Schaeffler India Limited (505790) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q4 CY '21 Earnings Conference Call of Schaeffler India Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Gauri Kanikar from Schaeffler India. Thank you, and over to you, ma'am.

Thank you, Margaret. Good afternoon, everyone, and welcome to the Fourth Quarter and Full Year Earnings Conference Call for Schaeffler India Limited. Today, we have with us Mr. Harsha Kadam, CEO, Schaeffler India; and Mr. Satish Patel, Director, Finance, CFO, Schaeffler India. Mr. Kadam will take us through a short presentation on our results, after which we'll open the floor for questions. Thank you, and over to you, Mr. Kadam.

Hello. Good afternoon to everyone. A very warm welcome to our earnings and conference call here. I'm Harsha Kadam, the CEO and along with me is Satish Patel, CFO of Schaeffler India Ltd. We welcome you all. I would like to take you through our quarter 4 performance as well as the calendar year '21 performance. So I move to the Slide #2, which talks about the agenda for today's meetings. And I will cover the presentation under 3 broad areas. Firstly, updates on the industry and the economy. Secondly, an overview of the Schaeffler India quarter 4 and the 12-month 2021 performance, followed by a quick summary of our value-creation initiatives undertaken over the year. I move to the next slide, which is about the economy and why the outlook remains positive. The GDP growth for Q3 2021 was predicted at 8.4%. Having said that, the Indian economy is expected to grow at 9.2% for the entire year after contracting in the previous year. While the index of industrial production year-to-date registered performance was 15.2% compared to a de growth of 13.3% same period last year. However, it is expected that some of the sectors like mining, manufacturing, which grew over 16% and electricity grew at 9.2%. We would continue to see some traction across some of the sectors proving that the overall economic activities have recovered past pre-pandemic levels. We are also seeing some new third wave in the form of Omicron, which began to emerge in the last month of last year. Although it was -- it appeared to be a milder version, but definitely, it did have some impact on the economic activity in the country. Also, what we see coming back, making a comeback is the inflation, and we see that the consumer price index, which is a 6% for the month of January 2022. And at the back of increased fuel prices and supply chain interruptions, we believe that we are seeing some inflationary trends on the horizon already. So we continue to see the index of industrial production in the 8 core index growing albeit at a slower rate than the previous quarter, but we believe that the growth momentum still will be sustained. I move to the next slide, which is going to talk about some of the core sector performances. And here, too, what we see is the growth momentum, which is continuing to be visible in the industrial sector, cement production in the country, as we can see last year, grew by about 21.5% when compared to the previous year and by -- with percentage of weight contributing about 5.4% of the GDP. Look up the steel production and that too grew at about 18.4% when compared to 2020. Mining and coal grew at about 6.3% and surely electricity, as I already said about 9.2%. So some of the core industrial sectors have shown a good recovery and a stabilized growth rate was visible towards the second half of last year. I move to the next slide, which is talking about the automotive production. Despite the challenges that we faced during the year, we did see some growth in the sector, some of the sectors in quarterly manner. The sector which actually did well for the entire year, more or less was the commercial vehicle sector. So when you compare the commercial vehicle sector, Q4 performance over the Q3 commercial vehicle production numbers were 6% up. Same was the case with the passenger vehicle sector in spite of the chip shortage, it did manage to grow 1.9% over the previous quarter in 2021. While the tractors and the 2-wheelers were 2 sectors, which were severely impacted and they saw some de growth. The tractor de grew by 31.4% when compared to the previous quarter. The 2-wheelers de grew by 11.1% when compared to the previous quarter. So all in all, when we look at the vehicle production in the country for the fourth quarter of last year, vis-à-vis the third quarter of last year, we saw a de growth performance of 5%. Compare that with the Q4 2020, also we saw a significant drop in the production numbers. Passenger vehicle was down 6% when compared to Q4 of last year, and the tractor was down 27% when compared to Q4 of 2020. While the commercial vehicles continue to still show some strong recovery and growth. Hopefully, with the PLI scheme that is now being pushed across [indiscernible] to boost the domestic manufacturing effort, and we definitely have perceived some recovery in the automotive sector going forward as well. I move to the next slide, which is talking about the Union budget that was passed recently on the first of February. And in a nutshell, the summary is that the budget entails the long-term vision of the country with key focus areas to steer it and sustain the growth rather than the short-term impacts, proposals and subsidies. Some of the key announcements impacting the automotive and the industrial sectors are the significant increase in the capital expenditure to boost infrastructure and also the aim to cut down the logistics cost from the current levels of 8% to 10% to 5% of the GDP. Not to mention, of course, the continued thrust on the domestic manufacturing with a lot of localization initiatives that have been encouraged. Another focus area in this budget has been the climate change and clean technology area wherein -- which is mobilizing the battery swapping policy and also the green energy of hydrogen as such, impetus being given to the solar and the wind to increase the installed capacities to 280 gigawatts. So there will be a lot of focus on the green energy side, clearly in line with the government's commitment to decarbonize the economic activity in the country. Look at the regulations and the regulatory changes, Surely, we will be going through another change in terms of the emission norms with the CAFÉ norms that are getting implemented now. And also there is some talk of the BS-VI, Bharat Stage VI, Phase 2. And hopefully this is going to open up more opportunities for technology products and the players like us who can bring value offerings to the market. Moving on to the next slide, which is where I would like to throw light on the performance in the Q4 as well as the 12-month period of 2021. I want to say few lines on the Q4 2021 performance. All in all, the fourth quarter of the year, we were able to post a strong robust performance. And I need to say that we delivered healthy revenues and record profitability gains for the quarter. So having said that, the revenue stood at INR 15,232 million, which was clear 19.6% sales growth compared to Q4 of 2020. And compared to the previous quarter of Q3, which was 2.4% better. Looking at the EBIT margin and that we were able to deliver a robust EBIT margin of 16.1% for the quarter, and when compared to the Q4 of 2020, where we have delivered 14.2%, and an EBIT level of INR 245 crores that we were able to be within the quarter. The profit after tax margin stood at 12.5% for the Q4, while the same