Schaeffler India Limited (505790) Earnings Call Transcript & Summary

Thank you. Ladies and gentlemen, good morning, and welcome to the results call for Schaeffler India. Today, we have with us Mr. Harsha Kadam, our CEO, Schaeffler India, online from Pune; and Mr. Satish Patel, our CFO and Director Finance, Schaeffler India, online from Baroda. [Operator Instructions] And I now hand over the call to Mr. Kadam who will take you through a short presentation on the results. Over to you, Mr. Kadam.

Thank you, Vijay. Good morning, ladies and gentlemen. Welcome to this investor call. In this challenging and unprecedented times that we are in, gives me great pleasure to share our performance for the first quarter. As you all know, we were already living in a very -- a world of volatility, unpredictability, a complex world or and the ambiguous world. And as if that was not enough, the fashionable jargon [indiscernible] landed at a door step uninvited with an altogether new face called the COVID-19. Faced with this unprecedented challenge and the enormity thereon, we, the Schaeffler team in India, got together to respond and act now to protect and run our business today and also plan and retool and recover the business for the future. So in this period of the officially declared lockdown, we got into a mode where we had to respond to the crisis and protect the business first, ensure the business continuity and accelerate through the recovery process. Moving on look forward to retool to the new normal that is going to emerge post-COVID-19 scenario. As I said earlier, responding to the crisis, the first thing was to take care of our employees and protect our employees. So I would like to take you through a brief presentation, wherein I cover first on what Schaeffler did during this COVID crisis and how did we manage this crisis and how do we continue to manage the crisis. I would like to touch upon a little on the economy and the market. Next, I would like to take you through the first quarter 2020 performance and a little information on what is the situation on our operations considering the lockdown situation. So I was on Slide 2, and I move to Slide 3. As you can see, like every organization has done, we at Schaeffler, we got into a crisis management mode and a crisis management team was formulated as early as the evening of 5th of March. And the team was activated, and we got into a total evaluation assessment, and we put in very strong protocols to measure where are we today in the crisis and what needs to be done to manage the crisis. We began to implement all these safety practices of social distancing, hygiene management and, to some extent, started to use the protective equipment immediately since the 5th of March itself. And also, we began to share a lot of awareness within the organization, be it in our plants, be it in our regional offices or in the corporate offices. We began to share a lot of information with our colleagues and employees to bring about the awareness of the magnitude of the unprecedented challenge that was unfolding to us. To share with you, we moved to work-from-home from the 17th of March, and I would like to reiterate here that we were very proactive in taking these measures even before the government declared a lockdown and moved into the crisis management mode. So we proactively took action, some necessary steps to ensure that our employees were safe, that was paramount to us. Secondly, we got into more to look at that our customers' operations run well. So we took care to track our customers' requirements, and we looked at our stock situations, and we were preparing for what was going to come. In the process of moving from work-from-home situation, we also reported to making sure that all the necessary infrastructure by way of communications, by way of connectivity was established with each and every management staff and also with the use of social media, we were able to ensure that we stayed connected with the last man in the organization. In all this, we also took care that we increased our communication and engagement levels with our employees because we believe that to keep the morale and motivation of our employees high, we had to increase our level of communication. We resorted to communications by way of video messages by the leadership team, by podcasts, by letter -- communication through letters and this was internal. Even the external communications, we did not stop. We continued with the external communications wherein we were informing the necessary authorities, our customers were kept well informed of what was happening in the organization, plus we also continued to inform the stock market and the regulatory authorities. Also, in addition to this, we also did our bit in terms of community care and towards the COVID costs, and we supported a lot of needy organizations that came forward suiting our head. We have gone ahead and helped them in the sort of crisis to help manage the crisis. I move on to the safety measures that we put in. What you see on the slide is some of the safety measures and protocols that we are putting in place, which is pretty comprehensive, in line with our Schaeffler production system. And this is now that we have restarted the factories and the plants, we have ensured that we have exercised in full control on all safety measures, including the safety measures in terms of audits on the first to be conducted in the area of hazardous material, if any. And not to mention that strict implementation of social distancing, not to mention the strict hygiene management processes as well as use of personal protective equipment, like