Schaeffler India Ltd

NSE:SCHAEFFLER

Earnings Call Transcript 2022-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to Schaeffler India Limited Q3 CY '22 Earnings Conference Call.

[Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Gauri Kanikar from Schaeffler India Limited. Thank you, and over to you, ma'am.

[Gauri Kanikar, executive]

Thank you. Good day, everyone. Thank you for joining Schaeffler India Limited's earnings conference call for the third quarter and 9 months ended 30th September 2022. We have with us today from the management, Mr. Harsha Kadam, our Managing Director and Chief Executive Officer; and Mr. Satish Patel, our Director of 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]

Good evening. This is Harsha Kadam and I'm joined with our CFO.

[Satish Patel, executive]

Hello, good evening, Satish Patel here.

[Harsha Kadam, executive]

Well, let me start by briefly taking you through the presentation, and I hope all of you are able to see the slides. I am on the first slide where I will be covering the Q3 performance and the 9-month period as well. I'm moving to Slide #2, where I would be throwing light on the economy and the industry.

Then I will talk about the business highlights for the third quarter and the 9-month period of 2022. I will then move on to cover the financial highlights of the third quarter and the 9-month period of 2022. And then a couple of topics of which I'd like to throw some lights on.

Moving on, I move to Slide #3, where I would like to touch upon the economy and the situation in India. And as you can see from the chart on the slide, the GDP growth, which posted a very strong number in the second quarter of this calendar year at 13.5%. Moving into the third quarter, with the prolonging war in Ukraine and the tightening up of the global monetary policy and also the imposing of the economic sanctions to its certainty -- it certainly weighing down heavily on the economic outlook in India as well. As we all know, the World Bank has already downgraded the GDP forecast for the current fiscal year to 6.5%, which was in the earlier forecast was 7.5%.

With both the international headwinds and the domestic headwinds, coupled with the growing international inflation as well as the domestic inflation, India is already feeling the impact in some of the sectors, and that surely is also reflecting on some of the sectoral performance within Schaeffler as well.

One in case is the wind energy sector, where a number of our customers have cut down their export orders due to the pressures on the ongoing situation in Europe. Also, the wholesale price index, which is at a double digit and twice that of the consumer price index also points that while the credit and liquidity steel packages are in place, the retail inflation will continue to be there for some time.

With all this, the forecast numbers of 6.5% of GDP growth. The index of industrial production, it is very subdued in the third quarter, provisional number being at 0.7%. We have seen some uptick in the automotive production in some of the sectors, while some of the sectors still have not picked up, all response to a situation that the third quarter, we had some continued demand situation in the country as such.

I move to the next slide where I would like to give some more details based on each of the factors. And what you see on the Slide #4 is the sectoral performance in the industrial space. When you look at the cement production in the country, month over month, the first quarter of the year, cement production was at its highest.

But when you look at the third quarter, you will see that gradually, there is a production drop that has happened in the third quarter. While at a year-to-date level, you still find that cement production is 10% better than the same period last year. When you look at coal production, it is not more evident that the first quarter was a very strong performance in coal production, averaging about 85 million tonnes.

When we look at quarter 3, that has already come down to close to 55 million tonnes averaging in the quarter and -- but still because of the strong performance in the first quarter at a year-to-date level, it is still showing 14% higher production rate of coal in the country. Top of steel, which contributes almost 18% to the industry, you would find that the steel production still have remained more or less at the same level as last year in the third quarter.

The power generation, which is another strong indicator, which contributes close to 20% weightage and you will see that even because the power production or electricity production in the country in the third quarter has reduced marginally. With all this, yes, there were quite a few challenges and headwinds that we have been facing.

Let's now look at the auto sector as to how it has performed. And for that, I'll move into Slide #5. I'm on Slide #5. I am here again, what you will see is a little different picture. The overall 2- and 3-wheelers had a subdued second quarter performance. But when you look at the quarter 3, the numbers have started to pick up.

And the 2- and 3-wheel sectors, which was in a negative numbers posted last year, you will find us come rebounded back with a 4% better performance at a year-to-date level. Look at the passenger vehicles and the same you would find strong growth in the third quarter in the passenger vehicle segment and on a year-to-date level, posting a year-to-date level of 22% better than the last year's performance.

