Schaeffler India Ltd (SCHAEFFLER) Q2FY27 Concall Transcript - Sep-2026 Qtr
Harsha Kadam (Schaeffler India Ltd): as the other businesses like bearings grow and the localized content grows.
Moderator: Thank you, sir. Next question is from the line of Shashank Kanodia from ICICI.
Moderator: Ladies and gentlemen, good day, and welcome to Schaeffler India Limited Q3 CY '26 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touchtone phone. Please note that conference is being recorded. I now hand the conference over to Ms. Gauri from Schaeffler India Limited. Thank you, and over to you, ma'am.
Gauri Kanikar (Schaeffler India Ltd): Good morning, everyone, and welcome to Schaeffler India Limited's earnings conference call for the third quarter and 9 months ended September 2026. Today, we have with us, from management, Mr. Harsha Kadam, our Managing Director and Chief Executive Officer; and Ms. Hardevi Vazirani, our Director Finance and Chief Financial Officer. As always, Mr. Kadam will first take us through a short presentation on the results, and then we will open the floor for questions. Thank you, and over to you, Mr. Kadam.
Harsha Kadam (Schaeffler India Ltd): Hi. Good morning, and a very warm welcome to this third quarter and 9-month ending business performance update.
Hardevi Vazirani (Schaeffler India Ltd): Good morning from my side as well.
Harsha Kadam (Schaeffler India Ltd): Yeah. Let me briefly take you through the presentation, and I will be covering three broad areas as that is indicated on slide number three of the presentation. First would be a little light on the economy and the industry. Second would be on the business highlights, the third quarter and 9 months ending for 2026. And lastly, the financial highlights for the third quarter and 9-month ending 2026. Let me draw your attention to slide number four, where I will talk a little bit about the economy. Now as you can see, a strong performance from the from an economic standpoint on the Indian economy. The estimated growth was at 6.4 in the third quarter, and actually the numbers that are coming out as much stronger than that. However, that said, in spite of the global uncertainties, the volatility that exists around us today, India still has come out stronger. And the International Monetary Fund recently has upgraded its full-year growth forecast to average 7% GDP on the back of a very strong robust domestic market and also the booming digital services sector as well as the exports business. If one were to look at the Index of Industrial Production, strong manufacturing output in the automotive industry, obviously, on the back of the GST 2.0 drive, has helped in terms of beating the targets as well, and it has reached an all-time high of 7.7% IIP, as you can see there. The growth is structurally sound, and it is led by heavy manufacturing and also the utility sector as well as the power and electricity generation sector, all have done exceedingly well in the quarter. Looking at the automotive production has been one of the stellar performances. As I mentioned already, the GST 2.0 is propelling the growth, bringing in a very strong traction in demand. And this is, as you can see, from a Q3 year-on-year growth standing at close to 31%, 32% and a quarter-on-quarter almost a 23%. Passenger vehicles, by far, leading the pack with 25% growth. And tractor sector, too, on a muted monsoon performance, still at 7% growth. A cautionary trend is on the inflation. As you can see, the Consumer Price Index, food prices have started to increase quarter-on-quarter. And that's the alarming sentiments that are prevailing on the food inflationary increases that have happened. With that, I move to the next slide, which is more focused on the sectors. And what you see is the industrial sectoral performance. And very clearly, on the back of the focus from the government of India on the core infrastructure sector, we are seeing the core industrial sectors, such as cement, steel, doing pretty well, registering a strong growth there as well. Month-over-month, as you can see over the previous years in the bar chart,
Harsha Kadam (Schaeffler India Ltd): the country have been consistently growing, and average growth rate almost over 9.3% as you can see over the last year. Steel, on the other hand, continues to be at the same levels as last year, but marginally, again, growing at about 3%. Mining and coal production, with the clear focus on renewable energy sector, so the coal is something that always fluctuates. And talk about power generation. Again, as I said earlier, strong growth in energy demand in the country, and which is clearly growing at about 8%. Very strong focus on renewable energy and overall the energy security that the government is bringing into focus, as such. Moving to slide number six. A little light on the automotive sector performance. Almost all the automotive segments have performed exceedingly well, as you can see the two- and three-wheelers also have grown phenomenally and close to 3 million produced only in the month of September, has consistently shown the growth of the two- and three-wheeler business in India. And fortunately with the festival seasons split between October and November, some of these strongest growth months are yet to be, you know, crossed. That said, passenger vehicles obviously has been