Schaeffler India Ltd

NSE:SCHAEFFLER

Earnings Call Transcript 2023-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to Q1 CY '23 Earnings Conference Call of Schaeffler India Limited. [Operator Instructions]I now hand the conference over to Ms. Gauri Kanikar from Schaeffler India Limited. Thank you, and over to you.

[Gauri Kanikar, executive]

Good morning, everyone. Thank you for joining Schaeffler India Limited's earnings conference call for the first quarter ended 31st March, 2023. We have with us today from the management, Mr. Harsha Kadam, our Managing Director and Chief Executive Officer; and Mr. Satish Patel, our Director, Finance and Chief Financial Officer. Mr. Kadam will first take us through a short presentation on the results, after which we open the floor for questions.Thank you, and over to you, Mr. Kadam.

[Harsha Kadam, executive]

Thank you, Gauri, and good morning to all of you, and a warm welcome to this investor call today. I hope all of you are doing well today. I have with me...

[Satish Patel, executive]

Hello, everyone, Saith Patel. Good morning to all of you.

[Harsha Kadam, executive]

Yes. So let me briefly take you through what happened during the first quarter. I hope you are able to see my presentation. I'm on Slide 1, and I move to slide 2, let me start on a positive note by sharing with you some awards that we have received in this quarter. As you all know, Schaeffler India, we are on this journey of ESG and our sincere and committed efforts to run the business through the ESG approach has started to show results and the testimony to that is what you see on the slides today.The first award that we received was from Dun and Bradstreet, it was an ESG Excellence Award and this was clearly the effort and the actions that we are carrying out in our ESG approach and more specifically in our focus on high corporate governance as well as exemplary corporate behavior that we have been demonstrating over the years.The second award I would like to touch upon is about the CSR efforts that we carry out, and one such initiative amongst the many CSR efforts that we do, was a water conservation project called Jal Sahara, and this was a project that we undertook in the Khed [indiscernible] Satara district, and this is an arid region and with a project that we have executed there, which is primarily towards water conservation, to bring back agriculture into this region. This region has not only benefited from increased availability of water conservation and agriculture, but another important impact of this project was that, it has created a reverse drain of the local population who had moved to the cities to come back and restart their original [ location ].And these projects -- this particular project was recognized by two agencies, one of which is on the slide that you see. The first agency that recognized this project was the CSRBOX and the second one, what you see on the slide is the CSR Journal Excellence.Now, having seen the substance of this project, we have undertaken to replicate similar projects in the other locations where our plants are located in the state of Tamil Nadu and Gujarat as well.I move to the next slide which is going to talk about what am I going to cover today, a brief on the economy and the industry. I will then touch upon the business highlights for the first quarter 2023 and the last I would look and share with you the financial highlights of the first quarter of 2023.And with that, I move to slide #4, wherein you know I talked about the economic outlook and the growth outlook for India. And as you can see from the graph there, the GDP first quarter provisionals that have come out is 5.1% for the country. And I'm sure you're all aware, the International Monetary Fund has you know, rewinds the estimates for GDP for India to 5.9% for this year. The World Bank still keeps it at around 6.3%. You know there are compelling factors, what the reason for that why the GDP growths looks very muted. Obviously, I'm sure you are aware with the prolonging war in Ukraine, the tightening up of the global monetary policies and the imposition of economic sanctions there certainly is weighing down on the economic outlook for India as well.However, on a comparative level, we find that the projected growth rates for the country definitely look better than the rest of the countries in the world. So rightfully this muted -- or the decline that you see over there is definitely going to impact the business in India and we are seeing some signals of that happening in our business as well in this quarter.If one were to look at the index of industrial comparison, which is for the month of January, it is above 5%, looks pretty promising and we see that reflecting on some of the sectors definitely beginning to show an uptick. Some sectors are still showing a downward trend. Since the last half of the previous year, considering the economic conditions that is outside, which is prevalent due to the geopolitical situation.Looking into the automotive production itself, what you find is, we have seen some small challenges that however be it automotive production in the country is on track, going very well. Although the sector is still facing some challenges in terms of chip shortages, which we still experienced from some of our customers and some of the segments within the automotive industry.Talking about inflation. Yes inflation, which was in the last year, Q2 and Q3 was at phenomenally high numbers, have started to moderate down, however it is still sitting at a higher level of 5% to 6% and that's something that needs to be monitored as well. And these are going to definitely have some impact on the businesses that we do as well.Moving forward, I'd move on to slide #5, where I go into a little more detail on the core sector performance and what you would see here is on the cement production. And as you can see, the month of Jan, the cement production in the country was close to 36 million tonnes. But in the month of Feb as well, it was quite good. March numbers are yet to come in. All in all, we see that due on the -- driving on back of the infrastructure industry push, which the Government of India