facemasks, have been made mandatory and gloves to be used wherever it is required. So we had a comprehensive review mechanism here, thorough check, and we are complying with all the requirements that the authorities have asked us to maintain in this process. I would like to now move to the next slide, which talks a little bit on the economy and markets. I am on Slide 6 of the presentation, wherein you would see that the gradual slowdown on the GDP trend in the country. And the numbers what we have shown here, Q4 of 2019, we were around 4.5% to 4.7% GDP. Going forward, it is anybody's guess. We have been hearing, seeing and reading reports, which are forecasting the GDP that would get trimmed down somewhere around minus 1 to plus 2. It could be round anywhere. So it's a question of time that the real GDP numbers would start to emerge. Amidst all the uncertainty that was there, the government in its bit is trying to do its best to recover the situation. How is the market going to respond to this situation and what implications it would have on component manufacturers like us is something that we will have to experience it as time moves forward. Having said this, surely, it has been a challenging first quarter, and the second quarter appears to be much more challenging than the first quarter. I would like to move to the next slide, which talks a little bit on our performance in the first quarter. But before that, let me touch a little bit on the sectoral performances. I'm on Slide 7, which talks -- which shows you the trends of sectoral performances in the country. If you were to look at the industrial sector, the cement production for the first 2 months, January and February, if you look at the numbers, it was a pretty strong performance than the first quarter of the previous year. And as we can see, the trend -- the line trend was also showing an upward movement, which was very promising to look at. Look at the steel production, exactly the same performance and trends. It was showing much better performance in the first 2 months of January and February this year compared to the last year. Mining has been good super performance, as you can see, the consistent growth in the mining industry, thanks to the initiatives that the government took in opening up the FDI involvement into the sector, investments coming into this sector. Power Generation, too, was much better in the first 2 months. Come March and with the lockdown the government announced from the 23rd of March, incidentally, the month of March, too, started off well. But however, because of the lack of productivity in the last 10 days of the month, you can see the mass performance was translated and surely, this has impacted the performance of all organizations, including us. I would like to now move to Slide 8, which talks a little bit on the automotive sector performance. And as we can see here, this is one of the sectors that has been pretty hard hit, and this was already having big challenges in the second half of last year and the [indiscernible] continued in this year and it went into a further worst situation, as you can see. Let me start by talking about the 2 wheelers, which have been very badly impacted as we can see here. January and February, the first 2 months, the industry was already 26% down. And I'm sure you are aware of the fact, end of April, the numbers are looking minus 50,000 compared to the last -- same period last year. So 2 wheelers is one sector that has been hit pretty badly during this first quarter. Look at the passenger vehicles, and you will see the same again. Passenger vehicles continued its impact, as we can see, the continuous slowing down that was happening since the second half of 2019, which stayed over into the first 3 months as well. And as we can see, it was down 19% for the first 3 months over the same period last year. Commercial vehicles, well, this is a sector that has been impacted very badly for whole of entire last year, and it continues to have its challenges this year. As we can see here, it was almost 36% down in the first quarter of this year. Tractors, things began to improve a bit since the last quarter. As we can see, it began to pick up in January and February as well. More or less, it was on the same lines of the first quarter numbers of last year, 4% lower than the first quarter. But amongst the all automotive sectors, the tractor sector was one that began to show a little bit of improvement. I now move to Slide #9. And I'm on the slide which talks about the first quarter highlights and lowlights. And so to summarize the performance of Schaeffler India, the first quarter profit margin was at kind of the same level as Q4 2019 despite the shutdown of operations since the 23rd of March due to the COVID crisis. However, we were able to manage the working capital in a much -- very good manner, and this continues to be at a much lower level than the last year. Also, we were able to drive a strong push on cash generation, and we had a very strong free cash flow, and our liquidity position was very strong in spite of the performance loss that we encountered in the month of March. So as we are in the situation right now, the priority and focus is to make sure that we protect and run and continue the business. Once it begins to restart, we try and reshape our business, looking at how the market and the business landscape changes, and we are preparing for that right now. On the flip side, due to the operational halt, so we had revenue loss happening in the month of March as well as our productivity loss from our plants because we had to start the operations from the 23rd of March. On