Schaeffler India Q3CY21: Eyeing 15% exports in next two years; see chip shortage moderating vehicle demand

Schaeffler India is an auto tech company, and has presence in the aftermarket and industrial spaces. It was a good third quarter (Q3) for the company, with revenue growth at 33 percent and EBITDA margins improving to about 18 percent. But margins were under pressure due to higher raw material costs.

Harsha Kadam, MD & CEO, Schaeffler India, said margins came under pressure because of rising steel costs. While the company continues to cover the gaps with the support of its customers, it is also taking care to see how it can manage operational costs by focusing on value chain and supply chain - by way of waste elimination, productivity improvements, and overhead cost-cutting initiatives, he said.

He said, the company had put some strong countermeasures, both on the business recovery and cost management fronts, which helped it achieve the desired results.

Standalone Q3CY21 revenues were up 32.7 percent year-on-year (YoY) and EBITDA was up 39.1 percent. The YoY EBITDA margins were up only 17.8 percent versus 17 percent for the same quarter previous calendar year.

On chip shortage, he said it is likely to moderate the demand for passenger vehicle sales to about 11-13 percent this fiscal from the earlier growth forecasts of 16 -17 percent. So clearly, there is an impact on the passenger vehicle sector and some of the other mobility sectors. He believes the semiconductor shortage will lead to a decline going forward as well to some extent; he doesn't see an immediate recovery. "We will continue to see this for the next one or two quarters," said Kadam.

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Throwing light on hydrogen production, he said, Schaeffler has been very active in the production of green hydrogen as well as power generation through fuel cells. “Just recently, our CEO has declared that Schaeffler globally will be a Climate Neutral company by the year 2040. So, we are putting (in place) our strategies to ensure that we become the lead player in this game as well."

Schaeffler is already manufacturing fuel cells overseas. It has also  started making some electrolyzers, and adding the necessary competencies for the production of greener hydrogen that is required in the fuel cell space, he said, adding that India is not far behind.

"We have started on our exploratory efforts in that direction and we will continue to work with our customers. We have started engaging with them already and we have a few projects identified and we are working with it," he added.

For Schaeffler, exports contribute around 10-12 percent of total sales. Kadam said Schaeffler has a clear strategy to take it up to 15 percent at least in the next couple of years. "So, accordingly, in that direction, we have started making investments and localising a lot of product lines here in India (that are) exported to the rest of the world," he explained.

“In the last quarter compared to the previous quarter, Q3 to Q2 more or less we sustained our export business. We saw a bit of demand softening because of the severity of the pandemic in the Asia Pacific region, which is predominantly our developing export market. We are optimistic that once the pandemic situation improves, demand will go up, and we will continue to grow our export business,” said Kadam.