Exports a stumbling block for Schaeffler India?
A slowdown in exports over the past few quarters has been a chief concern for Schaeffler India Ltd’s investors. In the December quarter (Q4CY23), exports were 11% of revenue, the lowest in at least two years. The company follows the January to December financial year. Sure, exports constitute a small portion of revenue now, but the growth in overseas markets is crucial for Schaeffler’s revenue growth going ahead. “Exports have relatively higher margins as compared to domestic business, it helps expand distribution reach, and optimizes capacity utilization, making it a significant growth driver,” said Abhishek Gaoshinde, analyst at Sharekhan by BNP Paribas.
The overseas markets saw some strong headwinds in Q4, and Schaeffler expects these challenges to persist. During Q4, exports fell by 36% year-on-year due to slackening economic growth in Europe and China. Demand began to slow in the overseas markets with the Ukraine war, and the conflict in Israel added to the woes. A significant portion of the company’s exports is to Europe, with some also going to China, Schaeffler said in its earnings call. While the company hopes for a better Q1CY24 on the exports front, it also added, “We will have to wait for another couple of months to clearly know what direction this is going to go.”
Centrum Broking estimates headwinds for exports to continue in 2024 and optical growth to come in the second half of the year led by a low base. Given the weak demand trends in Europe and China, Schaeffler plans to explore South-East Asian markets such as Indonesia, Vietnam, and Thailand to de-risk the export business and enhance the capacity utilization. Besides, adverse sales mix impacted margin. In Q4CY23, consolidated Ebitda margin fell to 17.3% from 19.2% a year ago. Though, new products and rising localization are seen driving improvement in margin.
On the bright side, Schaeffler stuck to its capital expenditure plan of ₹1,500 crore for 2023-25, which shows that the management is keen on seizing long-term opportunities. Moving forward, deteriorating global outlook and uncertainties may disrupt supply chain, leading to higher costs. Besides demand revival and scale up in exports, new product launches should be monitored. For now, investors seem to be cautious. The stock has fallen by 2% in the past one year vis-à-vis the 65% jump seen in the S&P BSE Capital Goods index.
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Published: 25 Feb 2024, 03:07 PM IST
Ganesh
http://ganesh@finplay.inFinance enthusiast, Mutual fund expert.