is driving, we see that the production in the country is set to continue to show positive trend. And the [ source ] is the same with the steel sector, because these two are interrelated and what we see is both these sectors are doing pretty well.Talk about the mining and as you can see, there again, with the bars are showing that compared to the same period last year, we have posted -- the industries that posted good performance comparatively and with mining contributing 11% to the industrial sector, surely this is a very positive trend that we are seeing in the mining sector. Power production or electricity generation is equally going well, and the core industrial sectors seem to be performing pretty well. However, one of the sectors is the renewable energies and that's where we have seen some downtick and that's coming mainly from the wind sector, where our customers predominantly leverage the best cross country situation and who are using India as an export base. That has come in for some strong headwinds due to the ongoing geopolitical situation in the rest of the world.I move to slide #6, some light on the automotive sector and segment performance. 2 wheelers definitely for the first 2 months of this quarter, we did see the production numbers were lower than in the same period last year. However, March, we have started to see some small uptick. Hopefully in the succeeding quarter, it will definitely continue to -- we hope and estimate that the numbers would definitely be better than the previous year.Passenger vehicles on the other hand have shown strong performance when compared to the same period last year and we have seen the numbers go up in the range of 400,000 vehicles a month in the first quarter itself compared to the 350,000 vehicles per month being produced in the passenger vehicle segment. Commercial vehicles, on the other hand -- while January and February did show very positive growth, the month of March was a little muted again coming on the back of some export drop that we have seen in the commercial vehicle trends from some of the customers.The tractor segment, which had already reached pretty high base levels, but we have seen the last 2 quarters had begun to go down and we definitely now see the first quarter showing a strong recovery and in the range of 85,000 to 90,000 tractors a month production, we are seeing a much stronger bounce back from the tractor segment in the first quarter of this year.Having said that. I move to slide #8 now and talk a little bit about the earnings quality that we have been able to deliver in the first quarter, based on the back of the [ quarter ], much better automotive technology sector performance for us, the divisional performance, in spite of some of the headwinds that we faced in that sector as well due to the chip shortages, and the mixed effects that we face because of some of the product applications like tractors, the dual clutches were not so much in demand. In spite of that, we were able to post a much better performance in the auto technology sector. However, in the wind, as I already mentioned, the wind energy sector impacted the industrial business significantly.On the e-mobility, I would like to share a very positive and good news that we have one big breakthrough in our business in terms of getting a business win from one of the prestigious automotive customers in India, and we are now in a position to preparing the groundwork to deliver, 2 in one axles, electric axles for the electric passenger vehicle segment with this customer. And we are estimating the start of production to happen sometime next year, middle to the second-half of the next year, we should be starting of the series production of these two axles, which we have now one.In spite of the challenges that we face on the top line, the quality of earnings, we were able to hold in spite of the strong headwinds and the drop in the top line and in spite of all these challenges, we stay focused and committed to continue on our path to run the business the ESG way. Our focus on environment, social and the governance aspects will be there and it will continue to go on.So coming to some of the numbers; as you can see the period performance. Our revenues grew 8% over the previous year. However, over the preceding quarter, what you see is, we were down 5.6% and we ended the quarter with [ INR1,793 crores ]. When we look at the EBIT margin, we retained the EBIT margin at 15%, which was more or less the same level and if one were to look at the preceding quarter, we had ended the -- that quarter with an EBIT margin of 16.2% and we were able to bring an EBIT of INR270 crores into the company.The profit after tax while on the other end, bringing in INR219 crores into the system, registered a strong 13% profit after tax margin, which was a little bit better than the preceding quarter of 12.9%.One other aspect which if you remember in my previous investor call, I did share that one of the focus areas for us was to get into a positive cash flow, free cash flow and we were successful in maintaining and achieving that in this quarter itself. We are now in a positive situation and we were able to bring in INR3 crores into the system as free cash flow.I move to the next slide, and I'm on slide 9, I will touch upon a little bit on the new business wins, and as I said, we are proud to share that we have won our first system level solution offering in the electric vehicle space, with the 2 in 1 key axles, for the e-mobility solution here, apart from the fact that we already service the customer for this very application with -- bearings which go into the electric vehicles. This is a pure electric solution that we are bringing into India now, and currently the stage at which we are in, the sample preparations are underway and will soon be delivered to the customers and we will be starting off with field tests, with more solutions on the Indian roads for this customer.Meanwhile, we have also had some good business wins on the double clutch systems in the commercial vehicle segment, as well as some things in the alternative applications, which is one of the critical applications in the passenger vehicle segment.

