Schaeffler India Limited (505790) Earnings Call Transcript & Summary

Earnings Call for Schaeffler India Limited. Today, we have with us Mr. Harsha Kadam, CEO, Schaeffler India; and Mr. Satish Patel, Director of Finance and CFO, Schaeffler India. I now hand over the call to Mr. Kadam who will take you through a short presentation on the results. And over to you, Mr. Kadam.

Thank you, Vijay, and good morning to you all, ladies and gentlemen. A warm welcome to you all to this investor call. I hope your families and dear ones are safe. I would like to now take you briefly through the presentation, which I'm sure all of you are able to see. I am on Slide #2, which talks about today's agenda. I would talk -- give you a little bit of highlights on the key elements on this quarter's performance. I would also touch upon a little information on the economy and the market. And moving on, I would also give you the performance for the third quarter and the 9-month ending of Schaeffler India for this year. I move to Slide #3, which is talking about the key highlights. I am happy to say that the market bounced back in much better manner than we had anticipated and the demand across many sectors began to pick up. That's one of the biggest highlights we see coming out of the third quarter. Also, the measures that we undertook to manage our overhead costs and the discipline we brought in has helped us to post pretty reasonable and a good EBIT margin of 12.6% in the third quarter of 2020. And this happens to be almost 51.7% higher and better than the first quarter 2020, which was the pre-lockdown period. And the net margin -- profit margin stood at 10.1%. Moving on. We also registered a strong free cash flow. And owing to this, liquidity position in the company too increased phenomenally when compared to a dismal second quarter that we went through on the back of the impact of the lockdown and stop of business activities for almost 60 days. Also, we were able to be very agile and respond to our customers. And during this period, we also took the initiative to launch another brand of Schaeffler in the automotive aftermarket, and the brand is called TruPower. I will cover that in my later slide. And the first product that we have launched under this brand is lubricants, and you will hear and see some more down the line. While the market has started to recover and show recovery in many of the sectors, we continued to manage the COVID-19 lockdown and the crisis post lockdown. We still are having challenges in some of the plants, where we have to continue to follow strict safety protocols and, at the same time, ensure that we meet all our customer requirements. And this is a very interesting challenge. Q3 was one of the quarters, which really tested us for it. I now move to the next slide, which is Slide #5. And as you can see, the economy, which had contracted by -- the Index of Industrial Production, if you see, IIP, had contracted almost 57% by April with the lockdown. And the production output of almost 8 core sectors had shrunk down to 37%. And it was the sharpest decline of the PMI as well, going down to almost 27% between April and May. But with the steps that the government has been consistently taking to alleviate the situation as well as we see demands coming in from many sectors. Even on the rural sector, you will find the demand trying to improve with some of the initiatives that the government is trying to push through. Also, the initiatives that the government has launched, like the Atmanirbhar Bharat, has also seen some stimulating effects in the recovery situation in the market. And I'm sure many of us in the market we are able to feel this stimulus. RBI, on its side as well, continues to make sure that they play their role in the revival of the economic growth. Inflation still is a bit of a concern, but I'm sure over the years as the sectors begin to recover on the demand front, inflation also will become manageable. So some of the sectors, which I will talk about in my subsequent slide. I move to the next slide. And here, you'll see the sectors in the industrial space, which have started to recover. And cement and steel for that matter, they have started to show recovery. And as you can see, we have seen -- although cement was a little slow, but by September, they have also started to recover. And look at steel, and you will find the trend is on the up. Right from May, the demand has started to pick up, so which is very strong because -- which is very good to see. Although they are not at the level of last year's performance, but surely, the trend is in the right direction. Mining is one sector where we have seen good improvement and, as you can see, they are at last year's level of coal production. Energy is a clear indicator that the auto sector too has started to recover. And here, you see that the energy production in the country has also consistently from May started to move up. So overall, there are mixed numbers which you see of various sectors at various speeds of recovery from the industrial space. Now if I were to just share with you on the next slide, I am on Slide #7, which is talking about the auto sector, and what you see is the 2- and 3-wheeler sector. The graph clearly is showing an upward trend once the lockdown was taken away. And you'll see the month of September, the 2-wheeler productions crossed over