period last year was 11.1%. And for the Q4, we delivered INR 119.6 crores, the profit after tax. Having said that, the free cash flow was another area where we took some aggressive steps to bring cash into the company, and we were able to bring in INR 185 crores into the system, and which was definitely lower than the Q4 of last year, but certainly it helped us to shore up cash into the company. And also, we would like to share that the Board of Directors recommended a dividend at INR 16 per share -- per equity share with a face value of INR 2 with a payout ratio of 40%. And as we enter 2022, we also saw the emergence of the third wave, which could effectively mitigate the risks. Although, we have gone ahead and ensured that all our employees are vaccinated. We will continue to see some headwinds due to the semiconductor shortages as well and some input cost pressures that we were facing. One milestone that we crossed during the year was the signing of the memorandum of understanding with the Government of Tamil Nadu for our new project plant expansion at Hosur. And these are some of the highlights and 1 low light, which you see that some challenges definitely exist on the horizon. I'll move to the next slide, and here, I would like to talk some of the business wins we were able to secure early in Q4 of 2021. And these business wins were in all the areas of automotive OEM space, the automotive aftermarket space as well as the industrial space. Now talking about the automotive OEM space, some of the key products that we were able to build out were on the [indiscernible] dampers, the clutch applications as well as the Cam phaser applications for the engines and also the wheel applications -- the wheel bearing application for the passenger cars segment. We were able to secure new business in the quarter and resulting in significant gains for the business, which is now starting to pick up, and we will see the full realization of these businesses in the years to come. Having said that, on the automotive aftermarket as well, we continue on the journey of adding new product lines and expanding our product portfolio. Some of them was the introduction of the clutch for the light commercial vehicle segment. Also talking about the timing kit and the front-end auxiliary drive systems for the passenger vehicle as well as some of the range extension parts like shock absorbers that launched in the Q4 of last year. Coming into the industrial space, we have some significant gains coming on the back of some wins from the mining industry, the construction equipment industry as well as some significant gains coming in our digitalization effort by way of condition monitoring equipment back orders, which we will be servicing in the year 2022 and 2023 as well. Not to mention, of course, we will get some two-row cylindrical roller bearing and spherical roller bearings orders for the raw materials and metal sector. Having said that, I move to the next slide, one of our strongest performance has been in the export area. And with a state of products that we have started to relocate into India, obviously, our strategy on export is progressing well. While we are committed to continue to make the necessary investments in the capacity, capability and competence buildup, we would also like to leverage the cost competitiveness of the country to grow the business outside of India as well. So having said that, a number of product lines that we have started to bring into India, starting with the angular contact ball bearings and the two-row cylindrical ball bearing and the two-row tapered roller ball bearing for various sectors. We have also started to expand our footprint clearly into Asia Pacific region, and we saw some significant gains in the businesses within the quarter in the Asia Pacific region as well, and we have also started to now extend our markets in Europe as well as Americas, leveraging the cost competitiveness for the country. To enable that we speed up the time to get the products to the market, we also have started to augment our R&D and computer-aided engineering capabilities within the country. We have built in more competencies into the system to enable efficiency in the entire product development process as such. Not to mention, of course, design and validation, which would call for infrastructure by way of the [indiscernible] are being addressed so that we become self-contained in our in our setup so that we can complete the formulation of the products that we deliver to the export market as well. All in all, our 2021 for the entire year our exports grew that 70% clearly the highest growth that we have seen in the export sector. Moving on, I now come to the revenue from operations. And as I said, we have been able to sustain robust performance quarter-on-quarter. And as you can see, while we -- for the quarter 4, we were able to deliver INR 5,560 crores, which was 2.4% better than the previous quarter, but compared to the same quarter period of 2020, it was 19.6%, definitely better. So having said that, the entire year 2021, the total revenue stood at INR 5,560 crores compared to INR 3,762 crores in 2020, which was rightfully attributed yearly to the pandemic. So where did the business come? And as you can see, the bridge below, the majority of the business came from the exports, which was clearly INR 804 million coming out of exports. Industrial too gave on the back of our distribution business or the aftermarket business [indiscernible] and the wind sector, predominant growth there was INR 943 million. The automotive aftermarket too grew by INR 391 million, and the automotive OE technology as you can see here INR 356 million within the -- when compared to the Q4 of 2020. All in all, a strong growth in all the business areas, as you can see on the right side, the key aspects -- the same state of resilience. However, we began to see some softening of status in the auto technology area in the fourth quarter of 2021. As you can see compared to 2020, the growth was only 6.7%. Fundamentally, this is attributed to the semiconductor shortage that the entire automotive industry is going through which definitely had an impact on our business as well. The automotive aftermarket, we were able to project a strong growth as well in double digits, industrial too, a strong double-digit growth when compared to the same period last year. However, the exports, as I said earlier, we had phenomenal growth story there. And at a quarter-on-quarter level, 61.6% and year-on-year level of 70% growth has been a very good performance. While we continue to work well on the market, we also ensured that the plants were back to the normal capacity level, and we had a good capacity utilization towards the second half of last year, and we continue to keep the balance between the automotive and the industrial space that we have while we continue on our journey to grow the export market. I move to the next slide, which is talking about our EBIT margins for the quarter, which was very robust at 16.1% as compared to 14.2% in the corresponding period of the previous year. And 14.9% in the quarter compared to the previous quarter. Having said that, [indiscernible] , the EBIT stood at INR 245.1 crores. And volume gains, coupled with sustained countermeasures that we have put in place ensured robust profitability development here. Also, our strong process has helped us to manage the cost as well as mitigate some of the risks across the value chain. And based on that, we