this backdrop, I move to the next slide, Schaeffler India for the first quarter 2020 has posted INR 928.5 crores of revenue from operations as against INR 1,036 crores of the previous quarter, and that is a 10.4% lower than the previous quarter of 2020 -- 2019, I'm sorry. However, if you were to compare the Q1 2020 performance with respect to Q1 2019 performance, we are down 21%. I would not compare that as an apple-to-apple comparison, fundamentally because the automotive industry began to go down very badly in the second half of last year. So with all this, we are an organization where 80% of our business is focused on the mobility sector and 20% of our business is focused on the nonmobility sector, which is attributing to the industrial space. So absolutely due to the volatility in the market and the demand slowdown and some sectors which were continued to be affected, it was a challenging quarter. However, I move to the next slide, wherein I'm going to share the profit before tax. And what you see here is, in spite of the challenging quarter that we had, we posted a profit of INR 110.1 crores for the first quarter of 2020 against INR 124 crores of the previous quarter. That was 11.9% lower than the previous quarter. So nutshell, despite the revenue loss, we were able to manage our profitability reasonably well, mainly because we took a lot of corrective actions. We were [able] to control and manage our overhead costs well. We put in a robust review mechanism to see that we manage our cost and spend very prudently. We also ensured and managed our investments very prudently, and we ensured that we managed our working capital well. Going forward, we were able to post the results that you see on the slide. I'll move to the next slide, which gives a little more on the performance highlights on the KPIs. And as you can see for the first quarter, our revenue growth quarter-on-quarter was 10.4 percentage lower, but our EBITDA margin we ended up was 14.8%. When you look at the EBITDA margin of last year, Q4 2019, we were at 14.9%. And I'm happy to say that we were able to sustain at the same level in spite of the truncated revenue growth that we had in the first quarter. Our EBIT margin at 10.1%, which was a shade lower than the Q4 2019, as we can see, which was at 10.8%. When you look at the profit before tax margins, we were at 11.9% in the first quarter 2020, and Q4, we had ended at 12%. So all in all, we were able to manage our bottom line at the same level as the last quarter of 2019 in spite of the fact that our revenue came down 10.4%. So with this, the profit after tax margin, as we can see, we were able to give 8.4% in the first quarter, which is shade better than the Q4 2019, which is at 8.2%, as we can see in the slide. And the profit after tax was at the same level of last year in spite of a truncated revenue performance that we had. So I would now like to take you through to share a little bit on what impact this shutdown or the lockdown had on our operations. I'm on Slide 15. And what you see here is we had a planned productive days of 308 days for the entire year. And since the lockdown went into effect from the 23rd of March and now that we are scheduled to restart as per the lockdown from the 18th of March, we calculated and we found that we would be losing out 52 days, which is 17% of our productive days for the entire year is lost. We were successful in restarting our plants much earlier and well before the lockdowns were lifted. As you can see in the table below, the first plant we were able to start back was the Savli Plant. We restarted the plant on 22nd of April. And next was the Maneja Plant, which we started on the 25th of April. And more recently, we restarted a plant in Talegaon on the 5th of May and the last top of line was Hosur, we got the permissions to restart on the 9th of May. As you all know, restart has to be done only with the permission of the authorities and approvals to be taken by the authority. There's a very intensive and elaborate process, which we have to go through, and we are successfully qualifying and all our plants -- I'm happy to say that all our plants are up and running, albeit with only 25% to 30% of the manpower strength as permitted by the authorities today. We are now in a mode where we are now carefully watching our customer demands and requirements. What quantities will our customers start to produce? And what is going to be the shape of the demands from the customers. And accordingly retool and adjust plants to meet those changing demands that is going to come from the customer. I move to Slide 16. First, restart. We have made sure that we have put in extensive safety protocols and that is very, very strictly followed right from the stage the -- our employees get into the bus to reach their workplaces. To the workplaces as we can see here, the discipline of social distancing is diligently implemented. And also not to mention, be it in the canteen or in the rest of the plant area, we are taking care to see that we strictly comply with the safety regulations of COVID-19. And this is in our effort to ensure that we do not have the case trading anywhere in our plants or in our operations. So challenging times, but I just we are confident that we will weather this storm too and move forward. We eagerly look forward to the start back of our customers. Customers have also confirmed, but a lot of the customers have started up operations. So we are eagerly looking forward to getting back to normalcy as soon as possible. With that, I would like to thank you all for your attention and your valuable time that you have spent today with us.