last year's September. And almost 2 million vehicles were produced in this country -- 2.3 million when compared to 2 million of last year September. So -- while at an annualized level, the growth will still appear to be down at about 35% at September level. Look at the commercial vehicles. This too has started to show gradual improvement, but still a long way to go because of those days where the production levels were phenomenally higher. We are still to see those days. But nevertheless, the trend is in the right direction. Hopefully, it will sustain. Passenger vehicles, on the other hand, have shown a very strong recovery. As you can see, month after month, right from June, they have started to recover phenomenally. And that is something that we see strong recovery from the passenger vehicles. Tractors, on the other hand, right from the time towards the end when the government announced some of the alleviating measures, we have seen a consistent growth and a robust growth in the tractor segment. Much higher than even last year's performance is what you see. On this backdrop, I would now come down to our performance in the market and -- for the third quarter. And what you see here is, the third quarter results quarter-by-quarter split. The graph on the left side of the screen is the one which talks about quarter-by-quarter performance of 2019. And the graph on the right would be on the 2020 quarter-by-quarter. And as you can see, for the third quarter of 2020, we were able to post sales of INR 1,120.7 crores for the third quarter, which turned out to be the highest sales in the last 6 quarters. Also, this was an increase of almost 20.7% over the first quarter 2020 sales for this year. Quarter 2 definitely is not a right reference point due to the 60-nonproductive days that we have faced due to the lockdown. But even when you compare the performance with the third quarter of last year, we have still delivered 8.3% better performance when compared to Q3 of last year. Now this clearly comes from a couple of sectors, automotive, which has shown a good recovery, I must say. And some of the key customers in the passenger vehicle sectors had a very fast recovery, and that has helped us to ride the wave as well. The tractor segment, as I showed in my previous slide, also continued to post strong production numbers. And that too has helped us to capitalize on the opportunity of this recovery. So moving on, if you see our performance, the automotive aftermarket as well registered the highest sales in the last 7 quarters and a very strong performance of third quarter of last year as well. So almost all the 3 business verticals of automotive OE, the automotive aftermarket and the industrial vertical, all have performed better than the first quarter. I must add here that our industrial sector performance has been the strongest, and it has done definitely much, much better performance than even the automotive OE and aftermarket performance. So once our customers started their plants in June, the increase in demand from our customers went up so sharply and the demands were kind of double-digit growth month-on-month. And we saw the same demands coming from the industrial sector, some of them -- some of the industrial sectors where we saw very strong growth were the wind, the rail, even the 2-wheeler sector and the distribution business, which is where the industrial aftermarket business, we saw good recovery happening in this quarter. Hence, we were able to capitalize on the strong demand. There were, of course, some challenges during this period of third quarter, and that was, the demand increase was pretty sharp, very fast and steep increase, and also the demand increase came at a very short notice. And the other thing is the type and variety of changes in the demand was also pretty varied. And that posed us challenges on our plans, considering the fact that our plants had the challenges to man the operations as people were returning back from their hometowns post the lockdown, and workmen had gone to their hometowns. And once they come back, some of them had to be quarantined and, not to mention, the similar challenges that our supply partners faced in their own operations. So having said this, while this definitely was a good opportunity and the pleasant opportunity to see the market recovering, it did pose its own set of challenges. Also, some of the geopolitical situations also created some new challenges in terms of sourcing as well as in terms of opportunities, in terms of demand shift from other country sources. So we began to see some new shoots of opportunities emerging due to the geopolitical situations as well. Having said that, the third quarter was certainly a quarter which was an acid test to our team. And I must say, we have responded brilliantly with a high level of resilience, foresight and a high level of agility. And the team clearly responded as one, and hence, you see the results in front of you. Our sales mix for the 9-month period, as it stands, remains almost similar. We have a beautiful balance of industrial and automotive. And as you can see, we also have about 10 percentage points of export business with us. With this sales performance, I now come to the earning quality. And what you see on this slide, while the EBIT margin in the second quarter was a dismal 15.8%, mainly coming on the backdrop of the 60 