[Operator]

I'm sorry to interrupt. Sir, we are not able to hear you very clearly. I will reconnect you. Alright, kindly disconnect sir. Participants are requested to stay connected, while we connect the management.Ladies and gentlemen, we have the management team connected. Please go ahead, Sir.

[Harsha Kadam, executive]

Thank you. I'm sorry. I don't know where, you know -- my voice was not so audible, but I would like to -- I am on slide #9 and I would like to start again from this slide. As I already said, we have had some major business wins in the electric vehicle application for a passenger car customer in India and this is a system level solution that we have been successfully able to design and develop for this customer. And this is a 2 in 1 E-axle that we would be selling apart from of course our usual foundation products of bearings, which is going into the electric vehicle as such. And we are at a stage wherein the sample productions are being made ready, so that we would be submitting the samples for this 2 in 1 E-axles to this customer, and very soon the field tests would start on the Indian roads.Apart from this, in the commercial vehicle segment as well, we have had some new business wins for the double clutch systems that we sell to this particular segment, and some wins in terms of alternator applications, alternator pulley, where in a bearing with the pulley goes as a subsystem solution, and we are able to you know -- we have won these orders as well in the passenger vehicle segment.Coming into the automotive aftermarket or the products, new products that we have launched, the white labeling products that we have launched in the past, we have started to leverage and you know grow the volumes. We have extended the reach Pan-India now and we have started to look at more opportunities to bring in some of the new business wins in, particularly in the areas of front-end auxiliary drive systems, the timing kits, and some paper roller bearings also in the passenger vehicle segment.So we will continue to keep the focus on expanding our portfolio here and we are sure that you will hear in the next investor calls as well, more new products that we will be bringing into the automotive aftermarket space.Coming into the industrial space, we have started to gain more wins, more with the localization projects that we have been running, both for the domestic need as well as for the exports, the angular contact ball bearings and the needle roller bearings, both within the industrial -- not only the automation sectors, the two wheeler. segment as well. We also have started to gain some new wins within the offroad segment with some of the new products that we have brought in under our localization program.Strong wins we were able to get in the industrial automation sector again for the linear motion devices, and with the acquisitions that we have made recently in terms of [indiscernible] as well as in terms of media products, we have started to gain more new businesses here.I move to slide #10 and come to the last item which is the financial highlights on 11 -- I'm on slide 11 now, and as you can see the snapshots here, the revenue from operations while our quarter on quarter growth was minus 5.6, year on year we were able to register a positive 8% growth.Look at the revenue bridge, where did this come from? Good growth coming from the auto technologies sector, the automotive aftermarket also brought in some positive contribution to the growth. It was in the industrial sector that we did have some real growth because of the impact coming in from the wind segment as such. Our exports too contributed positively. However, we have seen a bit of a slowdown in the exports, considering the fact coming on the back of some situations which is outside India, but also it has to do with the lag period that we have in terms of fulfilling the orders as well.So overall, looking at the sectoral growth, as you can see, I did already say that the automotive technology year on year was strong at 21.1% for the quarter. Automotive aftermarket was 17.4%, whereas industrial was a minus 8.5% and exports too grew in double digits when compared to the same period last. However, our biggest strength being the balanced portfolio that we talked about still stays good for us. It holds us in good stead and as you can see automotive technologies and the industrial part of the business is fairly well balanced and our exports for this quarter was about 16% of the total revenue that we generated.Moving on to slide #12, throwing some light on the earnings quality. As I said earlier that we have been able to sustain our EBIT margins of 16%, and if one were to look at it, definitely there has been a 7% drop over the preceding quarter. However on a year on year, as you can see, we have improved 4% there. And where has this come from, the bridge is going to throw the light on it. Clearly in terms of the gross margin, that has brought in close to INR417 million. Some of the employee costs that we have had because of the expansion projects that are ongoing already at our Savli plant, we have started to increase and add resources there, and the depreciation of course, is being a small number.And then of course look at the profit after tax, which I've already touched upon, a quarter on quarter growth over the preceding quarter was minus 5%, whereas the year on year still stands at about 6% positive, as you can see.I move to slide 13, throwing some light on the working capital and CapEx picture and the free cash flow. So as you can see, we have now brought back the working capital to around 19%, 20%, which is something that we would love to maintain at. This is to ensure our serviceability to our customer, and coming to the CapEx, as you can see, this is where we stand committed to increasing our CapEx spend. And if you were to look at it the same period last year, the CapEx spend was 3.5% of sales, and this quarter we have hit -- almost doubled it to 7% of sales. A clear indication that we stand committed to increase our capacities in India, leverage the cost competitiveness of India as well here.Talking about the free cash flow, I did already touch that we had put in some clear focused action plan here to remain a free cash flow positive right from the first quarter, and we have done that in this quarter, starting off the quarter with INR31 million of cash inflow into the system, and this is something that we have now achieved as well, and we will continue to keep this trend in the succeeding quarter as well.With this I move to slide #14, which is going to throw some light on the indicators of performance. Just to summarize, yes, the revenue growth year on year was 8%, but on the preceding quarter it was minus 5.6%. Our EBITDA margin stands at 19.1%, which was at the same level as the preceding quarter, and the EBIT margin remains at 16%. We have been managed to hold with all the countermeasures and the cost control measures that we have put in place. What has helped us to get -- to hold on to these margin levels is the operational efficiencies that we stayed focused upon from our operations, and the focus that we had kept and the actions that we had put in have started to hold return -- give us the returns that we were expecting as well. With all this, I must say in a challenging quarter with some of these strong headwinds that we faced in some sectors, we still posted a strong bottom line performance.With that, I'll move to slide #15 and I would like to summarize in nutshell, our business portfolio, which is quite balanced between the automotive and the industrial, have once again helped us to manage the situation in terms of the profitability performance in a much better way. While we are on this journey, we definitely see challenges. However, we are now reinforcing and reaugmenting our efforts in terms of countermeasures. While we are focused on our operational efficiencies, we continue to work on them and we are doing some cost corrections to get the top line back on track as well.Coming to the CapEx, while we will continue to invest [ actionably ] and we will be continuing at the same 6% to 7% of the CapEx that we have already started off this quarter. Having said that, we will be cognizant of all the volatility that still prevails in the marketplace, but we will definitely put in some actions there to do very agile course correction as well.We will continue on this journey. We will continue to keep the focus on our environmental efforts and initiatives and the social activities that we are [ drawing ] with the community around as well as we remain a very governance driven organization.So with that I come to an end and thank you for your patient listening. We now move to the Q&A.

[Operator]

[Operator Instructions] We have our first question from the line of Ankur Sharma from HDFC Life. Please go ahead.

[Ankur Sharma, analyst]

Yeah. Hi sir. Good morning. Thanks as always for the detailed presentation, three questions which I had. One was, you know, starting off with on the export side, where clearly on a sequential Q-on-Q basis, we have seen an 18% drop, and you did talk about some challenges in certain regions. So if you could just help us understand where is this slowdown being seen? I remember from your last call, you said you're equally divided between U.S., Europe and APAC. So which regions are -- you know where you're seeing the slowdown? And I think you also mentioned in one of your comments that, you could not fulfill some orders if I heard you right. So if you could also elaborate there? And how do you see exports kind of faring in the coming quarter?