Thank you. Should we open it for Q&A session now, sir?

Yes. Thank you.

[Operator Instructions] The first question is from the line of Sandeep Tulsiyan from JM Financial.

My first question is pertaining to the profitability that we highlighted in the first quarter was much better than what the company reported in second half of last year. So if you could highlight the contours of that in 2 parts. One is where you mentioned the sales mix was better, highlighting how the different subsegment within auto, industrial aftermarket, how they grew versus their share in second half of last year. And second part would be on the cost rationalization front. What measures has the company taken? And what percentage of those savings have already accrued in 1Q? And what is likely to follow in the balance 3 quarters of year?

Okay. I see that there are 2 parts to the question. I would like to first take the first part. As you know, let me start by talking a little on the automotive industry first. As you know, there was a transition -- the automotive industry was transitioning from the BS-IV to the BS-VI emission norms. And as a result, we were also fully gearing up to meet the challenges of the BS-VI norms. And fortunately for us, in the first quarter, we did see some spurt in demand even for the BS-IV vehicle as surely the demand came from our customers, and we quickly shifted gears to produce BS-IV that helped to augment our performance and the mix of the products as well. So we had a very good mix of the old generation products plus the new products that we were producing for BS-VI. That's on the automotive front. On the industrial front, we did get some [indiscernible] in some of the sectors like raw materials, mining, tractors or off-road sectors began to do the base on the backdrop of some of the government initiatives. So we saw a good sales mix happening that helped us manage our profitability levels better. Coming to the part on cost management, we had initiated already steps in terms of managing our expenses very prudently since the last quarter of last year. And the effect of that, we -- you could see spilling over even in the first quarter of this year as well. And yes, substantial identification of areas where we can definitely help to improve the profitability margins were identified, and we have managed to implement those actions and ensure that we continue to do so in the areas of travel control, travel expense controls in areas of hiring. We have kind of managing to control our hiring proportionate suite and as well as our overhead expense, we were able to manage pretty well, I must say. And the team and the plants, too, were able to flex pit costs very well, and that has helped us to post the numbers what you see. Satish, you may want to add.

Yes. Thank you, Harsha. Satish here. So just to add and supplement a couple of comments from my side. Our operating margin have been better for this quarter, quarter 1 2020, compared to quarter 4 as well as half 2 of 2019, primarily because of the mix and the better cost level. And when we say better mix, we are also in addition to the segments in automotive and industrial, where we have a better mix of sell, we also have better mix of sells between manufactured and traded products. So this quarter was having relatively higher ratio of manufactured products and trading products. And obviously, this mix of manufacturing vis-a-vis trading also contributes to better performance. So the mix of manufactured products certainly contributed to the better performance in this year. And in addition to that, our cost flexing measures has highlighted that we have initiated towards second half of last years. Even before COVID crisis arised, we had continued those measures, and we have a very strict cost discipline that also helped improvement in the performance for this year. As far as cost rationalization for this year is concerned, we have utilized this lockdown time working on several brainstorming sessions to focus on the countermeasures and the cost structuring ideas. And one of the very important is we want to move as much as possible from the fixed cost to a variable cost. It is clear that we cannot transfer fixed cost to entirely variable costs. But at least there is some variability in every fixed cost, be it entry cost, be it investment costs, be it fixed overheads, and that gives a little bit of leverage on the cost rationalization. So we had already started serving projects on the semivariability, bringing the semivariability in the cost and that is going to help us through a certain extent in this year to do the further cost flexing. In addition to that, we are focusing on investments. All noncritical investments will not be focused or will be differed. We will certainly focus on the critical investments, and we will see that all the overheads are very consciously look at and other areas where we have sort of focus on the cost would be continued in addition to the mix on the sell side. So those are the cost rationalization measures which we have initiated. And certain on top measures on the sell as well as the cost side that Harsha highlighted about going for a judicious hiring or hiring freeze for some time, also looking at the certain type of utilization of the labor more effectively because we have a mix of permanent as well as the temporary headcount in the plant and to utilize them more effectively in their various related costs. So there have been quite many measures. I'm highlighting only some of them because of the paucity of time, but we are seriously working on that already lined out quite many of them in our scope of the cost rationalization.

But you just comment on postponement of noncritical investments. That brings me to my second question, which is we had given out a runway of spending about INR 1,000 crores to INR 1,200 crores in CapEx over a 3-year period, entailing about INR 250 crores to INR 300 crores a year. How would that number change? And a related question to that is, you gave a very detailed slide on how the productivity days have impacted 17% of your annual production estimate. But given current activity level in the plant is at only 20% to 30%, do you think this number of 17% can go down to maybe something like 25%, 30%? Or is it possible to make up for that loss by increasing the shifts or increasing production in the other quarters?

Right. So just to clarify the utilization that you see on that slide, 25%, 30%, is only for the month of May. We are resuming our operations in the month of May with a limited capacity because of the shutdown. Even if shutdown opening, if there is still a restriction of utilize because of the entry of the manpower. Therefore, for the month of May utilization would be skewed to a level of 25%, 30%. This level of utilization is not going to continue from June onwards with the assumption that COVID crisis would gradually taper off. So the utilization level and normalcy level would resume from June onwards, and we have, as such, laid out plan that we would bring the operations to 3-shift working, which is as such our normal working already from June. So from June onwards, we have laid out a plan that plants will be fully utilized, which is the 3-shift working and the loss which has already happened in quarter 2 and which is contributing to annualized loss of 17% of the working days, that is something which will stay there in quarter 2. But in quarter 3 and quarter 4, the plants will be utilized as normal. Coming to the -- your question about investments that we have announced for 3 years. That plan remains unchanged. There will be shift of investments between '20 and '21. Because even in '20, we are not going to differ all critical investments. The investments that we have laid out for our expansion and strategic objectives of keeping the plant and operations ready for the future, those investments are going to continue, even we have spent also in quarter 1 and going to continue those investments in this year also. Only the noncritical investments, which can be delayed so that the performance is also protected. So striking the balance between performance and investment without compromising on our strategies of growth, that is the focus that we are going to have. And our announcement and the commitment of 3 years investments is at approximately INR 1,000 crores to willing unchanged. There will only be a little bit shift between this and next year.