one of these strongest performance with an year-to-date growth of almost 17 18% growth, which you're seeing there, again one, once again registering an all-time high production levels in passenger vehicle segment. Interestingly, the commercial vehicles also have registered a very strong 21% growth as you can see month-after-month continuing to grow. Commercial vehicles has always been a cyclical business, and I guess we have seen the peaks of the business, but we will have to wait and watch how it pans out in 2027. But for the moment this year, commercial vehicles, too, have registered a pretty strong growth compared to last year. Tractors have been performing as expected, although on a little bit of muted monsoons that we have been hearing about, we still have to track and watch what's going to happen to tractors in the next three months. However, so far tractors have registered an year-to-date growth of 18% over last year, as you can see in the bar chart. That said, I move to slide number eight, where I would throw light on the business performance. On this backdrop, with all the volatility in the market, the uncertainty in the market, the challenges in the export market, what we were able to bring into the company was a revenue of 3,005 crores for the third quarter, which was a 27.4% growth over the same quarter last year, and a 12.1% growth over the preceding quarter. Almost all the business segments have been able to deliver a double-digit growth rate for for us in the quarter. This has resulted into an EBITDA of 18.7% in the quarter of this year compared to the preceding quarter of 19.1%. The margins did come under pressure due to the increased input costs as a result of the volatility that is existing in the market, and also the West Asia crisis which has impacted the energy cost and the fuel prices, and some of the cascading, you know, impacts that it has had on the downstream operations, as well. So, with that, our margins came under a bit of pressure, and hence, you see a marginal drop from a 19.1% to an 18.7%. The profit after tax too came under some challenge with 12.3% in the quarter against the 12.6% over the preceding quarter. Having got impacted with working capital increases, some that were planned and some a little unplanned, inventories buildup that we have lined up in our e-mobility sector, and some challenges also on the price recoveries from our customers due to the inflationary increases, which is still work-in-progress for us, and also on the accounts receivable situation which we still are getting our hands around to address it in the next.
Harsha Kadam (Schaeffler India Ltd): in this quarter, in the coming quarter. Obviously, with that, we did see some impact of all these coming onto the free cash flow. And we registered only 41 crores of free cash coming into the system, which was phenomenally lower percentage, as you can see, compared to the preceding quarter, as well. But that is something we are focused upon to recover the situation on the free cash flow in the coming quarter. And we will try and deliver in line with our expectations, as well. The good news is our CAPEX reinvestment still remains strong. In fact, we did have the highest CAPEX spending happening in the third quarter, which I will come to in a while. Let me move to slide number nine. What has kept us going, and the revenue growth that you see, is because of a strong pipeline of new business wins. We continue to keep the focus on winning new businesses with our existing customers, as well as with new customer acquisitions that we do. And as a result, as you can see in the Automotive Technologies space, we did have a lot of business in the engine application portfolio, such as our lash adjusters, HLA, RFE, roller tappets, and so on. We also had some strong business win in the clutch clutch portfolio for the automotive application, passenger vehicles, in particular, and also some of the rocker arm assemblies that go into the engine. So, we have had some significant business wins, which ensures we continue to keep our top line growth going forward, as well. Talking of the after market, the vehicle lifetime solutions, as well, new business wins coming from the front end auxiliary drive, the timing kits, bearings portfolio, and of significant growth in the lubricants, which continues. We've also increased our focus into or in our portfolio of products that we are bringing into the aftermarket space, and this too is resulting in our portfolio expansion in the Vehicle Lifetime Solutions space. Talking about the industrial division, the Bearings and Industrial Solutions, have been consistently focused on increasing and securing our market share in many of the portfolios, cylindrical roller bearings, spherical roller bearings and ball bearings in particular. Whether it is in the automotive segment or with the high value solutions, such as the actuators and bottom roller bearings in the industrial automation sector, or for that matter, even within the railway sector with our TAROL portfolio of products and TRB portfolio of products, we've had some significant business wins. Now, all of this put together secure the pipeline to consistently keep increasing our revenue growth. And that's how you see us being able to deliver a double-digit growth consistently. That said, I now move to slide