Schaeffler India Limited (505790) Earnings Call Transcript & Summary

Thank you. Ladies and gentlemen, welcome to the results call for Schaeffler India. 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 our results. And over to you, Mr. Kadam.

Thank you, Vijay, and good morning to all of you, ladies and gentlemen, in the call. I hope you and your families are safe during this pandemic. A warm welcome to you to this call today. Satish?

Hello, ladies and gentlemen, a very warm welcome also from my side, and happy to interact with you in this earnings call.

Yes.

Thank you.

So let me get you through the presentation. And I am on Slide #2, which talks about the agenda for today. I will talk a little bit about the industry and the economy, and then move on to our performance in the second quarter as well as the half yearly performance highlights. I'll move to the Slide #3, which is talking about economy. And we are calling it the illusive double-digit growth because when we started the year, the projections for the GDP growth rate in the country was to have been in the double-digit range. But as we moved into the second quarter of the year -- calendar year and with the onset of the wave 2 of the pandemic, we began to see some contraction happening there. And as a result of which, the new projections, which are coming out now indicate that we would be growing at -- in the single-digit range, somewhere in between 8% to 10%. Now the year-on-year growth of the GDP, although it showed a 19% growth, but sequentially began to contract to the tune of 18%. Look at the index of industrial production, and you will find the similar contraction happening with respect to the month of March, which is the first quarter calendar year for us. Now also what needs to be seen is the inflation rate, and what you see, the inflation rate standing at about 6%, consistently in the second quarter, while in the first quarter of the year, it was averaging at about 5%. And this definitely is also having some impact on the consumer sentiment. Not to mention the PPT parity, also which has gone below 50, now considering the steady above 50 run that it had for the last few quarters. Similar contractions we began to see in the second quarter of the year in the core industry sectors as well. And as you can see, the year-on-year basis, although it was a 17% growth, but it contracted to 16% when compared to March '21. I'll move to the next slide, which is talking a little bit about the performance of the sector. While they're not just happening from the initiatives driven by the government in the infrastructure industries, we did see a strong traction in the first quarter of the year between Jan and March. However, coming into the second quarter, as you know, because of the localized lockdowns in certain states and the restrictions of movement of traffic, all of this began to show some impact on the industrial production as well. And as you can see here, the cement industry, which the year-to-date production was 30% higher which is much better. As you remember, the second quarter of last year 2020, same period was in a lockdown state with the entire country shutdown. And hence, you would find that the performance of this year definitely looks much better. Look at the steel production. And as you know that there's a lot of consolidation happening in the steel sector, and also notwithstanding the inflationary prices that are going up in the steel, and looking at the growth rate, the year-to-date production was up 44% higher than the corresponding period 2020. Similarly, on the mining sector, when you look at coal, while the first quarter had a strong traction of growth, well, we saw a shrinkage happening in the second quarter, a little more dramatic than the other sectors. As you can see, the drop has been close to almost a level of half -- 50% drop in the second quarter. But however, when you compare the performance with the same period last year, you'll find that -- a little change, just about a percentage point improvement this year. The good performance, as always, has been in the power generation or electricity generation. The year-to-date production, as you can see here, was almost 15% higher than the corresponding period of last year. And incidentally, it is also seen to go down a little bit. But however, the Q2 performance has to be better than the Q1 performance in terms of electricity generation in the country. I'll move to the next slide, which is talking a little bit on the automotive sector performance. And here, what you see is the real impact of wave 2, which is very clearly visible in the second quarter. The passenger vehicle on a quarter-on-quarter basis, and when I say quarter-on-quarter, the quarter 2 of this year to the quarter 1 of this year, contracted by 27%, clearly indicating that due to the localized lockdowns and stoppage of manufacturing activity, the industry was impacted. The sector had its impact. But on a year-to-year basis, as you see, has been a good growth of 91% when compared to the same 6-month period of last year. The most hard hit has been the commercial vehicle sector, as you can see here, which has contracted by 50% over the previous quarter, although the year-to-date performance has been and the year-on-year growth rate has been pretty good at 71%. This