved a milestone by generating sales revenue of 2000 crores in Q2, marking a 20% growth over the preceding quarter and 13.3% growth compared to the same quarter last year.
- The company registered an EBITDA of 18.6% in Q2 2024, up from 18.3% in Q1 2024, resulting in a profit after tax of 12.2%.
- Schaeffler India Ltd (BOM:505790) received multiple recognitions from key customers like Mahindra and Maruti Suzuki for quality performance and vendor-managed inventory efforts.
- The company saw a strong rebound in the two and three-wheeler sectors, driven by rural demand, which constitutes almost 60% of total production.
- Schaeffler India Ltd (BOM:505790) has been able to sustain its growth momentum in the export market, particularly in Europe and Southeast Asia, despite geopolitical challenges.
Negative Points
- The company faced challenges with free cash flow, particularly due to CapEx investments, resulting in negative cash flow for the quarter.
- There was a noticeable increase in working capital, which rose to 20.2%, indicating a need for better management in succeeding quarters.
- Employee costs were significantly high in Q2, attributed to salary increments, performance bonuses, and new recruitments, impacting overall profitability.
- Some industrial sectors experienced sluggishness in Q2 compared to Q1, particularly in cement and coal production.
- The commercial vehicle sector saw a decline in Q2, and the company is cautious about the geopolitical situation affecting future export growth.
Q & A Highlights
Q: We've seen very strong performance in exports this quarter with a sequential 20% growth. Can you provide more color on how you see this going forward?
A: The stabilization of the economy in Europe and our efforts to enter newer markets, particularly in Southeast Asia, have contributed to this growth. However, we remain cautious due to potential geopolitical uncertainties.
Q: Any targets or guidance for exports as a percentage of overall mix?
A: We aim to maintain exports in the range of 10% to 15% of our overall mix, considering the vulnerability to geopolitical developments.
Q: On the Automotive Technologies business, we are seeing strong growth. Is this due to content increase or market share changes?
A: The growth is due to a combination of factors including content increase, market share gains, and new product launches. Tailwinds in specific segments like tractors have also contributed.
Q: The employee costs seem quite high this quarter. What has driven this increase?
A: The increase is due to timing differences related to salary increments and performance bonuses, as well as new recruitments for future growth.
Q: Is our railway portfolio now fully localized, or are we still importing products?
A: We have a large percentage of localization for the railway sector, but some products are still imported. Our localization plans are well underway with ongoing CapEx investments.
Q: Any update on the merger of Vitesco with Schaeffler India?
A: The integration process is ongoing globally, and it is too premature to provide specific updates. We will keep stakeholders informed as the process progresses.
Q: Can you provide more details on the working capital situation?
A: Inventories are slightly higher due to increased transit times and logistical challenges. Receivables have also increased due to adjustments in payment terms in line with market conditions.
Q: How do you see the opportunity or threat from hybrid technology?
A: Schaeffler is well-positioned with a comprehensive product portfolio for ICE engines, hybrid, and electric vehicle technologies. The challenge lies in achieving appropriate volumes for local production.
Q: What is the scale-up plan for KRSV Innovations, and when will it contribute to consolidated performance?
A: KRSV Innovations is a start-up and is expected to break even in about three years. We are expanding its presence across India, and it registered over 40% growth in sales in Q2 versus Q1.
Q: Can you provide more details on the e-axle program and its localization?
A: The e-axle program is on track with customer validation ongoing. We are working with multiple electric car manufacturers and will keep stakeholders updated on new business wins.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