[Satish Patel, executive]

Thank you. Ankur, Satish Patel here, let me answer both questions. As far as exports are concerned, if you look at the overall contribution of exports in last year, which is 2022, was close to about 18% exports and others -- we call it as 18%. Others includes certain non-export related income as well. For this quarter, it is 16.2% and you rightly pointed out that there is a drop in exports quarter-on-quarter basis by 17.7%. Our exports are actually geographically in terms of the overall division of the exports, we have about 40% exports to Germany, and if I add some other European countries then, close to 48% to Europe. Over 40% to Asian countries and between 10% to 15% to U.S., basically North America.Now we have a strategy that's what I mentioned last time as well of certain relocations happening from Europe to India, for the demand and the production relocation. That is actually as per the plan, it is progressing quite well. And this year CapEx, which we have earmarked, about 30% of that is going for relocations and the capacity build up for exports. So our sort of a strategic plan of focusing on exports, increasing the exports, relocations, CapEx, all that is very much on track.However, as far as quarter one is concerned, there has been some course correction happening globally, particularly in Europe, mainly on the inventory side. Our customers are actually having some sort of a [indiscernible] of inventory correction. That has caused little slower demand for us in the quarter 1. We hope this is short term one time and this is not going to last too long. There is a very small, relatively small impact of the global demand conditions as well. But as I have been mentioning that, our exports are driven by a strategy of relocations.Global declining, the demand is not going to cause a significant dent in our exports, because they are strategic in nature, and therefore the global demand cut has contributed slightly. So quarter on quarter 17% to 18% decline is definitely because of this reason. However, if you see year on year, there is a growth by about 10%. Also, our order book position is quite strong. So we do have close to one year of orders already booked, and we are expecting to serve, based on that order position throughout the year.So still the outlook for exports remains quite strong positive. But yes, there have been this quarter, which has actually witnessed a drop in the export. Please be also mindful of the fact that last year we have already grown exports by about 60%. We are talking about growth over that 60%. So therefore we would not have every year 60%. Our contribution to exports, which is on the increasing trend from 15% to moving to 17%, 18%, is going to further increase and will be reaching close to 20% going forward.

[Ankur Sharma, analyst]

Okay, fair. So basically Q1 is more of a inventory correction kind of a situation which kind of gets back to normal and therefore the outlook remains fairly strong for us okay. And secondly, sir, on the wind side, I know you've been highlighting this weakness on the wind side. So how big is wind for us, as a proportion of our sales and any -- I mean are things looking better, are they still the same on that that front?

[Harsha Kadam, executive]

Okay. Let me start; if you look within our industrial business, wind is quite substantial, almost close to 20% of the business. Having said that, if you look at the market, the number of wind equipments that are produced in the country, 80% to 85% of that production gets exported out of the country, the rest is only for domestic consumption. Now the challenge there is the external environment and the geopolitical situations, in Europe particularly, and with the imposition of sanctions on those countries, associated countries have kind of put, you know, hold on all the projects that were getting executed in those countries. So that's the first development that happened in the second-half of the last year.Obviously, there is going to be a lag period, and we are already seeing now, everyone is now trying to control inventories. The projects are being stopped or delayed. So we have seen projects being put on hold not just by the turbine manufacturers, but even by the gearbox manufacturers. So hence the impact and we have a very strong presence in the wind market itself as Schaeffler, and hence the impact of that slowdown is impacting us and hurting us as well.Hope this answers your question?

[Ankur Sharma, analyst]

Fair, fair, fair. I understand. And just one last one, sir, ex of wind also if you could talk about the other segments on the industrial side, you know, rail, steel cement, is the momentum kind of continuing there, you know or any signs of a slowdown? Just some outlook there would be appreciated there, thanks.

[Harsha Kadam, executive]

Yeah, sure. Let me start with the railways performance as being, you know, at the same steady level as we have been doing. In fact, we have had some good business wins in the railways as well, with the government launching close to now announcing 400 Vande Bharat trains in the next three years. We have already won orders for the Vande Bharat trains, and we have started to fulfill those orders as well.So that's one positive development on the railway sector. We are now working on a couple of new solutions to get into the freight sector, as well the freight wagons as well. However, that is going to still take some time, because we need to prove the product before we bring it to the market. So that is something that is work in progress.Talk about raw material, our performance has been pretty good. We have made good inroads and gains in the cement industry, where we are predominantly very strong there as such, as Schaeffler. And we have made some good inroads into the steel sector, considering that the infrastructure sector is booming now. And one other sector that I can touch upon, is the construction equipment as well, where we have got some good business wins. So all those sectors where we are seeing you know good push by the government initiatives, as well as market, we have been able to leverage and do well there.Two Wheeler was one of the sectors where we are pretty good. However, as you know, in the last year -- second-half of last year as well as coming into the first quarter, the market is a little muted when it comes to two wheelers. March is one month, we have started to see some uptick in terms of production numbers, but I guess one month is not the right indicator. We will have to watch for a couple of moments to see how this trend is going to develop.

[Operator]

[Operator Instructions] We have our next question from the line of Deepesh Agarwal from UTI AMC.

[Deepesh Agarwal, analyst]

Yeah, good morning, gentlemen. My first question is, if you can also explain on the auto aftermarket, because there also we have seen some kind of a sequential weakness?