days of total shutdown. But coming into the third quarter with the strong recovery in the market plus the actions that we put in to manage our overhead expenses and the cost controls across the organization, we were happy and able to deliver an EBIT of INR 141.7 crores for the third quarter of 2020, and the EBIT margin stood at 12.6%. This happens to be a 51.7% higher EBIT margin than the first quarter of 2020 and also happens to be a much stronger EBIT margin than the Q3 of last year. With this, the year-to-date 9-month period EBIT margin stands at 6.7%. Of course, this is way below last year's margins, which we delivered at 11.2% coming on the backdrop of the challenging performance in the second quarter of this year. This takes us the profit after tax to INR 84.6 crores. And as you can see, the profit after tax stands at -- sorry, it is at INR 113.5 crores, and the profit after tax percentage is at 10.1% for the quarter, and that happens to be a 44.8% better than the first quarter of 2020. Having said that, it is also a strong quarter wherein we have delivered 10.3% -- 10.1% for the quarter. And then at a year-to-date level, we stand at 6%. So fundamentally, clear focus on the market opportunities and managing the resources that we have and the situation that we were in and very disciplined cost control measures have helped us to get to where we are today. With this, I move to the key performance indicators and what you see is in the column Q3 2020. As I said, while the sales revenue grew almost 20%, 21% over the first quarter, year-on-year, it was an 8.3% growth that we put up. And the EBITDA margin for the quarter Q3 was a healthy 17%, as you can see, resulting in an EBIT margin of 12.6% and when compared to the last quarter of last year, which was at 10.1%. So fundamentally, good performance in this quarter compared to the last quarter of 2019 on almost all the key parameters that you find here. With this, I will now take you to the launch which we did in the month of September of a new brand called TruPower. Now this is a brand that we have launched in the automotive aftermarket space. And the Schaeffler TruPower is backed with a big technical know-how coming in with a lot of help from a German technology. And the first product that we have brought out is the lubricating oil, engine oil, and there will be a series of products that we intend to roll out as we move forward. I must say with pride that within 1 month of its launch, we have seen a tremendous response in the marketplace, and we have taken care that we have launched this in 30 locations. And the next target is to scale this up to 70 locations across the country. And the product is manufactured in India, backed by German technology. And we intend to also start to export this into the Asia-Pacific region going forward. And going forward, we will make -- surely make announcement on the range of products that will come out under the TruPower brand. And we have now targeted the oils fundamentally for the BS-VI range of applications and happy to say that we have seen a tremendous response from the market. Now while we were actively working on all these initiatives and trying to address the challenge of the market recovery, we had one important responsibility and that was the responsibility and care of our employees in a tough situation post the lockdown removal. When people get -- started getting back to work and offices, we had to make sure that safety and care was the primary priority here. And we took in a lot of measures to ensure that we also play a key role in managing the pandemic at our workplaces. So as the days began to progress, we began to learn a lot of things from our customers as well, as well as other business partners in the neighborhood. We began to have exchange of notes on what they were doing differently. So we had a lot of learning, cross-learning, which we began to implement as well. And some of the glimpses is what we are showing here. We complied with the law stipulation stating what percentage of staff can come to the offices. We also maintained strict social-distancing norms apart from using strictly these personal protective equipment that the employees have been given. We also got into a mode of preventive measures rather than reactive measures by introducing partitions and wherever required, as you can see, transparent partitions provided so that -- minimizing every chance of people coming close to communicate with each other, apart from the fact that we also started to take care by providing nutritional supplements. We went into a modern technological use to assess people's health status as they've come into the plants every day. We also had rigorous tracing -- contact tracing systems in place so that we are able to -- in case there are any confirmed active cases of COVID, we were able to trace back as -- using this cluster management system that we had put in place. In addition to that, we ensured that we invested in additional infrastructure facilities to make sure that there was ease of day operations at the plant sites and in the offices. And this is something that will continue as we are yet to see the complete recovery from the COVID pandemic, and we will continue to accord the highest safety to our employees at our place of work. With this, I come to the end of my presentation. I open the presentation for any questions.