were able to deliver a profit after margin of 12.5% for the quarter versus 11.1% for the same period of the previous year and 11.5% for the preceding quarter that we entered. I'll go to the next slide, which is throwing some light on the working capital and the free cash flow. We continue to keep the focus on these parameters. And I'm now saying that we saw some improvement in the fourth quarter with our working capital stood at 18% of the sales, which was better than the previous quarter, which was at 19.3% of the sales. As well as we continue to judiciously look at our investments last year, and we are currently standing at about 3.5% of sales coming for every quarter across the year. And the total CapEx for the year was at INR 192.9 crores. And when looking at the free cash flow -- after the wave 2 that we went through in the second quarter where we had a negative cash flow, we bounced back. And while in the third quarter, we were able to bring in INR 209 crores. And I must say, we were able to bring in another strong -- sorry, in the third quarter, INR 108 crores, we were able to bring in INR 185 crores in the fourth quarter of 2021. Moving on to key performance indicators. So as you can see here, while the revenue growth was at INR 5,560 crores compared with 47.8% better than the previous year, which, of course, was a transition year, and we saw a 13.7% de growth due to the pandemic in the year 2020 when compared to 2019. The EBITDA margin in the fourth quarter stood at 19.4% when compared to the previous -- preceding quarter, which was 18.2% at an annualized level as we can see. We ended the year with 17.9% EBITDA margin, and that's when we compare it to the year 2020 was 14.4%. And the EBIT margin finally for the quarter, 16.1%, and the preceding quarter 14.9% and for the full year, 14.3% was 9.2% in the year 2020. That brings us to the earnings before tax margin at 16.9%, which compared to the preceding quarter, which was 15.4% and at an annualized level, 15.2% compared to 2020, which stood at 10.6%. So all in all, the profit after tax margin, as I already shared, we were able to close the quarter at 12.5%, and at an annualized level at 11.3% from the same period in 2020 was 11.5% for Q4 and at an annualized revenue of 7.7%. Moving on some information on the stakeholder value creation, the actions we took. Let me start first with the corporate actions that we took. As you all know, we have already initiated in the last quarter Board meeting, we had put the proposal up for approval, adding on to our value creation. One of the corporate actions was the 5 for 1 stock split, which we had initiated in the last quarter. Finally that has been now completed and approved by the Board of Directors on 28 of October 2021 and approved by all the shareholders by 19 December 2021. And the stock split came into effect from the 9 of February 2022. And I would like to stop here and take the opportunity to thank all our shareholders for having supported this decision and approving and giving us your formal approvals. Thank you so much. With that, I'd like to move on to the next slide, which is 1 more corporate action that we did was on the dividend payout that we enabled in this quarter. And as you can see, the Board of Directors of the company has recommended a dividend for the year on December 31, 2021, at the rate of INR 16 per equity share of face value INR 2. And as you know, before the stock split happened, if I were to compare last year, the performance was the dividend payout was INR 38 per equity share at a sale value of INR 10. Now having said that, this is another step in our endeavor to create value to our stakeholders, and we will continue to bring value -- more value as we move forward. Having said that, it's important that we have a very clear road map and the journey ahead, how are we going to do it? And I would like to take the opportunity to move the next slide, which is going to talk about sustainability focus. Schaeffler as a company certainly plays a key role in implementing our corporate strategy. And the decarbonization of the Schaeffler Group by 2040 is a top priority for us. Through our defined targets and specific measures, we are doing our part to help achieve the objectives of the Paris Climate Agreement that all companies are going through now. But in doing so, we are strengthening our position as a preferred technology partner and the supplier of sustainable solutions. So having said that, with this, we have now taken self-imposed target that Schaeffler Group would become a climate neutral company by the year 2040. And this objective will cover the entire supply chain and underpinned by the ambitious midterm sustainability targets. And the targets that you've seen in terms of sustainability would encompass the 4 areas of environment and energy, customers and products, employees and also the suppliers and the materials as well. Having said that, a clear [indiscernible] KPIs are being fixed already, and we would like to continue to keep the focus on this journey. So what would this mean for Schaeffler at the India level. I move to the next slide, which is going to talk about impending journey on ESG, which is going to address predominantly the 4 target areas that we talked about. And clearly, we are now seeing the strategy on the way forward and our strategy should be ESG [indiscernible], and it should be approached in a holistic manner. And all the business areas would address this journey on ESG. So currently, we are in a situation where we are formulating the ESG strategy and implementing the road map. And various steps involved in the process. First is to define the ESG purpose, which have been done. The second would be to do a baselining and then frame up the strategy and the road map, which we have just now started. And -- the third stage will be where we get into an implementation mode. And then we would get into disclosures and reporting and communication to all the company stakeholders. Having said that, we have identified some of the areas where we believe we would like to focus on going forward through a materiality assessment that we have carried out, and we are now in the process of the fixing the vision and target for [indiscernible]. Going forward, we would also look at various areas to transform Schaeffler India to -- in the area of capital planning, in workforce planning, operations management, and that will be leading to disclosures wherein we would be talking a lot about what are we doing? It's not just about what we do or achieve, how are we achieving these stakes. And that will be our key focus area going forward as well. Having said that, I would come to the last slide of my presentation, wherein I would like to summarize that we had a strong quarter and the calendar year performance across the businesses in our diversified portfolio and the performance improvements due to -- has happened due to due to better mix definitely. And also our sustained efforts on the countermeasures that we have laid down at the beginning of the year, which we continue to keep the focus upon. And also, we focus on ESG as a journey. We aspire to align our environment and social targets to develop a strategy clearly addressing the risks and opportunities. Now having said that, we will continue to sustain our performance while dealing with the challenges and some of the risks that we see on the horizon as such. And with that, I come to the end of my presentation. Thank you so much. Over to you for questions.