Commercial vehicles started off on a strong trajectory in Q1. But when you come into Q3, the numbers are a little lower than Q1. One of the sectors where there was hope in anticipation that it is going to recover, has also started to show some small signs of recovery and that happens to be the tractors.

For the first time in many months, we have seen the tractor numbers pick up marginally, but an overall year-to-date level, it is still below 9% below when compared to the last year. With that situation, clearly, when one was to look at the numbers and compare that with the 2019 numbers, what it was, and we still see that we are not even there at the 2019 revenues.

However, some of the sectors, as I already said, showing positive signs of recovery. And going forward, I'll move to the next slide, which is slide #6. And I move to slide #7, sorry. And there, I would like to give a summarized picture on what happened in the third quarter of 2022, what it's paying to Schaeffler India. Despite all the challenges that we've had in the market environment and our sustained performance was due to the fact that we have a pretty balanced portfolio mix between the auto and the industrial sectors.

Not to mention, of course, both the sectors have tried and automotive has been -- definitely, we have posted much better performance, while industrial for the quarter was a little below the same period last year. I'll come to that in a while. While with all these challenges, we have been -- we have managed to sustain and hold financial performance and have been able to deliver the margins, as you can see in the boxes on the right side.

We continue to keep our focus in engaging with our customers. And as you know, in every earnings call, I do share the new business wins and the new initiatives that we take up in actively engaging with our customers. And this quarter as well, we were able to launch the REPXPERT. The Mobile Technical Training Van in the automotive aftermarket space, I will cover that in my subsidy slide.

One other highlight is the corporate governance scorecard where we went through an evaluation process, and we continue to remain in the leadership position, which I will throw light further down in my slides. We do believe that the headwinds, what we say are pacing on the global market and outlook as well as the inflation would continue to dollars summer quarters to come.

However, with all these challenges, we have been able to post reasonably good performance in terms of the sales growth, as you can see, we were able to post 18.1% higher sales revenue over the same quarter last year. But over the preceding quarter, as sales have got more challenging, we were able to just post 0.4%, clocking in INR 1,756 crores for the quarter this year.

This resulted in an EBIT margin of 15.7% for the quarter which definitely, as you can see there, is better than the same 14.9% that was there in the same quarter last year, bringing in an additional INR 275.6 crores to the bottom lines. The profit after tax margin stood at 12.3% compared to the 11.5% of the same quarter last year and bringing in INR 215 crores to the bottom line.

We did face some challenges on the free cash flow within the quarter, and we were 33.5% lower than compared to the last year same quarter period. This is clearly attributable to the cash flow issues that we are facing as well as some of the inventories that I've filed up as well the working capital as well going up.

I move to the next slide, Slide #8. I would like to share with you some of the new business wins that we have secured within the quarter, be it in the automotive technology space. We were able to secure some business wins in the commercial vehicle sector for the double-clutch systems, not to mention, of course, some of the needle roller bearings and the ball bearings in the passenger vehicle segment as well.

Top of the automotive aftermarket, while we had no new product launches, but however, our efforts to consolidate our growth trajectory in the new products that we have launched in the previous earlier quarter continues, and we have been able to secure volume wins for the newly launched products.

As well as the point that I shared. We have started to engage with the front-end mechanics and the garages to ensure that we create the pull for our products from the market side through the FX port effort that we are putting through. And the traded goods that we have launched in terms of shock absorbers, lubricants and wipers, we continue to expand our market presence as well as the reach and the consolidation process continues to go on.

On the industrial side as well, we have secured some key businesses for the cylindrical rollers. The cylindrical rollers and the tapered rollers in our off-road segments. Not to mention some of the large size bearings, the energy segment that we are backed with some good orders as well as the linear guides, the quick center that we have put up has managed to open big orders from our industrial automation mission to industry customers, and which is further augmenting the demand situation, which we see weakening in some of the other sectors.

Having said that, I move to the next slide to throw some light on the REPXPERT, and what you will see there is the van, which is self-contained with all the training modules, hands-on training that is given by our expert engineers in the field. And this was officially launched on the seventh of September this year.