was one sector which began to show promising signs of recovery, but then we have had export now in the second quarter again. Look at the two- and three-wheeler sector, again, which again, was one of the sectors that was very hard hit in the second quarter. The production numbers fell by almost 38% when compared to the first quarter of the year. However, the year-on-year growth rate was 60% higher than the previous year '20, and when we talk about it, watch that almost 9.4 million vehicles being produced in the 2-wheelers, which is one of the largest mobility sector industries in India. Talking about the agricultural tractors where the -- it has been a dream run for this sector. And even this got a little bit of -- a little bit impacted in the second quarter, as you can see. When compared to the first quarter, there has been a drop of almost 15%. Whereas when you look at it from an year-to-year basis, you'll find that this sector has grown by 95%, still sustaining a strong growth servicing. I would like to now move on to the highlights of our performance in the second quarter as well as the 6-month period. Let me start by sharing with you -- I'm on Slide #7 right now. And I would like to talk a little bit about the efforts we have taken to manage the wave 2 of the COVID-19 pandemic. As we came out of the lockdown and -- in the first quarter and the economy began to pick up, there was very good traction in the demand. However, the onset of the wave 2 slowed down the efforts once again, and we had to continue with extreme precaution in our plants as we did not want our plants to be the source of the spread. So we went back to working from office in all our locations, and the plants were allowed to function, but with all the stringent safety protocols in place, and we are operating all our plants to the maximum extent possible. Our approach during this wave 2 clearly focused on 3 areas, and that was to prevent, to support and to motivate our employees. To prevent the spread of the pandemic, and this was definitely the highest and the top most priority that we have given. And we took up proactively antigen testings on all our employees coming into the plants and the warehouses, as well as we ensured the proper safety protocols even when they were commuting to their workplaces. Also in the form of support, we made sure that we spared -- we made every efforts to ensure that we gave the fullest support to the employees who were infected and hospitalized in all possible ways and also to keep the morale and motivation of the employees at the highest level. We ensured that we had continuous communication running. We had continuous messaging that was being done as well as virtual meetings, which ensured that we kept the morale and motivation high. On installments, we also ensured that we fully comply with the notifications and guidelines that were issued by the authorities, which obviously varies from state to state. This particular wave 2 certainly posed a lot of challenges in our supply channels and operations. But I must compliment the team for their agility and resilience in managing so well the challenges that we have received -- that we faced. And as a result of this, we received a lot of recognition and appreciations from our esteemed customer as we ensured that their operations run as smooth as possible due to us. I'm also happy to say that at the end, we have been pursuing our vaccination efforts with our employees, and we are proud to say that more than 75% of our employees are vaccinated. We have made considerable effort in organizing vaccination camps in all our plants and offices to ensure that people come forward and get vaccinated. I'll move to the next slide, and this is going to talk about the key message. So it was a challenging quarter, though, but we continued to manage the COVID-19 situation effectively taking care of the health and safety of our employees, which was our priority. We also secured key businesses during the second quarter, both in the automotive and industrial space, which is going to enable sustenance of our growth story going forward. And to also -- this helped us to kind of post robust performance in spite of the strong headwinds coming both from the market due to the wave 2 as well as the input cost pressures that we began to face, which started to emerge since the Q4 of 2020 itself. One of them, obviously, was the low light, which is the increased steel prices, which continued to grow quarter-on-quarter, and that still remains, of course, and a strong headwind for us as we go forward. So all in all, in the second quarter, we were able to post a sales turnover of INR 1,232.9 crores, which was 180.9% better than the same quarter of 2020. But compared to the first quarter, we were down 6.4% of this year. As a result of this good performance on the sales, we also posted an EBIT in the quarter 2 of INR 160.4 crores, which was 6.1% lower when compared to the first quarter of '21; however, which was a whopping 330.9% better than the Q2 of 2020. But as you all know, the second quarter of last year was a truncated quarter with almost 40 days to 45 days of productivity stoppage across the country. As a result of this, our profit after tax, we were able to post INR 128.1 crores, and -- which was 8.2% lower than the first quarter of this