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

Congratulations on a very strong calendar year. Sir, my first question is on margins. In the backdrop of rising raw material costs, and we are seeing most of the companies across the board have suffered on gross margin, whereas you show a completely opposite trend. So I just wanted to get your sense on what has led to this very strong gross margins and related to that would be, if I were to look at your OpEx this quarter, which is -- that has grown at a slightly faster pace than usual, and it is now at a run rate of more than INR 200 crores. It used to be INR 170 crores just 2 quarters back. What has led to that increase? Just wanted to get your sense on overall margin performance, whether this is sustainable, not sustainable?

Yes. Satish Patel here. As far as your question about the margin is concerned, for the quarter, as we also have mentioned in the presentation, there are actually 2 contributors to the margin improvement in the quarter. One is the improved mix. We had better performance of revenue in exports. The exports grew significantly during the quarter. And we also had significant good performance in our businesses of aftermarket and distribution business. So these businesses actually have a margin profile better than other businesses, and actually contributed in terms of the better mix to the extent contributing the margins as well. The second contributor for the quarter is the countermeasures that we have initiated since about 2 years since the pandemic -- onslaught of the pandemic. Post pandemic we could sustain and the full realization of quarters -- of the countermeasures actually realized in quarter 4. So that, in a way, helped improving the cost position, our cost discipline enables that and that also contributed to the margin improvement. As far as your question about margin also to the extent of the steel price is concerned is very valid. There was a significant increase in the steel price anywhere from 30% to 50% in the respective input of steel. However, a large amount of this steel price impact we could mitigate either by recovery from the market or by internal measures. Because we have initiated as part of our countermeasures also several projects on the material cost side by instituting certain actions like alternate materials, alternate sourcing and those actually also contributed in terms of the compensation of raising price. So all in all, contribution from all these aspects and that help retaining as well as improving the margin position in the quarter, that is quarter 4 of 2021. The impact of the countermeasures that I actually talked about already had since the beginning of the year, and therefore, for the full year also, if you see in the preceding quarter, which is quarter 3 as well as the first half, the performance in terms of the result was quite better. It further improved no doubt in quarter 4, but the initiation of the countermeasures that we had on the cost side, since those were laid out early enough about 1 to 2 -- 1.5 years back that helped achieving the margin position on a strong moat already from the beginning of this year. So that's the main sort of reason. Now coming to this connected question is this sustainable or not? Yes, to a large extent, yes. And I would not say everything would be possible to sustain. As far as our countermeasures are concerned and this we had also mentioned in our earlier earnings call, that about 40% to 50% of the measures that we take are sustainable. So most of the countermeasures we are hopeful of sustaining. Material projects also would continue to contribute in the future. And the steel price -- nobody knows which direction it will move from now, but whichever direction it moves to the extent there would be corresponding impact also on the size of territory. So that's in a nutshell also about sustaining the margins. Yes, we have the balanced business portfolio that also in a way helps ensuring that our margins are sustained. And we put our actions on the execution side. The execution this year actually was very, very effective, and we hope that we would try our best to continue those actions also going forward.

In your OpEx...

We have invested INR 200 crores...

Yes, yes, yes. So the OpEx number, this has now -- comes to almost INR 206 crores. This used to be about INR 170 crores in Q2. So if you could just help us understand what has led to the sharp increase in the last 2 quarters? And how will it trend forward?

Yes. So on the CapEx side...

Sir, OpEx, I'm talking -- I'm so sorry, it is the OpEx number, the INR 206 crores other expenses that are there in the P&L.

Right.

Yes, yes. So what has -- this number you gave INR 170-odd crores last in, let's say, Q2 of CY '21. If you could just help us explain what has led to this increase -- sharp increase in the other expenses?

