Shift towards motion technology may brighten Schaeffler India’s prospects

The transition involves broadening its manufacturing to include e-motors, e-drivers, hydrogen stacks and plates, apart from repairing and monitoring services. It also plans to emphasise localisation and bolster its presence in India by expanding capacity.

“Schaeffler should be able to tap into the value-added segment of motion technology and sustain revenue growth as well as margins,” said analysts at Nuvama Institutional Equities after visiting the company’s Savli plant in Gujarat. The plant manufactures half of the company’s total industrial volumes, contributing 12-15% of overall exports, Nuvama highlighted.

Concerns around a slowdown in exports have dampened investor optimism, and Schaeffler’s stock is up only 11.6% so far this year. “Even as exports form a small portion of the pie, rise in exports has been a key growth driver for Schaeffler, given it is a dominant player in the domestic bearings market,” said Abhishek Gaoshinde, deputy vice president – research, Sharekhan by BNP Paribas. The company’s exports are likely to recover gradually.

In the nine months to September, export revenue fell by 6% year-on-year. The company follows a January-to-December financial year. In Q3, export revenues tanked by 21% year-on-year and their share in the sales mix dropped to 12%. The slowdown in exports was mainly driven by the economic and geopolitical situation in Europe (which accounted for 42% of its exports in 2022).

Moving forward, domestic and export demand will be observed closely, apart from the company’s progress in the high-value electric vehicle business and on localisation. Schaeffler’s after-market business is another key variable to track.

Another reason investors are confident is that Schaeffler is diversifying its product range to meet rising demand, particularly in sectors such as wind and railways. The company has stuck to its capex target of about ₹1,500 crore by 2025.

The stock is trading at 46 times its estimated 2025 earnings, which is certainly expensive, said Sameer Panke, analyst at Centrum Broking. “Considering that the company is facing medium-term challenges in exports and certain segments of the domestic business, and the fact that Schaeffler has already undergone a rapid rerating in the past three years, the potential for further upside seems constrained,” he added.