And the plan is to cover roughly 9,000 kilometers across the country, and addressing 1,100 garages and for 81 days, this is going to be on the road. We're going to run our training sessions for the repair garages for the fleet workshops, for even the multi-brand garages and the retail markets as such. I mean totally now, we would be covering about 36 cities and all to ensure that we extend the reach further into the marketplace.

As I move to Slide #10, where I will start to talk about the financial highlights. I'm on Slide 11 now. And looking at the revenue from operations, we have sustain the performance in terms of sales revenue in the third quarter in spite of the challenges that we are facing both on the domestic front and the global market situation as such.

So as you can see, the INR 1,756 crores that we have posted in the quarter. which is a clear 18.1% over the same period last year. However, as I earlier said 0.4% over the preceding quarter. Now if I were to compare the revenue bridge as to how did we move from last year to this year, a lot of contribution has come in terms of the volume growth from the Auto Tech space as we can see INR 157 crores for the quarter coming in from the Auto Tech space.

And the rest coming in, a large part of it coming in from the export businesses, which is another INR 107 crores, another INR 5.5 crores coming in the automotive aftermarket space. Industrial was the only sector where we had a bit in the sales revenue for the quarter coming on the back of some of the weak demand in the wind sector and some of the steel and raw material sectors.

Well, if I were to compare the sectoral performance over a 9-month period, I refer to the chart on the right hand of the corner there. When you look at the year-to-date period, you would find the automotive technologies in spite of the weakening growth in the first quarter and now a recovery that you will see still able to post 23.9% better performance for the same period last year.

The automotive aftermarket grew by 21.4%. And Industrial with a strong first quarter start but a weak second quarter or third quarter, we still are at 17% better performance than the same period last year. Exports, on the other hand, which is clearly a direction -- a focused challenging direction that we have taken. As you can see, we sustained the growth at 62% over a 9-month period as well.

So I talk about the balanced portfolio of the business that we are able to drive in the marketplace. And as you can see, with the changes that we are seeing in the quarter, Automotive Technologies contributes 41% to the sales revenue, while the industrial contributes 34%. And our exports, we have been able to sustain this in the last 3 quarters at 15%, 16% level.

And the automotive aftermarket takes per share at 9% of the total sales revenue. So this I move to the next slide, which is Slide #12. And here, I would like to touch upon the earnings quality for the quarter. And as you can see, as I said earlier, in the third quarter, we were able to bring in [ INR 275.6 million ] of EBIT value at a margin of 15.7%.

And this was clearly a 24% better performance year-on-year. Even at the 9-month period, as you can see, the EBIT margin for 2022 still stands at 16% compared to 13.7% over the same period last year. If I were to look at the EBIT bridge as to where did those margins come from, straight volume increase, gross margin improved INR 925 million or INR 92.5 crores.

And we did have some smaller improvements in terms of employee cost, in terms of other income and taking the total to INR 275.6 crores for the quarter this year. This resulted in a profit after tax coming into quarter 3, as you can see, at a 12.3% profit after tax margin, which is a clear 26.1% better performance at a year-to-date level and a year-on-year growth performance. If one were to look at the 9-month period performance, profit after tax stood at 12.8%, and the same period last year was 10.9%. I move to the next slide, which is Slide #13, which throws some light on the working capital development and the CapEx.

So with the subdued demand that we saw, we did definitely see some increase in inventory levels. Hence, you see some marginal increase in the inventories in the third quarter compared to the preceding quarter. However, at a 9-month period, as you can see, also the working capital as a percentage to sales stood at 19.9% same period last year was 18%.

One point which I would like to tell you is the volume growth obviously needs to be filed as well. So some part of the inventory increases and the working capital increases was already factored in to ensure that we sustain the service levels to our customers. When we look at the CapEx spend in the third quarter, close to INR 100 crores was spent in the quarter alone.

And as you can see, our clear focused, consistent investment effort that we have been doing every quarter continues and as a percentage to sales over a 9-month period, this year, we are at about 6.2%. And if one were to compare to last year, which will show up around 17.5%. I did mention about free cash flow in my earlier slide that this could have been a better picture here. Well, we are making efforts to ensure that we recovered the lost ground in the third quarter of this year in this coming quarter and thereby get in line with the targets that we have set on the free cash flow as well.