Yes. So some of the expenses are in the outside services area where we had certain services actualized in the last quarter. There are also certain expenses which are because of the performance in the quarter were accrued. There are no specific reasons of relating increase in the expenses. The expenses have gone up no doubt in absolute terms by about INR 30 crores. But there have not been any, let's say, relative increase in the expenses. The fixed costs more or less have remained fixed. I do not see any particular expenses that have significantly gone up. No doubt, the services, which have been actualized in the last quarter, that's really the area where the expense has gone up. Otherwise, on most of the other expenses side, there have not been any increase. But another expense, which is the CSR expense, which was required to accrue when the large amount was required to be accrued in the last quarter. So that was another expense which was actually higher in the last quarter. So a couple of them, they have increased. Otherwise, most of the expenses have remained relatively at this level, those were there in preceding quarters.

Sir, if you can just highlight what exactly would these outside services be? And how much was the CSR expense in this quarter?

CSR expense was about INR 6 crores. As I see -- oh, sorry, INR 4 crores, I think it was around, it was INR 11 crores minus INR 6 crores, so INR 4 crores to INR 5 crores and outside services should be about INR 8 crores to INR 10 crores, yes.

So what are these outside services?

Those are all contracting out services, contract labor services, IT services, quite varied nature of services.

Right. Okay. Next question will be to Harsha. Sir, if you can just help us explain or rather give your commentary on what is the traction on the gasoline product that we had introduced for the seemingly high pressure on our diesel products -- diesel-related engine related products? And if you can just help us where are we in terms of the content per vehicle in bearing? And one important question is -- ever important question on electric vehicles. How much of our portfolio -- or what exactly are we doing to shield ourselves from the inevitable electric vehicle advent?

Okay. Let me first take the first part of your question, which is more on our efforts to develop products for the gasoline application. As already shared in the earlier meetings as well that we have continued to bring in products to cater to the gasoline market and as more and more cars and vehicles are coming with gasoline engines, our product properties have increased. Having said that, the proof is when you look at the industry, if you would look at the past 3 years, vehicle industry in the fourth quarter compared to the previous preceding quarter, just grew by 1.9% in terms of vehicle production. Having said that, our growth was definitely significantly in double digits, much better. So truly, our actions in the gasoline technology continues, and we will continue to build on it, which is going to definitely raise the content per vehicle. And currently, we are in 40s already -- EUR 40 per vehicle -- content per vehicle in that range. And we see increases happening in the second half of this year as some of the projects which I shared in my presentation, are going to start scaling up in terms of demand and volumes, which is going to happen now. So some of the like cam phasing systems that we have launched, this is all going to start to materialize. And we see the content per vehicle set to only grow. So that's on the gasoline versus the diesel. Talking about -- you had a question on the electric vehicles, right? Yes, currently, if you were to look at our percentage of the revenue we generate on of the e-mobility sector that is pretty small. It's just about 3%. These are products which we make for the electric vehicle applications, primarily on the -- some in the passenger vehicles and some in the 2-wheelers and 3-wheelers. But we have clear strategy as well as plans to play a bigger role in this game of electric vehicle. Three areas which we are aggressively pursuing is one on the electric motor, the second is on the motor control unit. And the third is on the thermal management systems for the electric vehicle applications. All the 3, we are focused upon and work is going on, and we are already engaging with some of the key customers. And we will definitely share with you as the products get rolled out into the market. We will certainly give visibility to that as well.

[Operator Instructions] The next question is from the line of Priya Ranjan from HBFC Mutual Fund.

A very strong set of numbers. So congratulations on that. So first on your business mix, if I look at the reporting numbers, so there is some element of industrial also in the automotive side. So what are those areas? And can you just bifurcate, I mean, is it like, say, 2-wheeler or tractors or trucks, which are all you consider inside the industrial segment of the automobility business?

The way we are structured is mainly based on the product ownership per business area. The products which dominantly go into the [ 2-wheelers ] are bearings -- ball bearings, they are within the industrial ownership portfolio. But there are products which are also under the automotive. So we do the business from the automotive side of our business vertical in [ automobility ]. So some of the products in a balance that go into the truck applications of 2-wheelers, around the -- some of the one-way clutch products and a few others which are under development would be coming out of our automotive portfolio as well. So to clearly demark it and say that fuel is clearly bracketed on the industry would be incorrect. There is some percentage of the business that happens in the automotive side as well. That's the first thing. The other thing is when you look at -- even the same would apply to the tractor segment because tractors do a part of the businesses with industry and part of it is with automotive because the clutch and transmission system products, they are owned by the automotive part of the business. The bearing is done by the industrial product business. So both of the businesses. So we -- for accounting reasons, it's easy for us to -- within the business verticals and track the performance.

Okay. Got it. And the railway is also considered under mobility?

The railway is considered in the mobility, but it is still the industry that is still focusing the entire business and the product solution goes.

Okay. Understood. And sir, in terms of broader mix, like, say, what was the contribution from, say, 4 wheelers and trucks and 2-wheeler side in the current fiscal year '21?