[Operator Instructions] The first question is from the line of [ Ankur S. ] from HDFC Life Insurance.

A couple of questions. One, of this INR 1,120-odd crores of sales that we did in Q3, if you could break this out into auto, industrial and exports sort of numbers for this quarter?

Yes. Can you just repeat it? Sorry. I just wanted to share your question.

Yes, my question was, of this INR 1,120 crores of sales for Q3, if you could break it into how much was auto, industrial and exports in absolute value, if you can, the absolute sales value. The presentation has the 9-month numbers. So...

That is right. Well, we have given you on one of the slides the composition of the industrial and the automotive business. And clearly, we have a pretty well balanced, as you can see. Almost 43% is the industrial business, which includes the industrial aftermarket and 47% is the automotive, which includes the automotive aftermarket as well. So proportionately, that's the ratio of businesses in the third quarter as well. But what we have seen is, our industrial growth has been definitely much higher than the automotive OE growth for this quarter.

Sir, any numbers you can share alternatively on -- what was the auto growth and the industrial growth for the quarter?

No, not at this moment.

Okay. Fair. Okay. Sir, secondly, if you could just talk about the demand environment currently. You did speak about strong growth. Last quarter was very strong. And we've seen good wholesale numbers from the auto OEMs as well. So when you look at -- October is almost over. So when you look at the next quarter, you would have had the production scheduled, hopefully, for the coming couple of months. How are they looking? Are you equally optimistic in Q4 as well?

Okay. As you know, this quarter, the months of October, November happened to be festival seasons in India. Normally, demand picks up in October and then begins to taper off, particularly with some of the sectors, definitely we will see this happening. However, this year, coming on the backdrop of almost 60 days of total stoppage of the economy in the country and it's like the country is now kind of unleashed. So we see the initial growth -- the demand recovery in the third quarter has been pretty good and some of the sector indicators that have -- that we see also will continue to show stronger demand in the coming months as well in spite of the fact that these are -- November and December are slightly slower months, but we expect sectors like the tractor industry still continuing to see stronger demand coming in. Now coming to the other sectors like passenger vehicles, we will have to only wait and watch how the market will do. As I said, we would like to approach the market with very cautious optimism.

Fair. Okay. And just on that, sir, we've heard of some price hikes being announced by Schaeffler during October. So is that correct? And would it be possible to quantify what kind of price hike you've seen?

Well, that is a normal price hike -- annual price hike, which we normally do. And it was only in one of the sectors that we do in the distribution business of industrial that was planned and scheduled, and it was done accordingly.

Okay. Okay. Sir, secondly, on the exports side, I remember last quarter, you had spoken about some opportunities in Southeast Asia. Even in your opening comment, you did mention that there are some new opportunities opening up. So if you could just talk about it. Your exports are at 9%, 10% number. How do you see that growing? Any new developments which you can talk about on the exports side, please?

Yes. While exports, as I showed in my slide, is 10% of our total sales turnover, and yes, we are looking at Asia as a market to grow. We have started to look at a lot of opportunities. I must also share with you the market sentiment currently there coming out of the COVID situation. As you can see, India has gone through its first wave of peak. Now will there be many more waves in India? We don't know. But we have definitely seen similar waves repeating in some of the Southeast Asian and Asia Pacific countries. Now with that, the market sentiment currently in the Asia-Pacific market outside of India has been a little weak. While, yes, the opportunity still exists, the market has to pick up there. We are definitely watching, and we will be building on this growth story of our export business. If you were to see the export performance in Q3, our performance when compared to last quarter, last year Q3, was not so good either. We had a weak demand situation, both from Asia as well as from the Western Europe region, as Europe is also -- was going through the tough situation during the COVID crisis. So with that, definitely, as the markets start to recover, we will gear up -- we are gearing up for the export business to grow.