[Harsha Kadam, executive]

Okay. Well what we notice, is the automotive aftermarket has a cyclical business approach. If you go the past trends, what you see is always in the last quarter of every year that we see a huge spike in demand. And normally, the first quarter is always muted, and we have seen it happen again this year as well. So that's the primary reason we see.Well, when it comes to order books, we do definitely have strong order books. Our strategy to grow the aftermarket business by bringing in more new products that still continues. It's just a business cycle situation that we face every quarter.If you look at the performance, compare it with the preceding quarter, you'll always see a big drop. But otherwise, if you look at and compare it with -- year on year you'll find it's a much better performance.

[Satish Patel, executive]

So year on year, we have grown by 17.5% in automotive aftermarket, which is significant growth. Although our automotive business grew close to 20%, which is also supported by aftermarket growth of about 18%.

[Deepesh Agarwal, analyst]

Sure, sure. And the second question is on the e-mobility solution wins. Can you explain what would be our opportunity by -- what would be our per vehicle year, and would there be a room to get into more such platforms with the same customer? And what would be the share of manufacturing from India and how much would be imported here?

[Harsha Kadam, executive]

The e-mobility sector that we are now getting into, as you all know, Schaeffler has a very strong lineage in this product line in Europe. We have already been into series production of new axle motors already in Germany. We do a lot for all the brands there in Europe. In India, the volumes are still to pick up and we have started to see now good traction in the motor -- electric vehicle sectors. With that, we have been working with our customers here, many of them, as to what should be our offering and we have now been able to sign off new business wins for a 2 in 1 e-axles. Now what would this entail? It would have an electric motor, coupled with a gearbox, and over and above that, the power electronics that go with it.So this is the offering that we bring in, and we have got the first breakthrough well and over the next 7 years of lifetime, if you were to see the business volume, it's going to be in the range of close to EUR300 million. That's the kind of volumes we're talking about, coming from just this one business win.Are we stopping there? Not at all. This is the first step, and now we have started to engage with other electric vehicle manufacturers as well. Now this is giving us the confidence, the first business is giving us the confidence that yes, we have learned how to crack the electric vehicle technology for the Indian market.Coming to the series production of this product, the first approach that we are taking is, while it is already designed, developed, we would continue to source the product, bring it into India and offer it to our customers in the next couple of years we definitely are putting in plants to start -- manufacture them in India for the customers here in India. As we all know, we have already been registered and selected as one of the Champions for the BLI and we would love to leverage this qualification that we already enjoy. So our clear strategy going forward is to start to make this entire system level solutions in India.So accordingly the industrial engineering activities have already begun to happen, and surely we will bring this product made in India for India in the next few years.

[Deepesh Agarwal, analyst]

In last bookkeeping question, if I can squeeze, would it be fair to say, our volume growth and the value growth would be similar in this quarter? Would there be any pricing actions?

[Satish Patel, executive]

Not so much on the pricing side. So volume and value growth, is similar.

[Harsha Kadam, executive]

Just to add, Deepesh, you did ask a question on content on vehicle. All I can tell you is, with the system level offerings that we are now getting into for the electric vehicle technology, our content per vehicle obviously is going to be definitely more, significantly more and I will say -- and I don't see any reason why it can't be double of what it is today.

[Satish Patel, executive]

But just to add one comment here, with regard to content per vehicle, in fact we are [ roughing ] when we talk about content per vehicle for e-mobility, because that is relevant, the content per overall vehicle is relevant when we have series production. In IC engine we are at the maturity stage, it's almost established business and you can have content per vehicle, you can monitor your outperformance. In my opinion this KPI of content per vehicle is not valid -- not so [indiscernible]. E-vehicle as of now. That could be valid, when we have really ventured into that space and also have the usual series production and also...

[Harsha Kadam, executive]

The economy still has to come up in the market, which is...

[Satish Patel, executive]

I would encourage -- I would rather request you that content per vehicle should not be so much looked into when we talk about e-mobility.

[Harsha Kadam, executive]

The value of the offering is more relevant. That's how I would say it.

[Operator]

We have our next question from the line of Nikhil Rungta from Nippon India Mutual Fund.

[Nikhil Rungta, analyst]

Sir. Most of my questions are answered. Just quickly, what would be our share of rail in the total revenue today?

[Satish Patel, executive]

Share of rail in the total revenue, here I would be specific to revenue industrial, because we have automotive and industrial, 2 distinct businesses. Rail is part of industrial business. When I talk about industrial business, the share of railway within industrial business is around 6%.

[Nikhil Rungta, analyst]

Okay. And sir, second question is, last quarter -- I mean on this e-mobility segment on the localization efforts, you mentioned that you are trying to work on using the design which should get completed in next couple of months, and the development work was initiated last quarter. So where are we on that localization efforts of e-mobility segment?

[Harsha Kadam, executive]

Well, I did already talk about the new business win that we have secured with one of the prestigious customers for the electric vehicle or the e-mobility, and that is pertaining to exactly the reference that I made in my previous investor call. Whereas that was work in progress and between then and now, we have now firmed up and we have the orders too -- can convert that into series production businesses now. So the stage at which we are in, the design is frozen. The sample productions are underway, and soon we will be submitting, to the customer for testing. And then by next year, we would get into a state of series production.

[Nikhil Rungta, analyst]

So now the work is at the prototype stage? Can we say that?

[Harsha Kadam, executive]

It's beyond the prototype stage.

[Nikhil Rungta, analyst]

Beyond the prototype? Perfect. Perfect, Sir. That's all from my side. Thank you.