Really 4-wheelers and 2-wheelers such sort of not because we take our automotive business into engine business, transmission business, chassis systems in those sort of segments and not in vehicle segments. But I can give you some detail in regards to vehicle business. That is about 8% to 9% of our total business. And if you talk about only industrial within that 2-wheeler, that would be almost level asset, which is a 16% to 18%. Off-road will be about 3% to 4% of the total business of the company. And of the industrial business revenue, it would be about 6% to 7%.

Okay. Understood. And passenger side, I mean 4-wheeler used to have roughly 25%, 1/4 of the business used to come earlier. So that will broadly remain same or that is going to -- that has also changed with the content going up?

Actually, that we believe will go up. Again, it depends. Now if I were to go back in Q4 performance, the passenger vehicle sector still has slowed down. So the demand went down. But the commercial vehicle did well, and we have now increased our business in the heavy commercial vehicle segment with our clutch offerings, the 400 millimeter clutches. So having said that, so you may see some shifts, but more or less, it's in the full range of 20%, 25% what we talked about.

Okay. Got it. And the one good performance was on the export side, so 70% growth. Can it continue for a couple of years because you're -- even if I look at your numbers, it's roughly still around 14%, 15%. But I mean, I guess, your target was roughly around 20% export, if I'm not wrong. So can we expect this kind of growth continuation for the next couple of years?

Well, our strategy has been clear right from the beginning that we would be looking a lot of investments coming into India only for export as well, primarily coming on the back of the constituents that we believe is in India, and also the knowledge and intellectual capabilities that are there [ in India ]. So we would want to leverage both and make India the manufacturing hub of some of the specific product lines. India is going to be the only fully company, which is going to manufacture the products. And so this is a clear strategy we have in the next 5 years. Certainly, we want to continue to make more investments, bring more products. And products are getting shifted from European plants to Indian plants, and that is going to continue. Satish, if you want to answer...

Absolutely. It is very nice to hear that, Harsha, as far as investments -- as far as exports are concerned. Now it is an integral part of our strategy. And rather, we are actually having the specific focus on exports in terms of investments. So we are expanding our capacity for specific products, which are export-oriented, particularly products like [indiscernible] bearings, large-size bearings, stack bearings, [ spherical ] bearings, CRBs and materials. At [ strange ] times, we had focus for CRBs and [indiscernible]. That's why, in so many times, we have focused on CRB [ gradually ] for exports. We have expanded the portfolio and actually cover all these product segments, and there are opportunities, including opportunities for DGBs, which are actually category of the ball bearings in other parts of the world, specifically in the Asia Pacific region. So we have strong growth potential in Asia Pacific as well as in Americas, in addition to continued growth in the Europe region. And they're helping sort of focus for certain specific product development in India, precisely because of the reason that Harsha talked about in regards the engineering R&D. And in addition to that, also the cost competence. I think we also have the cost competence in India. And the products are best of the quality, well accepted, well experienced and well tested. So that actually offers not many opportunities. And India is one of the strategic focus country of production within Schaeffler Group. And therefore, separate good focus is for sort of some of the strategic locations also to India to secure India, and then bring further opportunities of growth in exports. That is one of the reasons we [ export, in fact ] 70%, and we have a quite good growth in exports going forward.

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

Yes. Just a couple of clarifications. So one, on the passenger vehicle side, like you referred to some of the emission norm changes and the regulatory changes that are happening. So will that -- how will that sort of impact your business on the automotive side? And again, related to that, we are starting to see some meaningful shift towards CNG also. So will that be unusual for us? Or will that be positive or negative if you could shed some light on that?

So let me start when the transition began to happen from the BS-IV to BS-VI. And rightfully, the emission norms got changed and that definitely pose some challenges for all auto-component manufacturers, and Schaeffler was no exception to that either. But having said that, with the engineering competence and capabilities that we have, we were able to come out with products, which we believe within emission standards. And thereby, we began to consolidate our position. Now one of the shifts that we saw from the BS-IV to BS-VI that happened was a clear switch from the diesel technology to the gasoline technology. Now having said that, we are very strong on the diesel applications with the right product portfolio in India. When the change happened, and it happened very fast, we were able to quickly ship gears and bring products from our European technology centers into India to feed the gasoline need that came up. All in all, we have also started to localize the manufacturing of the EMEA as the volumes begin to pick up. So if I have to summarize, as the emission norms become more and more stringent, which it should, we our products are capable because our products definitely has further friction, which is one of the biggest deterrent to the efficiency of the application, and that is where the friction reduction is intimating, which is where we have the capabilities, and we bring that to the table to improve on the existing solutions further to generate more revenue for our customers and long becomes. So we are cleared up to meet the oncoming the CAFE norms, which is already happening and also the BS-VI Phase II, which is being implemented right now.

Sorry. And just on the CNG portion, is that any -- I mean like will that have any negative or positive impact?

Well, we do not see any negative effects here for the products that we make, which go into these applications. There could be some customization required in some of the products, which we are able -- willing to address them as they come up.

Got it. And my second question was on the automotive aftermarket. So clearly, we've seen a very strong growth for the year. Is this more of a normalization? Or how do you see this going forward? I mean like in terms of your focus on the aftermarket. And I believe we have been expanding the product portfolio as well. So if you could just talk about the aftermarket business?

Sonal, are you referring to our performance in the aftermarket or the industry as well?

I mean, for Schaeffler, yes.