I move to the next slide, Slide #14, which is throwing some light on the key indicators on the key figures. I did already talk about an 18.1% growth in sales revenue in the quarter. And if one were to look at the 9-month period, clearly a 25.6% growth over the same period last year. And that's resulting in an EBITDA margin of 19% when compared to the 17.3% of last year.

Rightfully, the EBIT margin closing at 16% at the 9-month period compared to the 13.6%. And this resulting in a profit after tax margin of 12.8% compared to 10.9% over the 9-month period. And as I said earlier, CapEx spend, as you can see for the 9-month period has been INR 316 crores, which compared to last year, the same period stood at INR 136 crores.

With this, I move to the next slide, and I would like to touch upon a couple of highlight points. I'm on Slide #16, and I would like to talk about -- we went through an evaluation by the Institutional Investor Advisory Services.

We have gone through this process back in 2019. And clearly, given that India is a member of the G20 forum, this evaluation framework has built around the G20 and the OECD Principles of Corporate Governance which is a globally accepted benchmark practice for corporate governance.

And we went through this process of evaluation by IiAS, and I'm very happy to share that we have sustained if not better, a marginally better leadership position by scoring 76 percentage points. The same number last year -- last time we went through the process, we were at 75.

And this is a clear commitment from our side that we will continue as an organization and as a company, emphasizing that we are very committed to high standards of corporate governance, and we will continue to keep our focus on corporate governance. Having said that, I move to the last slide, which is in -- which is a summary slide. I am sure what we will see is our revenue performance is in spite of the sluggish macroeconomic demand situation as well as the local inflationary domestic situation.

We have sustained our performance, and we will continue to make efforts to better this in this quarter. Our balanced mix obviously has -- and the countermeasures which we have continued to sustain in the last quarters has enabled us to deliver the margin in spite of the headwinds that we have faced. The CapEx, which is on track as per our commitment and the strategy will continue to ensure that we consistently deploy capital judiciously.

And while we will remain cautiously optimistic in spite of the weakening global demand as well as a lot of unpredictability and uncertainty. With that, I come to the end of my presentation. I open the floor for questions.

[Operator]

[Operator Instructions] The first question is from the line of Mukesh Saraf from Spark Capital.

[Mukesh Saraf, analyst]

My first question is on the revenues. You did mention that the Industrial segment revenue was kind of weak because of the Wind Energy segment. But I'm just trying to get some sense on how do you see the future? Because wind probably is not that large in the overall scheme of things for us.

Do you see some other segments offsetting that in the future, especially with the private CapEx in the country going up to the PLI scheme, et cetera. Could you give some sense on how this industrial segment for us in parallel?

[Harsha Kadam, executive]

Yes. Thanks, Mukesh, for the question. As you said it right. We have seen the export of wind equipments from the country has become subdued fundamentally on the back of the sanctions that are bit reimposed in the Europe and the rest of the world. So having said that, what we have seen is all the wind equipment manufacturers who use India as a manufacturing base and export out of India, we are seeing the demand going down as such.

Now is this going to remain? I believe, yes, considering the fact that with the sanctions going to be there until they find a different way to channelize the products that have to go to those countries. I believe that yes, we are going to face headwinds in this sector for some more time to come.

However, we do also see that the domestic demand for wind still continues to be there, albeit it is not at the same high levels that used to be there in the export market. But we have not seen a drop in demand for the wind equipments, not the products that go into the domestic wind equipment supply. So we believe to summarize that yes, this headwind would appear to remain for some more time.

[Mukesh Saraf, analyst]

Got it. Perfect. And in relation to that, I mean, given that export is kind of weak because of the global macro situation. We are still seeing exports for us, the direct exports for us still holding on strong, you have 60% growth Y-o-Y. Is that a reading here for us that these exports might not sustain at this level in terms of growth because of this global situation already impacting the wind segment?

[Harsha Kadam, executive]

All I can say, Mukesh, at this point in time is our third quarter exports, or our own exports did pretty well. And we see the order books even in this quarter, pretty good. So we see more signs of concern for this quarter as well. As you know that this export is being done clearly with a very clear strategy and investments accordingly in line with that, plus the relocation of the production happening. All of this put together, at least for this quarter as well, we do see that now you see no cost for all in our own exports.