[Satish Patel, executive]

And just to add one more comment related to our railway business, currently railway business is about 8%.

[Harsha Kadam, executive]

So if you want to take the [indiscernible]...

[Satish Patel, executive]

First quarter, then it is about 8%.

[Nikhil Rungta, analyst]

Okay, Perfect, perfect. This is helpful, sir. Thank you so much.

[Operator]

Thank you. We have our next question from the line of Vimal Gohil from Alchemy Capital Management. Please go ahead.

[Vimal Gohil, analyst]

Thank you very much for the opportunity. Sir my question which remains is on margins. Did we really see some positive impact of lower raw material prices this quarter?

[Satish Patel, executive]

No, no, not so much. So price level this quarter, preceding quarter is similar and we have, you know quite varied mix of the raw material, yeah, at the level of subsegment there could be some change, but overall there is no significant change compared to the preceding quarter on the cost side, material cost side.

[Vimal Gohil, analyst]

Sir, given the fact that the way they have -- the way raw materials have moved, do you expect some benefits to accrue in quarters going forward?

[Satish Patel, executive]

See if you see last quarter, particularly external reports, some sort of softening is expected, no doubt about that. Steel price softening is happening. Global demand is slightly on a declining trend, and the height which already happened couple of years, is saturated now. So there is -- softening is expected. As of now, we do not have, you know, really actually witnessed that in the actual performance. But yes, there is some sort of expectation about this softening.

[Harsha Kadam, executive]

But also one must see it from an overall perspective and that would be, while it would soften, the inflation rate is still high, overall general inflation. So that is [indiscernible].

[Satish Patel, executive]

And the global phenomenon, Harsha rightly pointed out, is going to play a role because energy prices in other part of the world, particularly Europe is very high. That is impacting the prices there of all the input material, and to the extent, because everything that we consume is not domestically produced, right and therefore to the extent you are still having, you know, certain imports for the specific type of the components for the specific type of products, that would still have some impact, carrying on this year as well.

[Vimal Gohil, analyst]

Right. And sir, the purchase of finished goods, so out of your total raw material cost, how much would that -- for Q1, I mean how much would be the imported content?

[Satish Patel, executive]

So we look at basically on the finished goods level. So we look at the sell side, how much is our revenue contributed by domestic manufacturing and contributed by trading business. So if you look at the quarter 1, 2023, that ratio is about 75-25. 76-24 to be exact.

[Operator]

We move on to the next question from Mr. Mukesh Saraf from Avendus Spark.

[Mukesh Saraf, analyst]

Yes, sir. Good morning and thank you for the opportunity. My first question is regarding this industrial mix in your overall revenues, probably say in CY '21 it was around 40%, and maybe a few quarters even above 40%. Now it's down to 32%. I know you had highlighted that wind has come off, but any other aspects that you see there for this mix to yet come off and going ahead, do you think it will kind of remain at these levels in the industrial mix, given the revenue models on the auto side as well? So some color on how this mix could play out in the future?

[Satish Patel, executive]

So industrial business has actually also certain influence of these -- when I talk about total industrial business, I'm not limiting to domestic industrial business, total industrial business. So when we talk about our exports, it is also largely industrial. So over 90% of the exports are industrial business. So together, exports and industrial, we are 50% in the total business, industrial 50%. And within industrial, there are segments 2 wheelers, automotive, power transmission, railway, raw materials, wind energy, industrial distribution, all of them. So sectors like -- this time it is wind sector that has contributed to a certain extent of decline, and thereby the decline of the industrials in the overall pie. But since the weightage is 50%, the decline is not significant. And it is for a quarter. So in my opinion, important is to see full year what is the mix, rather than just looking for the quarter. On a full year basis, we are still around that percent -- about 50% to...

[Harsha Kadam, executive]

For industrial. 48% for industrial.

[Mukesh Saraf, analyst]

Right, right, right. And this localization that you had mentioned close to 75%. You also mentioned that 30% of your CapEx is earmarked for relocation to the export. So I assume that a good portion of the remaining CapEx will also be to increase localization. Some of the products that you're importing, you'll want to localize on the industrial side as well. How are the targets fare on localization sir?

[Satish Patel, executive]

No, let me clarify. I think what I mentioned about export is relocation, not localization. Localization is basically for other types of business, where we are not so much strong for domestic business. So when I talk about the mix of that 76% and 24% that we are going to improve, which is entirely for domestic business, right? So we want to actually increase the domestic business by higher localization. We have already reached to close to 78% and we are likely to be around 80% in next 2 to 3 years.As far as exports is concerned, I mentioned about relocation, which is more of a strengthening of position because of the competence exist in India and with Schaeffler India. And that is going to drive, because of the relocation, the exports. And for that we have earmarked about 30% of the CapEx.

[Mukesh Saraf, analyst]

Got that. Got that. And just lastly if I may, you had mentioned about Vande Bharat orders. Any quantification you can give say on the value of some of these orders that you might have on Vande Bharat?

[Harsha Kadam, executive]

At this point in time, I can't reveal those numbers. But certainly rest assured that, we have one project -- we have one Vande Bharat [ brought in ] and as more trains come in, we will definitely be getting more such businesses. Want to mention these suspensions, rod steerings, as well as on the on the traction motor bearings, both.

[Operator]

We have our next question from Harshit Patel from Equirus Securities.

[Harshit Patel, analyst]

Thank you very much for the opportunity, sir. My first question is on the industrial business, as you have mentioned, we derive almost 20% of industrial sales from wind, another 6% to 8% from railways. Could you also mention the contribution from other sub segments like 2 wheelers, off road vehicles, steel, cement, automation, then it will be very helpful sir?