year. But when compared to Q2 of last year, it was better at 401.7%. We did have some challenges on the free cash flow in the second quarter owing to some timing issues as well as some of the inventories that have increased due to lower sales happening. However, we believe that this will get corrected. And our free cash flow for the quarter was negative at INR 150.1 crores, which was 181% lower when compared to Q1 of this year, but it was 38.6% better than Q2 of last year. Having said that, I'll move to the next slide. I'm on Slide 9 now. And here, what you see is some of the business opportunities that we have been able to secure during the quarter built in the industrial space, some of the large split spherical roller bearings for the steel industry. And we have been able to virtually manage and support our customers in assembling the large-size bearings for the wind applications. As you know, there have been travel restrictions, and yet, we managed to ensure that our customer lines did not stop. Also, we were able to address some of the requirements in the mining industry during the quarter. On the automotive side, we secured some strategic wins, which will enable us to sustain the traction in the auto sector, and clearly, our effort to continue to service and grow the gasoline engine sector more and more. And even in the tractor sector, we were able to launch a new product and secured the business during the quarter. Some nominations that we have already brought for the clutch release systems in the passenger vehicles, all this will ensure that we continue to sustain the growth momentum in the auto technology sector. Talking of the automotive aftermarket, our continued momentum to launch new products continues. As you all know, we did launch the Schaeffler TruPower engine lubricants, which is doing very well, and we are very happy that this product has been well received in the marketplace. And we have seen tremendous response and strong order books in the last quarter as well. Having said that, we have also kept our focus in launching other products. Like as you can see here, the Universal Joint that we launched recently. And we believe this is another addition to our portfolio for the automotive aftermarket, not to mention the push-type clutches simply for the commercial vehicles as well, which we have secured or -- and launched these products and secured orders in that direction. So we will continue to leverage the Schaeffler TruPower brand and continue our range expansion strategy going forward here as well. I'll move to the next slide, and I'm on Slide #10, where I'm going to talk about the revenue from operations. And as you can see, in the second quarter, we posted a turnover of INR 1,232.9 crores, which was 6.4% lower than the first quarter, wherein we posted INR 1,316.8 crores. In spite of this small drop, I must say that our performance has been pretty good. When you compare it with the drop in production with the industries, the -- all the industries were down almost 25%. And yet, we were able to sustain the growth momentum to the best possible extent. When you look at the revenue bridge below the second quarter of last year, we have posted INR 438.9 crores. However, this quarter, the jump to INR 1,232.9 crores came from the various business verticals that we operate in, in this fashion. Automotive technologies contributed INR 359.2 crores to the group; automotive aftermarkets, INR 59.6 crores; and industrial bringing in INR 272 crores. While our export, definitely, we have kept our focus clearly in line with our strategy to grow the export. And in second quarter, definitely, we saw a strong demand in the export market. And we have been able to leverage the demand. And certainly, our exports have grown, as you can see, contributing almost INR 100 crores in the quarter. So all in all, there has been a strong sales performance from us and all the markets as we have been operating in, and also added to that, the export market has helped us to post good sales results. And our plants are running to the full capacity, so to say, right now. Talking of the mix, as you know, that we operate both in the mobility and the nonmobility sectors and our business split. We have started to increase in the nonmobility sectors as well. As you know, this number used to be 20-80, and now you see it's about 78-22. And between the automotive technologies and the industrial, as you can see, we have a very good equal balance there. And where we have seen a strong growth in this quarter is on the exports, which used to be around 10%, today is about 14%, and automotive aftermarket is about 8%. I'll move to the next slide, and Slide #11, which talks about the earning quality. And I must say that in spite of the lower sales in the second quarter, which was down 6% compared to the first quarter, we have been able to sustain and -- our performance on the earning quality, if not, we have done better, I must say. So when you look at it, our EBIT margin was 13% in the first quarter, and we have managed to sustain that 13% hold in spite of lower sales happening. This has been -- also been possible because of the strong countermeasures that we have put in place since last year. And we have continued to sustain some of the cost reduction initiatives that we have put in. And we