[Operator Instructions] The next question is from the line of Shyam Sundar Sriram from Sundaram Mutual Fund.

So my first question is on the aftermarket, both on the auto and the industrial side. For us, the aftermarket is really around 23%, 24%. How was the aftermarket performance -- with the deterioration in aftermarket in the quarter 4, how was that in quarter 1? And whether that also was a lever in terms of improvement in the gross margins that we saw this quarter? And what is the outlook there in terms of the aftermarket, both in the auto and industrial, given dealers are -- seem to be under a lot of stress at this point of time?

Yes. Thank you, Shyam. So on the aftermarket, if you see our performance in the last quarter, Q4 of 2019, aftermarket -- automotive aftermarket we posted a very strong performance. And fundamentally, the market is a cyclical market and it is towards the last quarter always the market does well, which did well. Coming into this quarter, Q1, yes, it always starts a little low but tends to pick up. However, I would like to add here that our endeavor to expand our range of product offerings in the aftermarket was very good. We took steps last year to bring in more products into the portfolio, particularly in the clutch applications, and we have been very strong in that. We are continuing to build on it. And you will see that even in this year, 2020, our automotive aftermarket performance as we estimate is going to be very good. Because on -- it is riding on the back of new product launches, and we are there with the market as the market needs. So that is. On the industrial aftermarket, if I were to elaborate a bit. Although the last quarter of last year, 2019, we saw good performance, the first quarter of this year was a little muted fundamentally coming on the backdrop of the liquidity crunch that was there as well as some of the government projects that were put on hold. So as a result, the demand went down a bit in the industrial space on the aftermarket. We are hoping now with the new initiatives that the government is trying to create the pull and the consumer demand to go up. We expect our industrial aftermarket also to start picking up.

Right, sir. Any numbers you can share on the aftermarket prices in terms of growth or decline there?

All I can say is, definitely, we are on a growth trajectory when it comes to the automotive aftermarket because the simple logic that it goes by is if the automotive OE market is down, surely, people would end up making cars and the bikes and truck service [indiscernible]. So the demand for the automotive aftermarket products in the automobile industry will definitely go up. And we see that happening already because people would -- and with a very weak sentiments on consumer spending, people who hold back buying new cars, so they will rather spend on their car to repair the car. So we see definitely there is a strong growth going forward.

Right. And within the auto OE between the car, 2-wheelers, EVs and tractors, so we were expecting a content increase at least on the car side [indiscernible] new products per se. How was -- are we still seeing the traction going forward? Or has there been any change in terms of the OE plans this year? And do we may expect to outperform the underlying auto market [indiscernible] from production prospective, can we outperform that with our product pipeline?

Well, rightfully, our focus is on improving our content of vehicles. There is no doubt about that. And we have got our act together to continue to build on it and make sure that our content per vehicle grows. However, as you know, the landscape in the market also keeps changing. And what we have seen is, compared to last year, our content per vehicle actually has increased. However, it has not increased in the areas where we expected it will increase. There were some of the sectors where we saw that we were able to increase our content per vehicle because of products well accepted, and we have already -- like in the light commission vehicle sector, we have had a very strong increase in the content per vehicle. Now we have almost doubled our content per vehicle in the light commercial vehicles. Whereas when you look at the passenger cars, yes, it is increasing. But yes, we -- it all boils down to how fast the BS-VI norm will get implemented and the acceptance of the vehicles. However, all I can tell you is we are ready, we are geared up and as the vehicles start to sell more, we will see our content per vehicle increase. So we are on the right trajectory as of now.

Understood, sir. Understood, sir. And between the chassis, engine and the transmission within the auto, what would be the mix approximately? If you can give some color on that.

In our business?

Yes, sir.

Satish, you have the numbers with you?

Yes, yes, yes. Let me just take that. Within automotive, engine system is about 30% and transmission is about 50%. And the balance is all about chassis and other systems -- other components.

Okay. Sir, and just one last question, if I may. Within the industrial segment rather than the aftermarket, where are we seeing some positivity? And probably what is your outlook on the industrial site?