Fair. And just last question on the aftermarket. If you could talk about each of the auto and the industrial aftermarket, the kind of growth you've seen in Q3 and how is that sustaining as well in the current quarter. That's all from my side.

Okay. If I compare our Q3 performance over the Q1 2020 performance, all the business verticals have delivered a double-digit growth, which is pretty strong, I must say. So all the business verticals of automotive OE, the automotive aftermarket, the industrial OE and the industrial aftermarket have delivered a double-digit growth.

[Operator Instructions] The next question is from the line of Nishit Jalan from Axis Capital.

Congratulations on a good set of numbers. Sir, I have 2 questions. Firstly, on the auto side, have we seen any market share gain or content increase also in the last couple of quarters? Because specifically in this quarter, it seems like our Automotive segment revenues have grown at a higher pace than the growth in production OEMs or we have seen some inventory buildup happening or being done by OEMs because -- so that they are prepared if there are any supply disruptions. I just wanted to understand what has led to stronger automotive growth for us compared to the industry production that we have seen?

Thank you, Mr. Jalan for this question. And as I had shared in my earlier calls as well that we have been focusing and working to develop and bring new products for the BS-VI applications in the automotive space, which we have been able to increase those offerings during this quarter. Having said that, yes, that obviously has resulted in an increase in our content per vehicle, which has started to move up. Initially, yes, we had to import the items and supply to our customers here, as we have still to localize a lot of products. But our localization plan is exactly now going as per the way we want it to go. We have leveraged the shift that happened, and we are now ready with the gasoline engine products as well. Now whether we have gained market share, well, I guess it's too early to say that because I don't have the numbers -- relevant numbers to tell you that. However, I can assure you that we are back in the race with gasoline engine products as well.

And sir, if you can throw some light into what kind of products are we talking about. Are we talking about a double-mass flywheel kind of products or which other typical products where we have seen increased localization and increased content post BS-VI?

Okay. Let me first talk to you about the 3 broad applications in the automotive: the engine systems, the transmission systems and also the chassis systems. And what we saw in this quarter was, our performance has been pretty strong in all the 3 applications. The engine systems, we did very good performance. The growth was phenomenally higher compared to the previous quarter. As well, in the transmission systems, which happens to be where -- the main product line happens to be the clutch. And obviously, the clutch performance was strong because of the demand -- consistently higher demand in the tractor sector. So having said that, all the 3 applications we've been able to do. Coming to the engine applications, which is more gasoline relevant in today's context when it comes to the passenger vehicle sector, well, we have been able to increase our offerings in the engine components part, some in the valve train systems as well. In the damper systems, we have been able to increase our offerings as well as if you take some of the belt and chain drives, we have been able to increase. So there are a variety of products. Yes, the flywheels as well as the clutches is another part. But consistently, as we say, our strength lies in innovating products for the engine applications, and we will continue to leverage on that. And we have done that. Q3, what we have seen, the performance, is giving us the confidence that yes, we are on the right track.

Sir, just a follow-up. Would you be able to give us a rough split of your revenue breakdown in autos between engine, transmission and chassis? Like I have seen these numbers are shared in your Schaeffler globally. So I just wanted to get a sense as to where we are in India in each of these subsegments?

I do not have the numbers right now here.

Okay. And sir, my second and last question is on CapEx. We were one of the few companies who did not defer our CapEx despite COVID-related situation. So just wanted to understand how much of the CapEx are we doing to kind of increase capacity? And how much of it is because of the localization that we are talking about? There are certain products, which you were importing earlier and selling in the market, and you were starting the localization for that. So once your CapEx is complete, what kind of top line can you achieve with the kind of capacity you would have? So just wanted some color on that.

I would like -- Satish, can you take that, please?