[Satish Patel, executive]

Yes, Satish Patel here, yes. Just one more point to add as regards the exports is the 1.3% growth that Harsha mentioned in the quarter for exports and others, if you look into the real export growth because this total 1.3% includes other revenues, right, and other revenues has declined by about 15% which is small in proportion, exports actually grew by over 7% quarter-on-quarter. In a way, export, there is a growth. Yes, the revenue decline is because of the timing difference of spread disposals and such things. But when we talk about exports, there was real growth of about 7% for the quarter.

[Mukesh Saraf, analyst]

Got it. That's right. And just last one, if I may, just squeezing on the margins. You're seeing a couple of things playing out here with OEM revenues going up after kind of flattening out. And obviously, raw material cost deal, et cetera, are coming off. So how do we kind of look at margins with these things playing out where OE mix might actually impact margins, whereas some say it will might actually benefit margins? Do you think directionally, there is kind of flattening out in terms of the improvement in margins from there?

[Satish Patel, executive]

Yes. So as far as margins are concerned, for the quarter, margin is a reflection of the mix as well as the cost level -- or the previous quarter because the steel price actually did not increase beyond what already increased in the preceding quarter. In terms of how the margins would look forward in terms of sustainability, certainly it would depend upon the mix going forward for both the businesses, automotive and industrial as well as aftermarket and the exports.

We are quite confident that the cost level in terms of the level of counties and the cost discipline that we have brought in, that would continue. However, we should keep our fingers crossed with regard to the steel price and the inflation that might cause some impact going forward. As of now, we do not see because the current quarter, there is a little sort of a reduction in the increase of the steel price and inflationary impact not significantly impacting the overall performance.

[Operator]

The next question is from the line of Rishi Vora from Kotak Securities.

[Rishi Vora, analyst]

Just a follow-up on exports. You did highlight that there is some relocation of export that is happening maybe from abroad to India. So can you just elaborate on that on what is happening, is parent shifting agreement -- is Schaeffler India winning incremental orders is also parent looking to ship more capacities in India over the medium term?

[Satish Patel, executive]

Yes. So as regards for exports, we had also mentioned in the previous call, last quarter that there have been certain relocation programs. And those are progressing as per the plan. So those relocations have been in progress, and that is one of the contributor of actually increasing the content of exports in the total file. With regard to the overall demand situation, yes, there would be certain impact coming from the global scenario, but that is unlikely to impact the level of performance that we have achieved in exports because a large amount of that is actually comes from the structural aspects of relocations.

Coming to your specific question about relocation. Yes. Those are on track and we are expecting, in fact, those 2 progress also decline. We have also earmarked specific CapEx for exports for those relocation projects as well as further capacity expansion in TRB and similar other type of products and the CapEx is also on track. So we are expecting capacity also coming down of the plans for exports.

[Rishi Vora, analyst]

And secondly, on RM. So from fourth quarter from this current quarter, do we expect RM basket to cool off? Or you expect that it will still remain at a flattish kind of a level? And on top of that, additional question is on -- how are our accounting -- like what is your agreement with OEMs in terms of RM pass-through? So do you make a 6 percentage point margins on your product? Or you make fixed, let's say, gross profit were bearing supplied to your end consumer at least on the OEM front? So any color on that would be helpful.

[Satish Patel, executive]

So I think your question is in 2 parts. One is the impact of the steel price in RM and the -- how long this would be there so far, how much and how long. The second part of the question was related to how we recover from the market. As regards the impact in RM so far, there have been sort of a quite significant impact largely came last year already. And that, in fact, continue whatever happened last year continued this year. Additionally, there were further steel price increases in this year. However in this quarter, there have not been any further increase.

So that will be good news as far as the quarter is concerned that there has not been increased. And for at least another quarter, we are not expecting increase. So it depends on several external aspects.

Coming to the recovery, it would be very difficult to provide you detail how exactly we recover. But in general, we can comment that we do have a strong recovery mechanism, both in terms of indexation as well as negotiation and we have been able to actually so far pursue our customers in the market to accept and pass on the steel price or the significant input cost increase.

This does happen because the input cost increase is significant, quite material. It is not in the normal range, and this has been a situation across the industry. In fact, our customers have also been able to recover from the market, as you would have seen the prices of the end products, automotive vehicles have also been increased in the range 2% to 4%.