Okay. So as you know, last year, we did launch the Schaeffler brand under which one of the products we launched was mostly lubricants, oil. And that was the first time we bought into lubricant other business. While yes, this is more a traded activity for us, but we are working with critical partners to bring quality products to the market. Now having seen the response on the market, which have been phenomenal, we didn't want to stop there, and we have now expanded our offering going beyond lubricants to brake fluid oil to engine coolants and so on and so forth. That is on the oil as well, one of the product lines. But apart from that, as we have seen, we would continue to build more products under our Schaeffler new automotive products of MAC, which is an acronym that we use internally to launch more products on our trading portfolio. That is clearly one of the strategies for the automotive aftermarket growth that we have in results. Having said that, we are also now seeing a lot of opportunities as the vehicles are coming into the market with the BS-VI compounding vehicles. We see the need to upgrade the automotive aftermarket products as well, which were earlier, were component to BS-IV. Now they would see there and there, and they would have to be replaced. So we see some replication of the products happening into the new needs and nominees as well as we see some opportunities where we are not participating like the heavy commercial vehicles and the light commercial vehicles, particularly in a first-class portfolio, which we are now starting to add products there as well. So what it means is while we are already working very closely with our Indian customers and enjoy a wide -- bringing a wide portfolio to the old customers, we want to replicate that in the aftermarket as well. And that is the second strategy, which we are clearly working upon.

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

Sir, one of the questions on margins. You did mention that expos and aftermarket will help your margins. Could you kind of give a sense on maybe if you could just rank the key segments that you have in terms of the order of higher margins, like expos aftermarket followed by some of the other segments? Could you just give a sense of which are the segments with the highest margins and probably the ones with the lower one?

Very difficult for us to spell out or sequence our sectors into highest and lowest margins. But yes, we can certainly confirm that the margin improvement was the result of the cost discipline, countermeasures and the revenue mix. And we will reduce -- but also, there are sectors where we have high margins, low margins, depending upon the risk in that sector. So it would be very -- it would, in my opinion, not be appropriate to raise the sectors in terms of margins, highest to lowest, but yes it is obvious that aftermarket margins are better than -- that's the standard way of looking at the sector. But that's the main difference for the margin improvement.

Right. And like despite increase in, say, traded products like now you've started shock absorbers as well. So you think this margin profile of the aftermarket will continue to remain strong?

Yes, yes, that's right. That would continue. Because we offer solutions, right, which are very progressive and actually, that is going to add value to the offerings that we are providing to the market.

Right. Right. Understood that. And just my second question is on railways. I think last quarter, when you had given a commentary on various end markets, you kind of called out that railways are still quite weak. I just want to understand, is there any change there in the outlook for railway segment?

There are 2 things here. One railway is the tendering business, as you know. So as the tenders come out, we would be able to create [indiscernible] as well. And fortunately for us, in the Q4 of 2021, some centers did come up, we were able to test them as well. So we definitely saw almost a 9% growth in the railway sector compared to the preceding quarter. But yes, we do have some gaps in our product portfolio. And currently, our products are still going. They have very long organization lead times. And currently, we are going through that process, but we have a clear strategy to get that very soon. And you will see that our annual business definitely will start to play over the whole -- entire [ length of service ].

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

Congratulations on a great set of numbers. A couple of questions from my side. Firstly, on the CAFE 22 norms, if you can highlight your content per vehicle, how that will get impacted, which is at EUR 40. And when guided earlier, it will be between EUR 50 to EUR 52 going forward. Does the target change materially with the CAFE 22 norms coming in? Or what is that guidance given? Or if anybody can share 1 or 2 examples of new products, that will be helpful.

Okay. First and foremost, to answer your question on the content vehicle. As I mentioned earlier, we already moved to gasoline [indiscernible] portfolio, which is now dominating almost 85% to 87% of the market in gasoline, and we are already there. So having said that, our product offerings definitely are already conforming to the current emission standards that have to be met, and we will continue to go as the [indiscernible] come in as well. So what we see is our content per vehicle -- content per vehicle is expected to grow going forward, yes. And currently listing only on the IC engine portfolio, correct? And while this is happening, we are also looking at opportunity to grow in the CV segment, where 2-wheelers are not very focused, but we have increased our focus, and we see some good growth story going to come in the near future as well. So continue to relocate grow and the current portfolio, what we have would we need [indiscernible], which we have the capability to as we move forward, and we will do that. Less real estate is another bargain where the company in would dramatically go up, but the volumes still has to come into the Indian market for us to play the game on the passenger vehicle side of electric vehicles.

So one clarification. There was -- that's exactly EUR 52 4-vehicle number is sustained? Or will you up that guidance given these norms start coming in?

It will sustain. We will continue to sustain this.

Got it. Second question was attaining to the industrial mobility segment. We saw a very strong growth year and particularly railways, which is a key part of the segment, you mentioned has not grown materially or there is still some weakness. So if you can highlight the key components, what are there in that particular subsegment, which has shown the strong growth of 33% on a year-on-year basis.

I would like to start by first classifying the railway into two, one is the pure railways and second is in metros. Okay? When you look at the city metro trains, our position is very strong. We have a good growth story to tell. Where we have to do still some works on the trains, particularly on the passenger, the commuters as well as the train things that is a lot more is happening due to the government trying to bring down the logistics cost as a percentage to the [ delivery ]. Clearly, the train cars are the focus area, and that is where we are looking into how do we play the role as well. So we are working on some of the projects, key projects for the railways as well to come back into the green. But metros, we already are strong and we would like to consult it and continue to build on that position there.