have continued to see them sustaining even in this quarter as well, not to mention our own strong operational performance, which has helped to achieve and perform better in spite of the lower sales. So when you look at the bridge for the EBIT and what you see there, the Q2 of 2020, our EBIT margin was negative as it was a truncated quarter, and we were post -- we had posted an EBIT margin of minus 15.8%. And from there to get to 13%, the volume increase, obviously, has come from margins. And as you can see there, a big improvement coming into INR 310 crores coming from a relative increase as you can see with employee cost, which was a little adverse, fundamentally because of the annual payouts that we have to do and the depreciation, some gains as well as other incomes that we gained as well. Now when you look at it in the second quarter, we have been able to get from a level of minus 15.8% to 13% positive resulting in INR 160.4 crores of EBIT. The profit after tax as well, which was down almost 0.2% over the previous quarter. From a level of 10.6%, we came down to 10.4%. Absolute value terms, we posted a profit after tax of INR 128 crores compared to the INR 139 crores what you see in the first quarter. However, compared to the same period last year, quarter 2 of last year, it has been a whopping 401% improvement then. Moving on, I am on Slide #12, which talks about the working capital and of CapEx. Well, working capital, we did have some setbacks in the second quarter with the increase in working capital going up to 18% of sales, which was at 15.8% of sales in the previous quarter. However, as you can see, when compared to the same period last year, we are still better than that. And we definitely continue to keep our focus in -- on the working capital management activities. On the CapEx front, as I mentioned earlier, that we continue to judiciously invest in our CapEx capacity expansion. And as you can see in the second quarter, we have increased our investments going up to INR 46 crores compared to the INR 43 crores in the previous quarter. And this is something, our investment plans. We will continue to do going forward as well, which is -- for the quarter, you will see that our CapEx spend has been 3.7% as a percentage to the sales. As I mentioned earlier, during my first slide itself, that our free cash flow performance definitely could have been better in the second quarter of this year. We hit a negative cash flow due to issues of working capital management. However, we strongly believe that, that's something that we'll recover back quickly, which is the same -- we had the same situation last year second quarter as well, but we recovered within the -- coming into the third quarter. And we believe with INR 150 crore negative free cash flow in the second quarter, we will come into the positive zone going forward. With that, I'm coming to Slide #13, which gives a little more detail on the performance indicators. And as you can see in the Q2 2021 column, while revenue year-on-year growth was 181% up and quarter-on-quarter was down 6.4%, and we were able to post an EBITDA of INR 208.9 crores, which was more or less closer to the Q1 of 2021, definitely significantly better when compared to Q2 of last year. Our EBITDA margin for the Q2 at 16.9% was certainly better than the first quarter in spite of lower sales, as you can see, compared to 16.6%. While the EBIT margin because of our strong operational performance and very good -- managing our costs very well, we have been able to hold at 13% in spite of certainty to the sales that we had. And our earnings before tax as well, as you can see, up to INR 170.7 crores, and the EBT margin was at 13.8%. And coming to the profit after tax, as you can see, we have been able to sustain the 10 percentage point margin level in the first quarter, and we expect to continue to sustain this kind of a performance going forward, work with our clear focus on customer centricity, our actions on all the countermeasures that we are driving to ensure that we continue to deliver the financial performance that we promised. I'll move to the next slide on Slide 14. And here, I would like to summarize. So the performance during the quarter, we continued to sustain. We tried our best to ensure the sales numbers to come in, in line with Q1. We also -- in spite of the challenge of COVID as well as the commodity cost increases that we saw. We also see that we are able to sustain the operational performances across all the plants, and our capacity utilizations are at normal levels, as I'm speaking, and we will continue to keep the strong customer engagement that we have ensured with various projects that we are working with on -- with our customer. And also that obviously would lead to a strong and robust order books going forward as well. We are hopeful that with the changes that we see with the vaccination rate that is accelerating up in the country, we are hopeful that the growth trajectory in spite of the COVID-19 wave 2 and the top of wave 3 that is there, which is on the horizon as we read in here, hopefully, we will still be able to manage. We will continue to remain as agile and closely monitor the market situation and take a cautious approach towards our growth targets. Thank you very much. I come to the end of my presentation.