And one of the major elements for this is actually the commodity price increase. So it is across. And yes, we, in the supply chain have been able to in a way recover quite a significant portion of that.

[Rishi Vora, analyst]

Just one clarity -- on the RM front, steel prices have corrected over the last 2 quarters and still in fourth quarter, you are saying that RM basket will still kind of remain flat issue. Isn't that we have some inventory still there in the system, and that's why we expect that RM basket to remain flattish or there are some other factors which is resulting in [indiscernible] RM basket?

[Satish Patel, executive]

No. So the inventory turnover is quite fast for that category of raw material. So it is less than a month actually. So it is -- whatever happens in terms of the price does impact whichever direction it moves, does directly impact the quarter.

[Harsha Kadam, executive]

I just want to clarify issues here, but it is not that the steel prices have reduced. It is just that the rate of steel price increase, which was there in the earlier quarters has reduced. It used to be in double-digit increases. Now it has come down to a single digit increase, and that's the difference.

[Operator]

The next question is from the line of Sonal Gupta from L&T Mutual Fund.

[Sonal Gupta, analyst]

Sir, just on the export side, I wanted to understand, in terms of your contracts, are these euro denominated? I mean do we have any FX-related currency risk?

[Satish Patel, executive]

Large chunk of our exports happen in euro currency. And there are also 2 categories or 2 types of transactions. One is directly in euro currency, other even in INR currency because we do have imports as well significant imports in euro. And on the imports also, we have imports both in foreign currency, which is in euro as well as in Indian currency, which is INR. So because of this sort of currency impact -- because of the local currency and also because of the natural hedge, the volatility which is there in the currency is more or less utilized. The impact of that is utilized. But yes, we do have a higher chunk of our transactions in euro than in other currency.

[Sonal Gupta, analyst]

Got it. And on the RM side for these exports also, do we have a pass-through?

[Satish Patel, executive]

Yes, RM is a global impact, each imports or exports or domestic contents or domestic purchases is all around and on whatever is the impact I think we have [indiscernible]

[Harsha Kadam, executive]

We don't directly sell exports.

[Satish Patel, executive]

Yes, yes. exports. Our exports are to our group companies. Our group companies in terms of [indiscernible] in the market. however on the steel price impact globally is...

[Harsha Kadam, executive]

Factor in the cost.

[Satish Patel, executive]

Factor, yes, that's a big clarification that we used to provide.

[Sonal Gupta, analyst]

Got it, sir. And just lastly, given that we have seen a significant bump up in CapEx as per your guidance, I mean, this year, we are seeing clearly a significant increase in CapEx. So over -- I mean, do we see that we should start seeing a big lift in revenues next year from the investments we are undertaking?

[Satish Patel, executive]

Large CapEx is for capacity -- capacity would mean higher generation of output and thereby -- yes -- that those obvious without saying. And we have been on track so far on the CapEx. We also announced that we would be spending over INR 400 crores this year, and we are very much on check.

[Sonal Gupta, analyst]

Yes. No, what I was trying to understand is that installation time and the ramp-up time is like 12 to 18 months or is it longer than that? That's what I was trying to understand.

[Harsha Kadam, executive]

No, you said it right, it's about 12 to 18 months, and the projects which we are already on track, we anticipate next year, one of the projects to culminate in to see these productions to start. So the other one is at a little start stage right now. So I guess, yes, 18 months is most estimation.

[Operator]

The next question is from the line of Sandeep Tulsiyan from JM Financial.

[Sandeep Tulsiyan, analyst]

First question is pertaining to the Q-o-Q growth that we have reported, the numbers are largely flat while given the steel price increase that we would have seen as per the standard practice, you would have passed it through in terms of our segments, whether the indexation as well as aftermarket where it is company indicated prices. So if you could breakdown what kind of price has been rolled out over the last 2 quarters and if we factor in some basic price increase of [indiscernible] but it assumes that there would have been a sequential volume decline sequentially.

So is that a correct assumption if you could share some more insights on that.

[Harsha Kadam, executive]

Sandeep, if you can clarify the last part of the question. sorry, we can't get that.

