Fundamental Analysis of Schaeffler India: The next time you have the opportunity to visit the car service center, either for your vehicle or a friend’s, try to observe how they work on the car. I’m not talking about the way they clean the windshield or wipe the dashboard, but the engine work.
You’ll find multiple parts that go into the making of the car engine – the engine casing, clutch plate, ball bearings, pistons, transmission, and so on – All of them imperative to keep the car operating smoothly.
To the average car owner, it looks like a complex, greasy jigsaw puzzle. But to the company we’re going to analyze, it looks like business. In this article, we’re going to try our best and conduct a fundamental analysis of Schaeffler India.
Company Overview
Schaeffler India is a subsidiary of its German parent, the Schaeffler Group. They started operations in India as early as 1964. The company’s products are sold under its brand named FAG.
It is an automotive ancillary company, manufacturing and supplying crucial vehicle parts to Original Equipment Manufacturers, PSUs, and SMEs. Their products are for passenger vehicles, commercial vehicles, tractors, railways, two-wheelers, and industrial automation.
A quick glance at the company, from a geographical perspective, shows that the company has a vast retail network of 33,000 and 330 distribution and supply partners. The parts made by the company are from four domestic plants, located in Hosur, Pune, Maneja, and Savil. They also have three R&D centers and eight sales offices in major manufacturing states in India.
Fundamental Analysis of Schaeffler India – Industry Overview
The automobile components industry is sized at $57 billion in India, with exports of $15 billion. The growth of the industry is completely driven by the rising demand for vehicles, both EV and fuel-based. By 2025, at least 4 million EVs will be sold each year, climbing to 10 million EVs annually by 2030.
At least 25 percent of the auto components produced in India are exported annually. There are various cost advantages for Indian manufacturers, such as the low cost of steel, large competitors with a bigger scale of manufacturing, and also with India being the 2nd largest producer of steel in the world.
The auto components sector is responsible for 2.3 percent of the Indian GDP and employs 1.5 million people directly. By 2026, this figure is expected to more than double to 5-7 percent. Companies like Schaeffler India are expected to benefit from the growth and expansion of this industry.
Fundamental Analysis Of Schaeffler India – Financials
Unlike most Indian companies, Schaeffler follows the calendar year format of financial reporting, meaning their annual reports cover financials from January to December, unlike the regular April to March format we are used to.
A sector-wise breakdown of their annual sales shows that 39 percent of their revenues come from the automotive technologies segment, making it their highest revenue-generating source. In 2nd place is the industrial segment, accounting for 35 percent of revenues, and the remaining revenue is split between exports and others (17 percent) and the automotive aftermarket (9 percent).
Revenue & Profits
| 2018 | 2019 | 2020 | 2021 | 2022 | |
| Sales | 4,562 | 4,361 | 3,762 | 5,561 | 6,867 |
| Operating Profit | 740 | 635 | 537 | 973 | 1,296 |
| Net Profit | 632 | 534 | 397 | 843 | 1,177 |
For CY 22, the company reported revenues of ₹6,867 crores and net profits of ₹879 crores, the company’s highest ever in its operational history. The company also has an improved OPM of 19 percent. Five years prior, in CY 18, the company made revenues of ₹4,562 crores and ₹420 crores in net profits. The company has reported a positive 5-year CAGR EBITDA of 11.5 percent.
Profit Margins
| Year | 2018 | 2019 | 2020 | 2021 | 2022 |
| Operating Profit Margin | 16% | 15% | 14% | 17% | 19% |
| Net Profit Margin | 9.20% | 8.43% | 7.73% | 11.31% | 12.80% |
A 5-year overview shows that the company, while consistently increasing revenues, has also improved its operating profit margins from 16 percent in CY 18 to 19 percent in CY 22. Even net profit margins have grown steadily over the years, as shown in the table.
Dividends History
| Year | 2018 | 2019 | Dec 2020 | Dec 2021 | 2022 |
| Dividend Payout Ratio | 22% | 30% | 41% | 8% | 43% |
| Dividend/Share | Rs. 30 | Rs. 35 | Rs. 38 | Rs. 80 | Rs. 24 |
Dividend investors have ample reason to cheer, as the company has maintained a healthy dividend payout. They have graciously doubled its dividend payout from 22 percent to 43 percent in the 5 year period. This falls in line with the company’s target dividend payout ratio of 30-50 percent of the annual standalone PAT (Profit After Tax). Schaeffler India had declared a dividend of ₹24 per share for CY 22.
Returns Ratio: ROE & ROCE
| Return Ratios | 2018 | 2019 | 2020 | 2021 | 2022 |
| Return on Equity (%) | 15.51 | 12.41 | 9.26 | 17.21 | 20.51 |
| ROCE (%) | 24.79 | 17.89 | 12.42 | 22.83 | 26.87 |
Here are the return ratios of Schaeffler India in the past 5 years. The company’s latest ROE of 20.5 percent, from CY 21’s 17.2 percent, is a slight increase, especially considering the macroeconomic factors of the global economy at the time. Given that the company is entirely debt-free, it should come as no surprise that it also has a very high ROCE of 26.8 percent, indicating efficient use of capital.
Debt To Equity
| Ratios | 2018 | 2019 | 2020 | 2021 | 2022 |
| Debt to Equity | 0.02 | 0 | 0 | 0 | 0 |
| Interest Coverage Ratios | 96.87 | 155.07 | 76.80 | 284.45 | 368.50 |
Schaeffler India had very little debt in FY 18, and that has transitioned to virtually zero debt over the years. The company has also greatly improved its interest coverage ratio in the past 5 years, taking it all the way to 368.5 in FY 22. This should come as no surprise, given that Schaeffler is debt free.
Future Plans Of Schaeffler India
Schaeffler is committed to being a part of India’s green energy plan of reducing carbon emissions by 45% by 2030. The company has taken initiatives to manage waste better and is expected to make the necessary adaptations to the EV industry boom. They expect to be carbon neutral by the year CY 2040 across the entire supply chain.
Coming to the CAPEX plans of the company, they are seeking to invest ₹1,500 crores in the next three years. In CY 22, the company invested ₹499 crores in CAPEX, while focusing on exports and domestic growth.
The company also plans to expand its Savli, Vadodara plant and invest ₹300 crores to implement sustainability and advancement at the Hosur Plant.
Key Metrics Of Schaeffler India
Here are some of the key metrics of the company, as of April 2023.
| Current Price | ₹ 2,993 | Market Cap | ₹ 46,778 Cr. |
| EPS | ₹ 56.2 | Stock P/E | 53.9 |
| ROCE | 29.0 % | ROE | 21.9 % |
| Promoter Holding | 74.1 % | Book Value | ₹ 274 |
| Debt To Equity | 0.01 | Price To Book Value | 10.9 |
| Dividend Yield | 0.79 % | Face Value | ₹ 2.00 |
In Closing
With the Government Of India incentivizing the sale of EVs in India, companies like Schaeffler are expected to ride the wave and benefit from the shift. Over a 5-year period (Apr 2018 to Apr 2023), the shares of Schaeffler India have given a very positive and gratifying return of 185.8 percent approx, close to multiplying investor’s wealth by a factor of two.
That’s all for the fundamental analysis of Schaeffler India. Let us know what you think about the company, and as always, Happy Investing!
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