Okay. On the industrial sectors, we -- the year started off very well, and we began to see a very good demand on the wind. The off-road construction equipment sector was doing very well for us. The power transmission sector began to do well for us. The raw material sector began to do very well for us. So primarily, the sectors related to mining industry, where all your off-road vehicle construction equipments, they began to do very well for us, mainly because India is being used as an exports hub by all the wind manufacturers like Siemens, Gamesa, GE [indiscernible] everyone is using India as a base, and we have a strong presence. So that is looking very positive. The railway sector is another one on the backdrop of the drive and initiatives that the government is taking. Both in terms of investments and in terms of privatization, we find the new energy in the railway sector. So we see rail going to be a very strong growth, both in the Indian Railways and in the metro trains, both.

Right. Just one thing, if I can squeeze it. From an export perspective, how are you looking at exports for this year? I mean is there any talk of some supply chain shift happening on more sourcing from India? Is that something that you're seeing at least on the auto side? How is the export market for us looking like for Schaeffler India?

Yes. As far as exports are concerned, as we have been also talking that 10% to 15% revenue -- our revenue is constituting exports. There have been plans as when I mentioned about mix for localization and there are also certain plans across the globe within secular world. And wherever we have critical mass and wherever we have competence, particularly on the cylindrical roller bearings, particularly on the large-size bearings and certain chassis components, there would be some focus. However, this would depend upon the competence that we have and how much we can leverage. I do not think that because of the conditions we are in currently, this is going to change dramatically. So this is a part of the strategy. And going forward, yes, there is a focus. But because of the current conditions, nothing is going to significantly change as far as export certainty.

So if I may add to what Satish just said. I would relate this to the previous question that was asked as well in terms of our investments. As you can see, a lot of our investment is also being done to localize a lot of products which we are -- which we have been importing from Europe [indiscernible]. Now also, we did share in the previous investor call that Schaeffler India is now under the Asia Pacific region. So India, the manufacturing footprint here in India would play a big role in exports to the Southeast Asian countries, Japan, Korea, all the countries in the Asia Pacific region. So this is with a clear strategy that we have been continuing to invest and localize. In fact, one of the good indicators that our Q1 performance was very good was because we were able to sell a lot of our own manufactured products from India, which up until last year we were continuing to import. So there's a huge localization drive so that we can -- India can become a major exporter of the products, not just the Asia Pacific region, but for the entire world.

The next question is from the line of Hitesh Goel from Kotak Securities.

Sir, my question pertains to, again, exports. You talked about Schaeffler India becoming an important element for the South Asian market. We have also seen last 4, 5 years, even in most of your competitors and your so exports have grown quite well. So can you tell us something about this? Is this substitution of exports coming from global entities from China to India? How is the global entities looking at India? Or can you also share some of the commonality of products, which is coming from China to global markets and from India. So is there a theme here that can play out over the next 4, 5 years for Schaeffler India?

Well, I do not know about the China to India or China to the rest of the world. All I can say is that we -- at Schaeffler, we have a very clear strategy that we -- the plants on India will play a very important role. And we have already started extensive work with our Asia Pacific region, where we can increase the market presence of Schaeffler in the Asia Pacific region, particularly on the industrial side of the business. And we see huge potential here. Hence, you will see a large part of the investments that we are making is on the industrial side as well. A lot of localization that is happening is on the large-size bearings, which the rest of Asia Pacific has continuously been importing from Europe, which now we are going to -- we have already drawn up plans to start shipping them from India, and we are getting our act together be it in terms of the quality of the product, be it in terms of the quality of the packaging. We want to have the same standards going forward so that the customers and the end users do not see a difference whether this comes from Europe or it comes from India. That is very clear to us.

Sir, any targets that you have that what can exports be as a percentage of revenue in the next 5 years? Will it outgrow the domestic market? Or will it -- what is the strategic 5-year focus on this business?

Sorry, Satish. Go on, Satish.

Yes. So I think it is comprehensively sort of talked about by Harsha and also earlier by me that as far as our strategy that we have laid out for exports, focusing on critical mass, focusing on the market and focusing on the cost, that would remain unchanged. In addition to that, yes, there are opportunities because of the regions like Asia Pacific regions, there are opportunities, we have strength in 2-wheeler products. We have strength in chassis products. So those would definitely be focused for exports. However, there is no per se a number that how much this would be. As of now against 10% to 15%, what would be that 3 to 4 years from now. There is no such particular number but, yes, very well focus and wherever we have competence, that is the sort of area of focus for exports. And that is part of the strategy, and we are focusing and we are continuously -- continue to focus on those strategies.