[Sandeep Tulsiyan, analyst]

Yes. So basically, if we look at the sequential growth, sales has remained flat. if you assume a nominal price increase company would have taken in low single digits, it implies there was a volume decline overall on a sequential basis, just could highlight the key reasons for this.

[Satish Patel, executive]

Yes. So to answer your question, when you compare quarter 3 to quarter 2, both the quarters have recovery. So therefore, the growth, whatever minimal it is that you see is actually the volume growth as well whereas, both the quarters have the impact of the recovery. So because of recovery taking out, you would not find decline in volume.

[Harsha Kadam, executive]

Sandeep, if you takeout from both the quarter...

[Satish Patel, executive]

And then there will still be increase in the performance in the revenue, which would be because of the volume.

[Harsha Kadam, executive]

Our recovery effort continues whatever is the case, but this is -- what we see is the big impact is due to the slowdown in some of the sectors. Wind and the raw materials, we have seen a bit of slowdown. Predominantly on the industrial side, even tractors we saw some drop. So these have contributed to the top line being flat when compared to the preceding quarter. For the steel price, whatever it is, those recovery efforts finally are going on.

[Sandeep Tulsiyan, analyst]

Understood. Second question is pertaining to the auto aftermarket. If you look at the quarterly run rate over the past 5 quarters, it's largely been around at INR 150 crores per quarter of revenue that we are doing. And meanwhile, over past 5 quarters, I'm sure there would have been significant number of price increases that have gone by, as we have expanded our product basket, including lubricants and other products as well, which we have been highlighting every quarter. So why the segment is stagnating at this current level? How should we look at the growth in this segment?

Where can it increase to? What are the key reasons why you're not able to expand any dealer expansion issue we are facing? If you could give some perspective on this business of auto aftermarket.

[Harsha Kadam, executive]

Well, first let me make 2 points here, the automotive aftermarket has a business cycle of its own, that is one. So you would normally see when you look at the trend quarter-on-quarter, you will find the last quarter of the year being pretty strong in terms of demand as well. That is one. The second point I wanted to make was more to clarify that the automotive aftermarket top line has not been flat.

It is only -- if you were to look at the second quarter performance over the first quarter of this year, you would have found 20% growth we have demonstrated. So now the third quarter over the second quarter is just about a percentage point more. And we anticipate that the last quarter of this year, definitely it should be much stronger...

[Sandeep Tulsiyan, analyst]

Okay. I was more over looking at the trend over the past 5 quarters, it's averaged at INR 150 crores. So kind of -- it has not grown on a year-on-year basis as well. So that's the point of asking that question.

[Harsha Kadam, executive]

Well, the numbers I'm looking at Sandeep is, last year, the average used to be about INR 125 crores a quarter. If you look at [indiscernible]

[Sandeep Tulsiyan, analyst]

Okay. Fair enough. It's lumpy, and there might be some fluctuations on quarterly basis. Last question, if I can squeeze in, is on the content per vehicle, which we have been highlighting that [indiscernible] from EUR 40 per vehicle to EUR 80 does remains where we are in that cycle and in this call you highlighted that the companies are taking some particular orders at subsystem level.

From component level, we are trying to move up in the value chain. Can you show me examples where we have been successfully been able to convert? what would this do to our overall content per vehicle targets? How should we look at this entire transition? And that's my last question.

[Harsha Kadam, executive]

Yes. As I said earlier, the content per vehicle, we have a clear plan to grow the content per vehicle. And accordingly, there are products which we are bringing -- which are moving into more into the subsystem level, and that is happening. And some of the new business wins in terms of our transmission business, which you see recently that we have secured on the DCT or the dual-clutch transmission, you will find exactly moving in the direction to improve the content per vehicle offering.

What I would like to also point out is these could vary the content per vehicle varies between the segments within the automotive space, the light commercial vehicles, the heavy commercial vehicles have different content per vehicle and depending on the products we have and the offerings we are -- the new businesses wins that we make clearly determines what the content per vehicle.

So we have varying content on a vehicle growth happening in the different segments, so to say. Tractors, we were having the dual-clutch was a growing market. And if one were to look at the quarter 3, the demand for the dual-clutch actually went down because of specific models were not be produced in that quarter. So that had an adverse impact on the content per vehicle and the tractor segment. Whereas in the others, we were in a much favorable situation where we have grown a bit. So you have a well mix coming out when we look at the content per vehicle.