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

Wonderful performance from -- you've been doing. If I may start with exports, you did talk quite a bit on that. Sir, if you look ahead into 2 years, can portfolio become INR 1,000 crores, INR 1,200 crores kind of an annual portfolio? Or if you think in terms of our revenue mix, can this start contributing [ 15% ] of your revenue mix? And last, CapEx, do we also -- are the lines that we are investing specific for export product lines or these lines tangible between export and domestic, depending on how the demand goes. That is my first question on the export side. I'll come back with another one on CapEx here.

Yes. So good question. As far as exports are concerned, we already sort of talked about that. We would focus on investing for the products, which are actually export and which are actually required to be focused for the exports. So our CapEx goes definitely for exports. But our equal focus as far as CapEx is concerned is also for the domestic market and domestic requirements, and we have laid out about INR 1,000 crores of CapEx over 3 years as we already announced last year. This year, there was a sort of a CapEx we had targeted, and we are a little short there. There is little over into next year. So we would ensure that next year, which is the current year 2022 calendar year, some increase in CapEx we are planning. But with that, yes, I do confirm that our focus to spend and to invest appropriately to the future really will continue to be there, both for the domestic market as well as export market. And when I say domestic market, it is not only get extending or expanding the capacity, it would be more of a consolidated CapEx because we want to actually increase the footprint of manufacturing and localization. So localization is equally a focus area. We said localization below 70%, we are now 75% and we are targeting to exit 78%, 79% in that range for localization. So CapEx goes for all these sort of areas, and that will continue to remain. Your second part of the question was regarding the mix of the exports. I would request Harsha to take up that.

Sriram, just to give you another perspective on the investments we are making for exports. The products which we introduced here and export all over India, as you know, India [ clearly ] leads those products. And currently, we have been importing them. So the investments we are waiting for the export market, what could happen is, obviously, we will become more cost competitive by making the products here. We have to see the need as well. So we see a real advantage here. One is to capture the spot market and grow the market and also become -- leverage the cost competitiveness and gain more market share within India as well. So it helps to both.

And directionally, can this export portfolio touch INR 1,000 crores to INR 1,200 crores per -- on an annual basis...

Difficult to actually sort of spell out, but we are expecting the improvement in the mix. So export was around 10%, 11%, now 13%, 14% and likely to improve further.

[Operator Instructions] The next question is from the line of Sachin Maniar from InCred Research.

Congratulations on good numbers. So within the industrial portfolio, as you highlighted that industrial within mobility has grown by almost 40% in Q2. But within other segments, that has been down by 37%. So can you say which are the laggards in this quarter and which was one of them? And what is the -- going forward, how the win market in the way it is going. That's my first question. And how is the share of industrial aftermarket and for the full year CY '20? That's my first question.

Okay. Sorry, Sachin, the first part of the question was not very audible. If you can repeat that, please?

Yes. So as I say, in the industrial segment, within the mobility has grown by 40% Q-o-Q, but the industrial segment within other segments has -- they grew by almost 37% Q-o-Q. So which are the laggards which has impacted this quarter on the Industrial segment? Is [indiscernible] was one of them?

Okay. I think I would like to just make -- clarify here. For example, one of the sectors for us in Schaeffler, which have been strong in growth in the correct, and we have seen a growth over the previous year, almost an extent of 116%, very strong growth there, yes? And another sector also, which has grown is the industrial automation sector, we are almost 100% growth we have seen there, phenomenal growth.

Year-on-year growth.

Year-on-year growth. And also, when you look at industrial aftermarket or the distribution part of the business where our clear strategies are in place to grow that. There again, we have grown phenomenally much higher, in double digits. So clearly, the non-mobility sector as well has shown strong growth, particularly in some -- yes, one of the factors where we stand definitely better is on the railway, which is the mobility sector, of course. Even the raw material sector, we have definitely seen a double-digit growth rate in our business performance as such.

Okay. And sir, can you break up the auto part into engine, transmission and for the full year in CY '21?

You mean the growth or the mix?

Mix, sir.

Mix will be about, within automotive, I think -- yes, just a moment.

Okay, Sachin, to answer to your question, if you take the automotive application, we normally classify them as engine system, transmission system and chassis system, correct? And if you take -- the engine system comprises almost close to 14%, 15% of the total business we do. And the transmission system, this is at a [ contained ] level. So out of the total company business, chassis is about 13%, 14%. And if you take automotive, it would be almost developed, it's about 25%. And the transmission is about 25% of the total, yes. And the chassis system comprises roughly about 6%, 6.5% of the total automotive.

Okay. Sir, just last one, what is the share of win for the full year in [ oral ] revenue, sir?

Share of?

[ Wins ].

Share of [ win ]. In the total [indiscernible].

Ladies and gentlemen, due to time constraints, that was the last question for today. I now hand the conference over to Mr. Gauri Kanikar for closing comments.

Thank you, Margaret. Thank you, everyone, for joining us today. If you have any further queries, please do reach out to me on www.schaeffler.com. With this, we conclude the call. Thank you, and have a good day.

Thank you. On behalf of Schaeffler India Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.