[Operator Instructions] The first question is from the line of Vimal Gohil from Union Asset Management.

Sir, congratulations on very good operational performance in this particular quarter. Sir, I have 2 questions. The first one is related to margins. If you could just highlight despite increasing raw material prices, as you yourself highlighted, if you could just give us more clarity as to what led to improvement in gross margins in this particular quarter? Have we got any price hikes by the customers? And have they already come into the numbers this quarter? That was question number one. Sorry, related to question number one is the localization. If I see, the traded goods number has been sort of -- was elevated in this particular quarter. And we have been talking about stepping up our localization initiatives in the past few quarters. So just wanted to sort of how would -- how should we read these 2 statements that you're -- at one point, we are improving our localization efforts, whereas our traded goods number is also sort of increasing. So I just wanted to sort of match these 2 areas. And secondly, on your balance sheet, the increase in inventory would -- was that a conscious effort from your end? And going forward, because of the improvement in growth rates and improvement in top line, you expect the inventory to sort of normalize going forward, would that be a right reading? And lastly, sir, if you could just give us some update on how are we sort of engaging with these -- some of the new-age 2-wheeler OEMs, which are coming up very aggressively in India. And what are our efforts to sort of gain significance in that market?

Thank you, Vimal, for the questions. And if I remember correctly, there are 4 questions, so let me answer at least first 3 of them. The first question that you posed is regarding the margins that we have actually improved in quarter 2, vis-à-vis the same -- vis-à-vis the preceding quarter and despite the steel price hike or the commodity price hike. Yes, there have been improvement in the margin because of a few reasons. The first reason is that we have been able to improve the mix. And as you noticed that the export sales have been much better this quarter compared to the domestic sales, and that has helped us in terms of mix improvement that has led to the better margin level in terms of contribution in the form of gross profit. The second reason is we have been able to recover part of the steel price increase. Yes, the steel price increase has been phenomenally high and that is impacting everyone across the industry. We have taken up this for recovery from our customers and market, and we have been successful. And there has been recovery as well. Though 100% of the steel price is not yet recovered in the quarter, but major portion has been recovered. So that is, in a way, offsetting the major portion's impact of the steel price in the quarter. The third reason is that the countermeasures that we laid out last year, and if you recollect in the past earning calls, I have said that we have chartered along on the midterm plan of cost reductions since 2019, even pre-COVID era. Some of the major projects in the cost reductions like localization, like our continued focus on logistics, like our continued focus on variability in the cost, literally, every cost we have brought variability aspects, except depreciation, there is no cost without a variability. And that focus on the cost that we laid out already in 2019 with a mid-term focus is helping us in terms of continuing the cost level base better in this quarter as well. So these are the major reasons for improvement in the margin this quarter. As regards to your second question regarding the exports, yes, the exports have been better, and we have been able to actually secure more demands, and also the new projects that we had actually laid out in the region, particularly in the region Asia Pacific, is actually paying off now in terms of the orders. And these are the projects, which are going to last also in the future. So the momentum that we have gained should continue also as well in the future. I think connected to that, another question that you raised is there is an adverse mix in this quarter in terms of trading being higher than the manufacturing. Though we have focus on localization, would this be actually sustained? So the answer here is that this is one-off. Yes, in this quarter, we have higher trading, and that does not mean that the localization has gone down. Yes, it is one-off in this quarter. And there have been certain situations owing to COVID where a sort of a timing difference of the deliveries, imports, this has also happened, which has a carryover impact of the last quarter. But this is not going to be the same in the future. And our focus on localization and the level that we have achieved in localization will continue to improve. And the -- another question that you raised is regarding the inventory increase in this quarter. This is actually the optimum level of inventory. It was actually lower in the previous quarter. In the previous quarter, we had actually purchases, which certainly led in terms of inventory, correspondingly in payables. So the overall working capital was not higher, but the inventory was higher than that. Purchases continued. And in this quarter, the level has slightly gone up. So no significant increase in inventory, but yes, increase in working capital, improvement in payables. This is the level of inventory that we are seeing is the optimal level. It is unlikely to worsen from this level, and we are expecting that our focus on continuous improvement in the working capital would remain, though the individual components of the working capital focus would be different because we want to have slightly better level of inventory to meet the contingencies like corona wave 2, there could be other situation. Therefore, we do not want to push inventory too much. We want to ensure that we have better service levels to customers. However, overall working capital focus would continue, and we are not expecting too much of worsening on the working capital side. I think you still had one more question about the 2-wheelers, and I would request Harsha to make it.

Yes. Vimal, if I understand your question on 2-wheelers, your question was that there are new entrants coming into the 2-wheeler space, and what are we doing about it? So let me start by saying first, when you look at the 2 wheelers, we enjoy a strong market presence in the 2-wheeler market space as such, even though the technology still continues to be the internal combustion engine technology. We are present strongly in the engine applications, transmission as well as the chassis applications. Having said that, with the emergence of the electric 2-wheelers and with the push that the government is now bringing in more focus to move towards electric vehicles, and more so, the electric 2-wheelers with a clear role on the climate change initiatives driving it, we definitely also are getting our act together. To share with you, Schaeffler globally has a strong electric vehicle technology competence already in place. In Europe, we have started to manufacture, as a series, production electric motors for the electric cars. So that's already in our portfolio. And the result of which now we are also exploring and evaluating, can we apply this competence and knowledge here in India for the 2-wheelers. We are in discussions with a few of the 2-wheeler manufacturers already who are working on electric vehicle projects, not to mention the transmission system, which we have specifically developed here, locally homegrown for the 2-wheeler application as such. So we are definitely aware of the changes that are emerging on the 2-wheeler landscape. And we definitely are having clear actions to meet those challenges that we see, which is going to come in terms of the technology shift that is happening already. So we are preparing for that definitely.

The next question is from the line of [ Jaiprakash ] from L&T Mutual Fund (sic) [ LIC Mutual Fund ].

This is [ Jaiprakash ] for LIC Mutual Fund. You spoke about export going on Asian -- I mean, Asian market, you have done -- started some projects, sir. Can you just talk a bit more about it? And what could be the trend here, at least on the export side?