[Harsha Kadam, executive]

No, certainly we can mention that, but this is the information we have been sharing. We have uploaded a large overview document about the company on our website. We have provided certain details about this and if in case you wish to obtain further details, please do reach out to our IR Head, and she would be pleased to provide. So instead of spending time us here calling out those numbers, I think it would be appropriate, if you reach out to her and she would be pleased to provide some numbers.

[Harshit Patel, analyst]

Sure sir. Will do that sir. Sir, my second question is on the accounting front, despite we have been incurring so much CapEx in last few years, and also we are going to step up our CapEx further as you have mentioned, we have not seen a commensurate increase in the depreciation level? So could you throw some light on that?

[Harsha Kadam, executive]

So we do have replacement of the assets which are due, and which have been actually still in operation for longer than the lifecycle. And the machines and equipments have been -- quite many of them, either refurbished or have been improved for the performance, and therefore the additional depreciation of the CapEx that we are incurring, is partly offset by the written down value of the existing assets, which have already passed through the lifetime.So this is one reason for not significant increase in the depreciation. The second is the CapEx hike is off late happening. So you see last year is the first year where we invested INR500 crores. Going forward, that is this year and next year we will -- the impact of that depreciation is going to come later. But again, there would still be compensation coming from the assets which are quite older and still in use, and they are quite sort of efficient, and also technology wise quite strong, quite effective to use. So those assets are helping in our plant and machinery overall, in terms of the depreciation.

[Operator]

We have our next question from the line of Nikhil Kale from Invesco.

[Nikhil Kale, analyst]

So I think this is regarding the content per vehicle, I think in one of the earlier comments you mentioned that for IC technology or IC vehicles, there is a fair sense of the content per vehicle. So just wanted to understand sir, so some of the legacy collection transmission products that we supply, what would be the broad ballpark kind of content per vehicle that we have?

[Harsha Kadam, executive]

So we do not do content per vehicle at that product level. We do content per vehicle overall. What is our overall sales and what is the total vehicle produced, and that gives you the result as content per vehicle. So content per vehicle, EUR38...

[Satish Patel, executive]

EUR45.

[Harsha Kadam, executive]

[indiscernible] even now we are close to EUR45.

[Nikhil Rungta, analyst]

Okay. So that is effectively the revenues that are spread across the overall production that is done in India, right? There will also be like -- okay, got it. Got it. And sir, just the number I missed the number, I think the new e-axle order that you got, you mentioned some volume number over the next 7 years lifetime of the product. Could you just repeat that win?

[Harsha Kadam, executive]

Well as I earlier answered, you know we have secured this business with a clear lifetime business close to EUR300 million. The quantification, I don't have the numbers.

[Operator]

We have a next question from the line of Sandeep Tulsiani from JM Financial.

[Sandeep Tulsiyan, analyst]

First question is pertaining to a comment in the annual report that we've introduced Schaeffler lifetime solutions for our customers. And we're also looking at increasing the mechatronics contribution. I just want your comments, it's been explained what this entire venture is about, how do you plan to grow this business? Are both these things interlinked, that is the lifetime solutions as well as mechatronics, or they have different solutions that we're providing? Some elaboration will help over here.

[Harsha Kadam, executive]

The lifetime solutions that Schaeffler has brought on, the state-of-the-art with the latest technology, is focusing on improving and addressing the plant reliability and efficiency of time, needs of our customers. You know, fundamentally what we offer here are sensors with softwares and algorithms, which is going to analyze the cause of or the condition or the health of the equipments. And it's a real time analysis that happens on handheld devices. You know the end user can just download it on his phone and use it, that's the technology.But apart from that, we are now expanding the portfolio towards lubrication systems, which are integrated with these lifetime solutions. So fundamentally we are talking about everything that goes around to ensure the optimum performance of our products that we sell, one; and also to keep a health check on the products that we sell, thereby contributing and adding value to our customers, by way of you know machine uptimes, and help them to improve their reliability.Now this is with this offering we have now, when you look at the applications, it is industry agnostic, goes into every field, every application. But we realize that the strength and the need is more in the process industries, like steel, cement, and that's where we are currently focused. But we have now started to expand into even food and beverage industries, as any line stoppage there would mean a lot of value destruction for the customer, and that's what we are targeting.So we have started to now expand the market footprint here in India, starting off with some of the continuous process industry sectors. But clearly our plan is to expand it across to all applications, because this is industry agnostic and it can be used in maybe manufacturing areas. Hope I've answered your question?

[Sandeep Tulsiyan, analyst]

Yes. And also the mechatronics piece, if you can just address that.

[Harsha Kadam, executive]

The mechatronics part here is we have set up a mechatronics center here, because mechatronics becomes just one part of the entire project development process. So if I were to develop a new solution, mechatronics would be one element in that entire development process, and that's a special competency that we need. So we have now set up a center close to about 250 engineers working on projects, they not only work for projects across the world sitting here and [Technical Difficulty] for this support to come from.

[Operator]

This is the operator here. You were inaudible for a few moments, sir. Can you repeat the answer please?

[Harsha Kadam, executive]

As I said, the mechatronic center that we have set up here is to help, you know, develop -- help in the development of design and development projects that we undertake here. Close to 250 engineers working here for projects which are -- which gets offshored from Europe as well as projects in India. The mechatronics is just one element in the entire solutions that we develop. So depending on the project where mechatronics value addition is required, we bring the mechatronics team into the project development effort. Hope I answered your question, Sandeep?