Yes, yes, yes. Thank you for the question. A large amount of our CapEx is towards capacity expansion. So I would say, over 70% of the CapEx is towards capacity expansion. We do have CapEx for localization, but that has also an element of the capacity, quality and the technology. So to a certain extent, there is a sort of overlap between the localization of CapEx which is also an element of capacity and the CapEx which is entirely for capacity. But I can confirm that, yes, large amount of our CapEx is towards capacity. We have done that over the last 1 year. And therefore, even in this quarter, when there was a sudden demand spur and that happened at a very short notice, we could actually fulfill the market expectations and the market requirements because we were ready. So that's what I would say that the CapEx is towards, mainly towards the capacity expansion.

Sir, any numbers you can share as to what kind of manufacturing revenues you can achieve once your bigger CapEx plans are over this year or next year?

See, we have also mentioned, I think, a couple of quarters before that we have a localization strategy. We have a plan to localize and increase the depth of production. We are at around 70% localization currently, and our strategy is to reach a little over 75%. So in the next 3 to 4 years, from the level we are, which is 70%, we would move to close to 75%. So the manufacturing debt will increase, and the localization would help doing that. So currently, we are at around 70%, as I think that would significantly go up in the period.

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

Yes. I have 2, 3 questions. Firstly, I would like to understand, in railways, what is the current portion of railways as a percentage of our total sales currently? And within that, what is the current mix between passengers, freight wagons, locos and metros if we have any supplies towards that?

Okay. Thanks, Sandeep, for the question. Our railway business in the total industrial part of the business, we should be around 11% to 12% of our business. I do not have the split within that about -- between passengers and freight. So all I can say is that -- yes, sorry. Go on.

Any ballpark if you can provide, not exact numbers, broadly what constitutes the bulk? And are there any supplies towards metro, to which of the projects?

Okay. We are kind of spread -- fairly evenly spread between the railway and the metro applications. A lot of the metro application, of course, apart from the domestic consumption here, is also going out of India because we are working with customers who export their products fitted with our products. And so metro, a lot of it goes out of India. So when it comes to our business, our presence is, I must say, pretty strong on the metro side as well. Railways, we are now bringing in more product range so that we want to grow the market share in the railway sector as well.

Got it. And the second question is pertaining to the cost savings that we had -- program that we had rolled out. Since volumes are now coming back, how much of these cost savings do you expect to be more sustainable? And how much of it should revert back to the earlier levels?

Satish?

Yes, it's a good question, difficult to answer but let me attempt. So this year, we have focused mainly on the countermeasures. And therefore, the word countermeasures, we use then cost savings because we were affected significantly because of the lockdown, and the manufacturing industry like us with high capital-intensive investments, if the plants have to shut for 2 to 3 months, I think it's a major blow on the performance. So what we immediately acted upon was on the countermeasures. We took the countermeasures, divided into low-hanging fruit, what are the max levels, what are the hard cuts. And most of them have been realized, and we are quite sure that those would continue in this year, entire year. Now as far as your question is concerned, how much of this would be sustained, how much would not be, yes, there are certain elements of the hard cuts in the cost -- in these countermeasures. Those would be difficult to sustain because those are onetime in nature. Those are mainly related to salaries and wages. However, yes, there are cost savings, which would be sustained because those we have as such rolled out in the form of our continuous cost saving programs. Those are on the logistics cost savings, those are related to the services, related to the programs in the plant for lean production like MOVE program and the Fit for Quality program, localization. So all those projects are sustainable. But there are certain specific savings for this year which are in the form of hard cut. Those would not be there. But we do not expect that to be very significant, impacting the performance going forward significantly adversely.

Understood. And last question is on the content per vehicle. You did mention that you have seen an increase from the third quarter itself. I just want to ask if you can quantify how much was the content per vehicle in passenger cars prior to the BS-VI transition? And how much is it now after the transition is complete?