Okay. See, our strategy, one of our strategy is clearly to leverage the competence of certain product lines where Schaeffler India is quite strong. And also, we would like to leverage the cost competitiveness that exists here. As a result of that, we have clearly planned our investment strategy going forward. And the intention here is to start to export not just to Asia but also to the rest of the world. So as a result of this strategy, we would have products that get relocated, some production facilities getting relocated, also new products that will get added to the Schaeffler India portfolio. Now having said that, obviously, we have started to work in the market as well, and we have started to see a very good response for India-made product. And we have now started to open the doors to Asia. And we have seen good response coming in from all the Asian countries in the region, and we would like to continue to build on it going forward.

Okay. Okay. And sir, on the localization effort...

In terms of -- sorry, Jaiprakash.

Just to supplement one comment in addition to what Harsha mentioned, our range of products, which used to be very limited in exports is also widening. So that opens up more opportunities in terms of exports because of the offerings that we have now of the wide range of products. Unlike in the past where we had probably 2 or 3 product lines, now we have more than 8, 9 product lines, so -- offering the product. So there are a lot of options available to our counterparts in other countries to actually initiate sort of these orders for the exports from India.

Absolutely.

Okay. Interesting. Sir, second question on the localization effort, considering our target, how should we see the CapEx going ahead because of, I mean, what number -- sir, right now, what we invested of INR 85 crores, INR 86 crores in the first half, what could be the CapEx number going ahead? And will it be sufficient for us to reach our near-term localization target?

So as we said in the past that we have the strategy of investing for localization, for capacity as well as for rationalization. And the strategy is to invest INR 1,000 crores in 3 years, and this remains intact. Quarter-on-quarter, or probably, year-on-year, there would be some sort of time lag of investing because of the situations during those years and quarters like we were faced with corona pandemic situation last year, and this year, wave 2 also created some disruption. So between the years and quarters, there would be certainly some CapEx time lag. But overall strategy of investing for growth of INR 1,000 crores remains intact. We have already invested close to INR 85 crores this year. And the second half investment is going to be higher than that. So this year, actually, our target is to invest close to INR 250 crores. Hope we can realize that because the COVID wave 2 and this type of challenge was not envisaged when we laid out the plan of investment this year that has caused certain sort of disruption because a large amount of CapEx also involves imports. And those challenges are actually there in terms of investment this year. So there would be probably some time overrun, probably carryover to next year. But overall strategy remains intact as well as this year, we are trying best to invest as much as we have planned. We are aiming for it.

The next question is from the line of Shyam Sundar Sriram from Sundaram Mutual Fund.

Sir, wonderful performance this quarter in a challenging environment per se. Sir, my first question is on the industrial segment. You did call out some new wins in terms of the actual installations during the quarter, some of the wins and even new order wins from the mining segment. So what has -- how do we think about the quarter-on-quarter quite flat performance while many end segments actually would have witnessed severe production issues due to the COVID? Which segments -- which subsegments fired better for us? See -- because if we see the reported numbers within the auto segment, the industrial -- within the mobility, mainly railways, two wheelers, that has declined only about 8.5% levels. And the general industrial that we report under the other segment has actually improved Q-on-Q. So which subsegments fired for us, if you can give some color on that? And how has been the industrial aftermarket performance if we think about on a sequential basis, considering the auto aftermarket declined 10% due to the shutdown in various sales per se. This is on the industrial side, sir. And generally, on the export front, we spoke of new products, expanding the range of the products per se. Are these primarily in the auto segment for exports? And when we talk about the export performance, was it primarily due to the end market demand or the addressable geographies also, which we were highlighting earlier from last year onwards, has that actually expanded per se? So that is on the export front. And lastly, on the price vis-à-vis volume mix, sir, how much, sequentially, you'd have gotten steel price increases during the quarter per se, if you can, because the steel inflation has been quite strong over the last 3 quarters therein. How much of the steel price increases would have taken effect in this quarter on a quarter-on-quarter basis? These are the 3 questions.

Shyam, thanks for the compliments, Shyam. And let me start by first taking the industrial part of the question. Yes, our industrial performance has been more or less same at the Q1 levels as you have seen. Primary reasons being the clear focus that we brought in to grow our distribution business, the aftermarket -- industrial aftermarket business, which clearly grew by almost 8% better performance than the previous quarter. Some of the sectors we did well is also on the railways, we did quite well. Wind, the demand was very good, and we leveraged the demand. So wind was another sector that we were able to leverage and grow the business. In terms of securing our 3-year focus and drive to gain more presence in the steel and mining sectors have started to pay off as well. And I did share during my presentation, some of the wins that we have started to secure. These two have started to add to the growth story, as I've said. So you would see a strong performance from the industrial sales. Domestic was purely coming from wind; railways come from the steel and cement sectors; and distribution, which is very clearly focused. These have helped us to grow the business. And the other question was?