No, no, no, if I may add, Satish. This lockdown kind of has given us a very big opportunity for us to start preparing for all the new things that's going to happen. So one of the big investments that we have done is invested in a lot of training hours during this period with our employees. We have re-tooled them for all the new products that we will be launching, we want to bring and we want to produce from India and market to the external world. So we have leveraged this opportunity to exactly put down and re-strategize. So where should we be playing? What are our strengths? And how can we play to our strengths? So we have clearly done that in the last 50 days -- odd days of shutdown that we have planned. And we have spent in a lot of -- almost 35,000 to 40,000 man hours of training that have been done to our employees to prepare them for the new norm that is going to come. And there could be new markets that will emerge, and we want to be ready for that. That's exactly the direction. So we definitely want to play a strong role in the export market.

Okay. My second question is basically related to margins. If you look at margins per share, the peak has dropped quite a lot. Is that pertaining to only the automotive segment or because you've gotten new products where localizations were lower, some volumes were lower? Can you shed some light on that? How should we look at the margin trajectory in a normalized case? I'm not talking about FY '21. So for example, normal businesses resume...

Yes, in the normalized case, I think if you see our 2019 margins, operating margins were close to 16%. In 2019, except the, let's say, a few months of half 2 was normal year. 2018 was 17%. So 17% and 16%, that was the range of margin. That level of operating margin we can sustain under the normal circumstance. There is definitely a difference between operating margins across the segments, and we have both businesses, we have OE business, we have aftermarket and distribution business. Within OE business, there are different technological-oriented and cost-oriented product lines in the segments between automotive and industrial. Within industrial also, there are derived segments. We talk about [WING] to railways to 2-wheelers to tractors. So definitely, the margin situation is different for different segments, but overall margin that we have achieved in '18 and '19, that's the normal level of margin that we can have.

The next question is from the line of Vimal Gohil from Union Asset Management.

Sir, I wasn't very clear about mix in this particular quarter. If you could break up your revenues between automotive, industrial and for the OEM part and both the aftermarket as well this quarter? And how much was exports?

I mean if I answer this with a little time constraint, whatever we said about the mix of the sells and our business in the last investor call, that has remained unchanged. So you can still take those numbers as far as the mix is concerned. Between those segments, there is no change in this quarter. So there is fraction of a percentage probably change between the segments. So we can spell out, but it will take some time. And I think in the interest of time, I would suggest that you refer those mix percentages that we announced last time.

Okay. And sir, what would be the cash on books right now?

Yes, we have a strong liquidity. Our cash position is quite strong. We generated about INR 150 crores of liquidity -- I mean the free cash flow in first quarter. The cash position is close to INR 1,000 crores.

The next question is from the line of Priya Ranjan from Antique Stockbroking.

And just on the industrial side, if you can throw some light on -- you said very strong growth in wind, raw material and railways. So if you can throw some light on what kind of growth, I mean, when you say strong, what kind of growth we have achieved. And also suppose -- because [indiscernible] quarter for BS-IV to BS-VI. So probably the tool revenue should have been doing better. And if you can throw some light on the tooling part as well.

Sorry, I didn't get the last part of your question. If you -- do you mind repeating that?

Yes. So the tools, the industrial tool segment because that is captured into the automotive segment, and this was a quarter for transition from BS-IV to BS-VI. So a lot of tooling business might have come in this quarter, so supposed to come in quarter.

Okay. One of the sectors which we have as the industrial automation, we call it. And that's a sector which actually take us to the [indiscernible] industry. Unfortunately, that is one sector that is still now more than close to 16 months that it has not done well, primarily because the industrial automation sector rides on the back of the automotive industry because there are the big consumers of machine tools. So our business in that sector is kind of stagnating. It has not shown any growth at all. Well, if the market...

When can we achieve the peak level of volume from that side and based on their capacity plans, et cetera?

So as you all know this is a very unprecedented challenge that we are going through, unprecedented times that we are going through. So having said that, and this is the first time that we have come across listed as a situation. So for me to kind of fix a number and say, this is exactly what's going to happen, I think will be unfair. So this is best that we wait, watch and every customer would try to -- everyone is trying to see how to manage the current situation. And I think as Schaeffler team, our primary responsibility is to watch what our customers are doing and be agile and adaptive enough to meet the changing customer needs. So the key focus area for us is an actability and agility. These 2 will be joining the entire team to say let's wash hand, let's adapt to the situation and be agile and adapt to the situation. That would be my answer.

Okay. And in terms of railway, I mean how do you see I mean this lockdown? Do you see some kind of slowdown in the investment side on the railway? Or do you see the strong traction, which we have been witnessing for the last 1 year to continue? I mean although the -- I think the segment is very still small for you guys.