I have shared this that earlier our content per vehicle was around EUR 37 per vehicle, INR 3,600 to INR 3,700. From there, I must say that we have started to move up. Our content per vehicle value is definitely higher now. We have a plan of taking this up beyond INR 4,700 per vehicle. So we are well on the path where we are clearly -- our actions have started to show the results. There's a very clear plan made how we want to increase the content per vehicle. We have to stay on this course. Of course, that would get addressed by way of even localization as well, ultimately, because that's one of the biggest drivers as well for us. We have to make the product in India to remain competitive. So rightfully, we are definitely moving up. I'm not able to share the number with you, sorry for that. But then currently, yes, third quarter, we have started to see an improvement in our content per vehicle.

Just one clarification, sir. Is it for gasoline or for diesel? Or is it the average number that you shared?

That was the average number before the shift from BS-IV to BS-VI happened.

The next question is from the line of Deepesh Agarwal from UTI Asset Management.

My first question is, can you help us understand what proportion of your top line growth was contributed by content increase under BS-VI? And is it -- can you help us quantify that?

I don't have the data ready. As I said, we are still collating the information as such to know the content per vehicle. And so to relate that with the top line increase, I do not have the answer to that right now.

Okay. Okay. And sir, secondly, how confident are you of maintaining the 3Q's margin, given that some of the costs, which we would have curbed under the COVID, would be coming back in the forthcoming quarters?

Yes. My colleague Satish just a few minutes back answered. Satish, why don't you?

Yes, yes, yes. Thank you. If I understand your question correctly that how much of this would still be sustained in quarter 4 and how much of the COVID cost will come back.

Right.

My understanding is correct, right? So yes, in Q2, particularly, not so much in Q3, but in Q2, we had incurred certain COVID costs, and those are big costs of ramp-up, big costs for logistics and warehousing because the entire transportation network was affected, and big costs on the health and safety. In quarter 3, those costs are significantly lower because the operations resumed to normalcy. The logistics network cost was low -- was not there in quarter 3, which was significantly there in quarter 2. And similarly, the other costs also was not there. The only cost that we had to continue was on the safety and health. That would probably also continue in quarter 4 because the situation is not very, very normal. But I would say that is not very significant.

Okay, okay. And sir, my last question is -- it's a little longish question on your long-term profitability. If I compute your gross margin on manufactured goods using your annual report disclosures, it seems that over the last, say, 7, 8 years, your gross margin on manufactured goods has been in the range of, say, 43 to 48 kind of a percentage. However, when I compare the same with your listed MNC peers, they are making roughly almost like a 55% plus kind of a gross margin on a manufactured goods. So I want to understand, is it that our products by their nature [indiscernible] lower manufacturing margin? Or there is a huge room for us to catch up with peers on the manufacturing margin?

Yes. So I think for me, it's difficult to, first of all, understand this percentage that you mentioned because, in my own view, it's lower than 50%. It would even be lower than 45% because even with the localization plans and even with the sustainable cost improvement plans, you cannot earn so significantly on manufacturing. As you know and as we have seen that our business is balanced, automotive and industrial, had it been only 1, then yes, there is a particular, let's say, trend of the manufacturing margin development. But when you have both the businesses to balance and to grow margins significantly, it is not that easy. But at the same time, I would say that for me also, it's difficult to believe that others can earn so significantly over 50% margin on manufacturing. Maybe when you look at the analysis in the annual report, I think one caution is that what we do not see for the trading business is beyond material cost. But the trading business requires significant logistic costs, inventory, warehousing, the service cost, quality cost. So these costs are not clearly visible in the annual report. So making the calculation and then transferring the entire margin to manufacturing would not give, I would say -- or would give a misleading picture. So that's the caution.

The next question is from the line of Parthiv Shah from Tracom Stock Brokers.

Sir, my question is regarding your launch of the lubricant range, TruPower. If I may understand the rationale because it's already a very crowded space that there are huge market leaders having very strong distributor and dealership network. So how do we intend to penetrate in this crowded market? And what do you see this business contributing to in terms of longer Schaeffler wealth creation?