The question was regarding the exports product line. Are this because of the geographical reach or because of the end customer demand increase? I think that was the question. To answer this question, it's a combination of both. So yes, there is a demand increase from some of the countries because our exports have grown in literally all the regions. Yes, it has grown higher in Asia Pacific than other regions, other countries and subcontinents, but it has grown across. And it is also because of the bandwidth, because of the geography increase and reach out, particularly in Asia Pacific. So it's mixed bag, actually.

Yes. And the last point -- question was pertaining to the steel price. Was it?

Yes. The last question was related to the steel price that how much is the steel price increase? And how much of this is actually contributing to the price? And thereby, how much is the volume? Now Shyam Sundar, it's very difficult to lay out the figures here. But yes, as you -- and you all know that this year, the significant -- the steel price has gone up significantly. It is not just double digit, right? It is closer to 3 digit. I mean some of the steel materials have grown in terms of price as high as 80%, 90%. So of course, this requires a sort of a correction from the external measures, particularly the recovery, and that is on track. How much of that is very difficult to lay out in percentage because the quarter was the first quarter where this exercise has begun, impact wise as well as recovery wise. Possibly towards the end of the quarter, we have -- end of the year, we would have a better picture. But yes, we are targeting to nullify this impact by all-round efforts, external as well as internal.

Sure, sir. Sir, if I may ask one follow-up question. From an exports perspective, say compared to, say, 2019 per se, what would have been the newer geography contribution to exports, sir? Is that -- just to appreciate all our efforts that Schaeffler has been -- Schaeffler India has been taking all along. From new geographies, say, from 2019 as a base, what would have been the new geography contribution to exports?

Yes. Some countries in Asia Pacific like Indonesia, Malaysia, including some space in China as well and U.S.A., and these are the large 4 sort of countries where we have more geographical expansion in terms of the intake of orders.

[Operator Instructions] We'll take the next question from the line of Viraj Kacharia from Securities Investment.

Congratulations for good set of numbers in a challenging environment. I just have 2 specific questions. One is on the industrial side of the business. You've talked about wind energy and railway as being one of the major reasons for outperformance in the division in Q2. So can you just highlight how our market share has changed in those 2 segments? How is the tendering activity now happening in the railways part? And as a related question, there is that -- ex of railways and wind, how would have our overall business grown and market share moved? So that is one.

Okay. Let me take the wind first. And wind, we are seeing a strong traction, and we have a good presence in the wind market space as such. We are engaged and actively with all the wind equipment manufacturers as well as the gearbox manufacturers. So having said that, we are preparing and our investment plans are also to increase capacity exactly in that directly. And we continue to add capacities to ensure that we continue to grow with the market demand. And clearly, that is becoming visible as you see that as the wind demand goes up, we are able to sustain the suppliers, plus the localization drive for the wind products, which we are winning more and more into India rather than bring it from outside India is also ongoing. So that has helped to grow almost an improvement over the second quarter -- first quarter by almost close to 30% better performance in the second quarter. Coming to your next question on the railways, actually, if you see the activity level in the railways has kind of stagnated a bit fundamentally coming on the back of a lot of travel restrictions. So the new tenders have not been coming up, so to say. And certainly, we see that our own business in the railways as a percentage of the total is not very big, it's close to about 5%. And certainly, we have plans to grow our presence here as well that we want railways to be -- play a bigger share of the business that we do. So we do have a few projects in the pipeline. Some of them are under homologation and validation. As they come out, surely, you will hear about them. And you will see us becoming more active in the railways sector. We have a clear intention to grow our presence in the railways sector as well.

And on ex wind and rail and steel and in other process industries, how would our business...

As Satish already mentioned, our expansion -- capacity expansion plans are also targeting these sectors. The product lines that we want to localize where our localization percentage was around 72%, we have targets to get it beyond that as well. And so more product lines, definitely, we will begin to make here in India. And obviously, that -- thereby, we bring in more competitiveness into the products that we manufactured here. And obviously, this can be leveraged to gain more market share with our customers in the steel and the cement sector as such.

Okay. Just 2 more questions. One is on the export side. You talked about the strategy working really well for us. So is it primarily driven by the cost competitiveness? Or this whole China Plus One or regional diversification is also a key driver? Any perspective you can share, especially after the PLI scheme coming in? How should we see the growth profile in the business? And third part of the business -- question is on the -- you have launched this OPTIME service in India. And one of the larger competitors also have a similar offering. So any color you can share in terms of how is the scale-up being? What are the initial learnings? And how does it work in terms of revenue model and margins?

Okay. Satish, can you answer the first one?