[Operator]

[Operator Instructions] The next question is from the line of Manjeet Buaria from Solidarity Investment Managers.

[Manjeet Buaria, analyst]

Am I audible?

[Harsha Kadam, executive]

Yes.

[Manjeet Buaria, analyst]

I have one question, which relates to the exports business for the company. When I read the call transcript on management communication before July 2020, what was explained was Schaeffler globally has a philosophy that every region has it's on manufacturing facilities for those regions. And it was expected that exports out of India will remain at 8% to 10% of company sales for the India entity. So I just wanted to understand what that structurally changed over the last 2 years, where this kind of seems to not hold anymore where exports suddenly has become a big opportunity for us. And given the parent seems more okay with us exporting more out of India for other geographies versus localizing the manufacturing?

[Satish Patel, executive]

Yes. So your point is very valid. A couple of years back, we would have said that exports would be in the range of 10% and Schaeffler does have a strategy and philosophy of producing in the quarter -- for the quarter.

And that remains unchanged. Even now also that strategy, philosophy is unchanged. We do have sort of a production in the quarter -- sorry, in the region [indiscernible] and this is obviously because of the content of the steel in the raw material, which is A category cause and that remains above 50%.

So -- and the price level of that is not significantly different across the globe. However, during those calls in those years, we have also mentioned that as a strategy Schaeffler also focuses on products for the country where there is a critical mass and where the competence exists. And carrying that story further, we have in subsequent calls also clarified that as far as India is concerned, there are certain products where India has a critical mass [indiscernible] of the other global Schaeffler countries.

And also the competence exists in India, cylindrical roller bearings and certain other type of bearings was a very good example. In addition to that, when Schaeffler did the global sort of review of the strategy, it was actually found appropriate that in other countries, this type of products are in not so much of critical mass and requires, we relocated to India.

And the second was in addition to the competencies also the cost. For certain products, we have developed the cost competence in addition to the engineering competence and that actually makes also relocations quite feasible.

So that is the main focus. In addition to that, yes, one more point is that some of the markets which were not so much accessible in the past have actually opened up more than what were there in the past. And one good example is the Asia Pacific. In Asia Pacific now we have quite a high ratio of exports, including of all the South Asian countries, South East Asian countries and also in China. So that has also opened up some more opportunities unlike in the past.

[Manjeet Buaria, analyst]

I have one follow-up question, sir. If we take this total pie of products where India stand out either for cost advantage or critical mass advantage or for some technology advantage, everything put together is globally the 500 for Schaeffler or parent, what percent of that are we supplying right now? So I'm just trying to understand our penetration for these products where we have some edge in the global fingerprints?

[Satish Patel, executive]

Yes, I do not have that -- I understood your question, but I do not have that sort of number maybe.

But yes, where we have the competence, actually, the contribution of our exports is significantly higher. So it is significantly higher. So I would say it can range in 30%, 40% of the global requirements, at least 20% of the global requirements.

But I would not be able to give the exact number for those products that do have the data in front of me. But yes, wherever set CRVs, for example, the contribution of Schaeffler India is significantly higher.

[Manjeet Buaria, analyst]

And one follow-up final question. If we take really long term perspective or decade, 2 decades, can you structurally go up to like 60%, 70% of global contribution for parent? Or are there certain strategic reasons why -- or with the parent who do not want the shares to be so high? That was the last question.

[Satish Patel, executive]

No, there is no limit...

[Harsha Kadam, executive]

There is no limit to that.

[Satish Patel, executive]

I mean as long as we are able to sort of sustain that level of competence, both cost engineering and technology and able to serve, I think there is no limit. However, how much would that be, that would be very difficult to answer.

[Operator]

As there are no further questions from the participants, I would now like to hand the conference over to Ms. Gauri Kanikar for closing comments.

[Gauri Kanikar, executive]

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

[Harsha Kadam, executive]

Yes. Thank you all.

[Satish Patel, executive]

Thank you.

[Operator]

Thank you. Ladies and gentlemen, on behalf of Schaeffler India Limited, that concludes this conference call. Thank you for joining us. Now you may now disconnect your lines.