Okay. As I said in my presentation, the automotive aftermarket is one of the sectors that we will -- we have increased our focus. And one step in that direction is to launch the TruPower brand of Schaeffler. And the launch of the lubricant oil is the first step in that direction. Our plan strategically is to bring in more products, not necessarily lubricants, but it can go beyond lubricants as well going forward. And you will see and hear more of it as we bring these products into the marketplace. Coming to lubricants, why -- to your question on why, what's the relevance, I would say a bearing is a product that obviously has to work with a good lubrication system. And good lubricant is at the heart of a bearing performance as well. So having said that, we believe that India -- in India, the market is waking up to changing expectations in terms of reliability of the product one buys as well as performance of the product. So having said that, our customers' expectations when they go up, it makes sense that we also start to extend the value chain, thereby they get the confidence, not just from the product we were selling, now there are products which actually ensure that the product we were selling performs better, they are more reliable as well. This builds the confidence with the customer about the brand. So that's where we stepped in to see that, yes, there is an opportunity here to add value to the market and, in the process, make some gain as well. So how big will this business grow into, we do not have the plans right now, but we have started to work on it. And as I said, we have just launched this in the month of September, but we have seen a tremendous response within the 1 month strong order books coming our way. And as I said, we also have a gamut of products that will be launched under the TruPower brand.

Sir, if you can throw some light in terms of just a few examples as to what sort of other complementary products in the aftermarket sales do you intend? What is your pipeline sort of looking like?

Well, obviously, it being an automotive aftermarket space, we are already dealing with applications that we manufacture for the OE segment are available in its portfolio for the automotive aftermarket. So lubricant is an additional product that we bring, which enables our products to perform better. And going forward, you will certainly see that we will get into nonlubricant space as well, and we would look at different models of doing the business as well, different channels of distributions would emerge as well. So right now I am not in a position to share with you specific products that we would bring into the market, but as I said, you will hear and see them soon.

Sir, despite the fact that it's still a very, very small market, but there's a lot of interesting talk about electric vehicles. So if you could throw some light as to whether your parent or even the Indian arm, what sort of pipeline you're looking for in the electric vehicle segment? And in India, whatever electric vehicles are being sold, have we contributed anything in terms of the components over there?

Okay. Let me answer that in 2 parts. The first part is, is Schaeffler ready for the electric vehicle technology that is emerging in India? My answer is, yes, we do have it. Our parent company has strong credentials in the EV market, having worked with some of the marquee brands in Europe and consistently making strategic acquisitions along the way to stay competitive, both from a technology and the business economics point of view. So strategic acquisitions are being made. They have been done in the last 5 years in the area of EV technology. So it is not just in the drive mechanism. It is also in the transmission mechanism, and now acquisitions are being made in the electronics and the control system mechanism. So it is the entire value chain that we have looked at to make those strategic acquisitions. So having said that, so the inherent required knowledge capital is already there with us. So it's a question of adapting that knowledge capital what we have in our parent company and bring it to India to see how can we customize these to Indian needs is all that we have to do. Coming to the Indian market, which is the second part of my answer to your question, you will see that some of the technologies that are being rolled out predominantly is coming out of the 2-wheeler market space. They were the first adapters of this technology. And when you look at the technology that is there, they're pretty even, I would say, rudimentary, so to say. So -- and again, if you see the cost -- ownership cost of the vehicles today has been so prohibitively high. Hence, you do not see an explosive growth in the 2-wheeler market space of electric vehicle as it happened in some other parts of the world. So having said that, well, the government policies and the affordability become some determining factors here as well. All I can say is that when the market begins to grow, certainly, we are in a position to also invest and bring those technologies in India. Now it does not mean that we are sitting idle. We are now working with 2 of our customers here to bring our solutions to their transmission systems for the electric vehicles. And I must say these are projects that are being run with our customers today. And they are at the various stages of development and validation. And as the volumes pick up, the market picks up very soon, we will be playing the game in the electric vehicle technology as well.

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.

Thank you so much. Ladies and gentlemen, management has pressing commitments, so we will have to stick to this timing of 1 hour. Thank you so much for participating in our calls. And should you have any further queries, please do get in touch with me over e-mail that's [email protected]. Thank you, and have a great day ahead.

Thank you.