Yes. So as regards to your first question about the exports, it's cost as well as competence both. So for some products, particularly conventional products, we do have the cost competence, and that is one of the sort of basis for which we have some sort of exports leverage in terms of the overall volume and the attraction about the demand. The second is the competence. Certain product lines, for example, cylindrical roller bearings, we have competence as well as critical mass. And this actually also in line with our global strategy -- secular global strategy, there has to be a certain critical mass in order to gain the advantage of both cost and competence. So we do have some product lines there. We are, let's say, one of the key supplier to the entire global network of secular. Likewise, some of the countries, plants in those countries have, for some of the product line, cost and competence, particularly on the competence side. So it's a combination of both. Conventional products, we have the cost advantage, and on the specific product lines like cylindrical roller bearings, like large-size bearings, we have the competence established over the years, and that helps in terms of gaining the overall export momentum.

Yes. So coming to your question on the OPTIME as an offering to the marketplace, we launched this product, as you know, in the last quarter of last year. And since then, we have been marketing and promoting this product. What we have seen is a very good response, a very positive and encouraging response from our customers. We are now working on getting our supply channels in place to facilitate and ensure that the products reach our customers. And this is, I must say, a big step and in the direction of digitalization offering to our customers. And as such, the technology that is behind it is also a game changer here. We have something that is much better than the existing product in the market. And we believe that with the kind of positive response we have seen from our customers, it's only a question of us now meeting the demand that will get created soon. So currently, we are setting up the entire supply channel process to start feeding the market with this product.

Any aspiration in terms of revenue or margins from this particular scale?

I wouldn't want to share it at this point in time, but rest assured that clearly, this is a very important project for us to get the digitalization content into our industrial space, and we will sustain this.

The next question is from the line of Mukesh Saraf from Spark Capital.

In one of your comments, you had mentioned that railways did well for you this quarter. Just trying to understand is there any specific breakthrough in the freight segment? Or is this more related to, say, the cylindrical roller units for the LHB passenger segment?

Mukesh, we couldn't hear you because of the background noise.

There's a lot of traffic noise.

So can you please repeat?

Sorry about that. Is it better now?

Yes, it is.

Yes, sorry. So the question was regarding railways. You had commented that railways has done well for you in this quarter. Just trying to understand, is it more on the freight segment if we have got some breakthrough there? Or is it more on the passenger LHB segment, probably where the CRU units have started getting supplied?

Okay. Well, I must say the good traction that we have seen is on the metros, which we're -- various projects which we are working with. And these have actually helped us in this quarter. We expected that we would be able to get some of the projects on the LHB passenger trains as well off the ground, but we see -- foresee some delay. But nevertheless, once -- we expect in the next quarter, hopefully, we should be launching the products on the LHB as well. However, the metro demand has really helped us in this quarter as well.

Right. Right. I understand. And my second question is a slightly broader question, not specific to some of your strategies on products, et cetera, more on the content for vehicle trends. Last quarter, you had mentioned that we've kind of reached the EUR 40 mark, and directionally, we are going to be looking at it upwards. And you did say that it can probably give a broad direction later. So would you be able to give us a direction in terms of how content can, say, move this year for you?

Well, yes, I stand by what I said in the last meeting as well that we are focused on increasing our content per vehicle. And as you know, this is a journey, right? And as I said in my last call that we have reached the EUR 40 per vehicle barrier. And our target is to continue to push up the number. And just to share with you our participation in the gasoline content has already gone up to 70%. Meaning when the market has moved 80% of the vehicles to gasoline, our offerings are already at 70%, which was almost around 60% a year back. So we have increased our content to offer to the gasoline engines as well. Not to mention that we continue to feed the diesel market as well, which is down to almost now less than or in 20 -- 15% to 20%. So with that, we believe that our content per vehicle is also going to increase. Incidentally, we have also had some good breakthrough in the light commercial vehicle sector, which is helping us to raise the content per vehicle going forward. And of course, we hope in the end of this year, we will have a significant number to share with you.

Right. But like you're not sharing any targets like maybe in 3 years, you want to get to, say, a particular content mark in terms of euro per car?

Not for the moment.

Due to time constraints, we'll have to take that as the last question. I would now like to hand the conference back to Mr. Vijay Chaudhury for closing comments.

Thank you, ladies and gentlemen, for joining in our earnings call. And now we will end the call. And should you have any further questions, please reach me at [email protected]. That is V-I-J-A-Y dot [email protected]. Thank you, and have a good day.

Thank you to you all. Stay safe, and take care.

Thank you.

Thank you.