If you look at railways, the government is very focused on improving the railway network in India. It's not just extending the coverage in terms of number of kilometers per -- kilometer, but they are also looking at 3 primary areas, and that is to adjust the safety, to adjust the performance and reliability and last, the comfort and convenience. These are the 3 broad areas the railway is focused on. And actually, we are geared up. We do have products in at least 2 of these definitely in terms of safety and in terms of product performance and reliability of the rails. We are going to play a big goal. Having said that, when you look at the railways, they are -- also railways for the first time have started to privatize some of the sectors. I'm sure you must have read about Delhi-Meerut sector going to be privatized and handed over to private multinational to run and manage the trains. Similarly, a few more sectors been opening up. Also, the dedicated trade corridors that the government of India is joining now is definitely going to help boost the trade carriage by train more economical than by road. So there's going to be a lot of impetus and development that's going to happen on the railway sector, which will continue to grow. And we are gearing up product. We are, in fact, a lot of investments that Satish pointed out is also going to be in the railway sector by going forward.

And lastly, on the cost front. I mean, if you can classify your -- the employee cost and the other expenses line item. What can we think of, say, variability of that and what kind of fixed in nature? I mean broadly, I mean I'm not saying exactly but broadly what?

I mean exact investment, which is reflected as depreciation cost. Except this cost, all other costs have certain element of variability. And it -- and good that we have actually, as part of our cross checks and measures over the years, ensured that we roll out projects such that we are able to manage cost well and flex cost well wherever called for. So even within growth times also, we have marked on such projects. We will continue to work on that project -- such projects. We had rolled out and have been successfully achieved the regions also last year, for example. So except depreciation, everything has certain element of variability, including the employee cost. So we have certain type of benefits. For example, if you produce more, you earn more, if you produce less, you earn less with some production incentive, which is variable. So likewise, there is a variability in employee cost also. There is variable pay for indirect employee based on performance, which we have also quite well elaborated and announced in the annual report as well. So within employee cost also, there is variability. All other expenses also variability. Last 2 years, we have rolled out projects on logistics side to move from fixed logistic centers to logistic centers, which are having some variability. So if you utilize your logistics center like 20 percentage, you save some cost and not entirely contributed by fixed costs.

Okay. And then lastly, on the cost front, I mean, what -- at the time of merger, we have announced some bit of consolidation in terms of operation and the cost control measures, et cetera. So are we, I mean, through with all those efforts what we have announced [indiscernible].

Right. I think this question was also raised during the last call, and we had confirmed that on the cost side, we have realized nearly all the projects that we have rolled out, which are part of the synergy projects from merger. So we have realized the cost benefits as part of synergies. On the same side, there are couple of projects which will still take some time, for example, on the distribution side and a couple of projects in automotive side. As such, the plan was to complete that by '21 and those projects are in progress. But on the cost side, large amount of the projects have been implemented and rolled in as part of synergies.

The next question is from the line of Lakshmi Narayan from ICICI Mutual Funds.

So I guess [indiscernible] as a part of your revenue is around 1/3, right? And there is -- I think a couple of quarters back, you mentioned the possible loss in business because of dieselization of engines. Sorry, less of diesel cars being produced and we do the [indiscernible] largest manufacturer of cars in India. So if you can just throw light on [indiscernible] because there has been a significant drop in the diesel cars production. So how are you splitting the loss in revenue, if at all, for the car segment?

Yes. So just a similar question was asked in the last investor call as well. And at that time, I had replied that we are fully aware of the fact that there is a technology shift that's happening from diesel to petrol engines, primarily because of the shifts on BS-IV to BS-VI emission norms. Having said that, we had -- I had also shared that we have product portfolios in the petrol domain, which we began to increase our range of product offerings in the petrol portfolio. So we clearly are working with the largest OEM manufacturers already. And be it the engine application or even the transmission applications. Both the applications, which do contribute to the BS-VI norms, we are fully engaged. And that is one of the reasons I did mention to one of the questions earlier in the call today that our content per vehicle, which we have a clear strategy to continue to increase, we are prepared for that. We have our actions. The products are there. If the market picks up, yes, we are -- you are going to see the gain in the market share as well because we will have a much larger market offering when it comes to the engine application and the transmission applications.

Ladies and gentlemen, due to time constraints, that was the last question. I now hand the conference over to Mr. Vijay Chaudhury for closing comments. Mr. Vijay Chaudhury, you may go ahead.

Yes. Thank you, ladies and gentlemen, for your participation. We extended the call by 10 minutes because we started a few minutes late. We will now close the call as the management...

Vijay, I just wanted to say a word. I wish all of you to stay safe and healthy. Please take care of your loved ones because this [indiscernible] times, as I said. So it's important that each one of you take care of yourself. Stay safe.

Thank you. And with that, if you have any further questions, please do reach out to us on an e-mail. You can drop me an e-mail on [email protected]. Thank you, and have a good day. Stay safe.

Thank you, all.

Thank you.