number 11. So, if one were to look at the total revenue that we generated from our operations, as you can see, 3,005 crores coming into in the third quarter. And which was a clear 12.1% growth over the preceding quarter and a year-on-year growth of 27.4%. Now, this revenue, split between the businesses that we operate in, automotive sector clearly grew by 17.3% over the preceding quarter and 34 35% over the same quarter last year. While the aftermarket, Vehicle Lifetime Solutions, grew 2% over the preceding quarter as also delivered a 22% growth over the Q3 of 2025. The Bearings and Industrial Solutions also have delivered 10.2% growth over the preceding quarter. And as you can see here, 14.7% over the same period last year. Not to be left behind, our export business, which we call it as intercompany, delivered 12.7% over the preceding quarter and a 46.3% over the same period last year. What has this growth done to the mix of our portfolio? And as you can see on the pie chart to the right, our automotive technologies still continue to be at about 37% of the revenue, Bearings and Industrial Solutions coming in close second with 35%, followed by our export, which has cropped up from 15 in the last quarter to 17%, and our Vehicle Lifetime Solutions, which is at about 11% of the total revenue kick. So, with all this, we still continue as a motion technology company
Harsha Kadam (Schaeffler India Ltd): to, to keep that interesting balance of our portfolio mix. Thereby, we continue to manage the vagaries of the market environment that we operate in and the balance helps us to are sailing in a much stronger in spite of all the headwinds that we come across. With that, I move to slide number 12 talking a bit on the earnings quality and what you see here is the EBITDA performance and as I already shared in the quarter, 562 crores coming into the quarter at an EBITDA level which is a clear 9.4% improvement over the preceding quarter and an 18% improvement over the same period last year. I must say reasonably good performance in spite of the challenging market environment and the headwinds that we have been facing. Now if one were to look at the split of where does EBITDA came in from, a gross margin improvement brought in about 192 crores within the quarter and this has been primarily due to the efforts of recovering some of the inflationary input cost increases that have happened and we have been successful to recover. Is this all? No, it is not. This is still work in progress and we are still on the way to recover the entire increases that have happened. On the other hand, we did have some employee cost increases that have come in marginally at about 44 crores and from other income issues that have come in at about 62 crores. But that said, we have been able to sustain and hold on to our profit after tax although at a decimal percentage point level, there has been a drop over the preceding quarter from a level of 12.6, the profit of the tracks came down to 12.3 in the quarter bringing in about 370 crores. That said, which is also still a double-digit improvement over the preceding quarter. Year-on-year, as you can see, it's close to 21%. So, while from a summary point of view, the earnings quality was impacted marginally mainly coming on the back of the input cost increases, predominantly from fuel prices and, of course, the FX foreign currency exchange rates as well. That's it. I move to slide number 13. What you see is the increase in working capital which has gone up and as a percentage of sales has crept to almost 19% levels. Yes, the reason for this is we did have some planned increases as well because we had to our localization projects. We have to continue to service the customers and this is something we wish to bring it back under control as soon as possible and there's a clear focus on how do we want to address the working capital increases and we will try to do this going forward now. That said, free cash flow which I already mentioned at the beginning of my presentation that, yes, this is an area where we still have to do a lot more work. In this quarter of Q4, we our work is clearly cut out to keep the focus on working capital management and the free cash flow recovery as well. That said, on the CAPEX, as you can see clearly, in the third quarter we have invested 182 crores in the third quarter alone and this has complimented the overall performance which was a little muted in the first two quarters and our commitment to invest for the future growth of Schaeffler in India stays the course. That said, let me move to slide number 14 which gives you the overall indicators and as you can see, I already talked about the 27.4% year-on-year growth and the 12.4% quarter-on-quarter, bringing in an EBITDA margin of 18.7% and an EBIT margin of 15.7% with a profit after tax of 370 crores, a CAPEX invested 182 crores and with a free cash flow of 41 crores in the quarter. Translate that to the nine-month period, what you see is a 21.4% growth over last year at a nine-month period and with an EBITDA margin of 19% and an EBIT margin of 15.8%, a still a strong profit after tax margin of 12.5%. Our CAPEX stands at a level of 357 crores month-to-date nine-month period with a cash free cash flow of 274 crores.
122 more turns of this transcript: log in to Stocksigma to read the full call.