[Sandeep Tulsiyan, analyst]

Yeah, yeah. That was helpful, sir. Thank you. Second question is pertaining to this new business wins. We have been consistently announcing all of these new orders that we've been winning across quarters. Is it possible to quantify how much revenue last year, the whole of CY '22, would have come from this new business wins in the year prior to that? And also associated question is, when you go through the list of new orders that you won and announced in the annual report, a lot of them are in actually the tractor clutches portion, and also the heavy clutches on passenger cars. So on the tractor portion also if you could give some color on your content per vehicle, how that has increased with this new clutch wins that we won in the last few quarters?

[Harsha Kadam, executive]

First and foremost, Sandeep, we do not have the cumulative numbers of the new business wins. As you know, when we start -- we announced the business wins and we share it with our stakeholders, when we, get the breakthrough. So initial numbers would be very small and it's a lifetime volume that we talk about over a period of 5 to 7 years. So for me, it's difficult to kind of, you know, pinpoint and say, okay, we did this much business, so that's the first thing.Secondly, we share all the businesses that happens in all the three business verticals. Whether it is the auto technologies or the automotive aftermarket or even the industrial space. And it's on a variety of products as you can see. And some of the business wins that we talk about also is from the new products that we launch. So there is a gestation period for the volumes to pick up as well. So I wouldn't be able to give you the numbers, but certainly there is a -- this is going to be a continuous pipeline of products that we keep the focus upon.The other part of your question was on the content per vehicle for tractors. I don't have the number for tractors as such, but yes, the clutch is one of the most important business portfolios that we have and we are very strong in the clutch -- dual clutch applications for the tractor segment. And we continue to -- even today rollout new designs of clutches for our customers there.

[Operator]

We have our next question from the line of [ Rushabh Shah ] from o3 capital. Please go ahead.

[Unknown Analyst]

Yeah, am I audible?

[Harsha Kadam, executive]

Yes.

[Unknown Analyst]

So you said that it's written in the invest presentation, that there is a slowdown in the industrial segment. But still overall, we are seeing that there is increase in the order book across the whole sector. So is it client specific we are talking about or is it something related to the whole sector? If you could give me some gist about it sir?

[Harsha Kadam, executive]

We've already talked about it, that we are seeing strong traction in some of the industrial sectors, correct. As I said earlier, we have seen on the cement, steel, you know some of the process industries, definitely there is a strong traction there, running on the back of the initiatives that the Government of India is also driving, particularly on infrastructure development. So obviously the cement and steel sectors are benefiting from it, and consequentially we benefit from it as well.But there are a few sectors like wind, which I've already named, and we have a very strong play in the wind sector. And since wind is going through some challenges because of the ongoing geopolitical situation in Europe. So we have a mixed bag here, right. So some sectors, yes, some [ developing ] us. Some of them for this quarter have not been solved.

[Operator]

Thank you. We have our next question from the line of Mahesh Bendre from LIC Mutual Fund. Please go ahead.

[Mahesh Bendre, analyst]

Hi Sir. Thank you so much for taking my question. Sir, industrial business has slowed down in this quarter. So do you see a recovery to happen over next 2-3 years -- or next 2, 3 quarters, or you think the current situation will prevail for at least next 6 months?

[Harsha Kadam, executive]

Well, I certainly hope that the market bounces back as soon as possible and you know, but some indications that we have got was also from our customers, and they believe the second-half of this year should definitely show some better traction when it comes to the wind. But I guess it's all about waiting and watching, as to how the market will develop there.

[Mahesh Bendre, analyst]

And sir...

[Satish Patel, executive]

In the other sectors, in the industrial, if I take out wind, all other sectors have grown and quite strong growth this quarter. So because industrial has almost 7-8 sectors, so yes, wind business is actually a setback this quarter, yeah. But other sectors have grown...

[Harsha Kadam, executive]

If you look at the growth -- the power transmission, the raw materials, all the sectors have done well except the wind.

[Mahesh Bendre, analyst]

Yeah, sure. And sir, in the annual report we have mentioned that 60% of revenue comes from the bearing business and 40% is non-bearing business. So what was this contribution approximately over the last maybe 3-4 years back? And how do you see this mix changing over the next 2-3 years, given the new product launches we're talking about EV and so many things?

[Harsha Kadam, executive]

Well, the trend in the past has been, the ratio remains similar okay, now going forward as the electric vehicle volumes definitely pick up because the offering, the value of the offerings is much, much higher, substantially higher when compared to what we sell today. So I expect that it's going to balance out -- probably it becomes evenly distributed between our bearings and the non bearing business?

[Satish Patel, executive]

And like content per vehicle, this ratio of bearings, non-bearings for e-mobility, we should at least look at when we are at inflection point. We are not at that level yet.

[Harsha Kadam, executive]

It will take some years, but certainly it's going to come to...

[Satish Patel, executive]

Till then, this ratio of our bearing will continue.

[Harsha Kadam, executive]

60-40 would [indiscernible].

[Operator]

Thank you. Ladies and gentlemen, due to time constraints, that was the last question for today. I now hand the conference over to Ms. Gauri Kanikar for closing comments. Over to you.

[Gauri Kanikar, executive]

Thank you, everyone. Thank you for joining us today. If you have any further queries, please do reach out to me at [e-mail]. Thank you and have a good day.

[Operator]

Thank you. On behalf of Schaeffler India Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.