Schaeffler India Limited

Company Indexing & Ranking

Equentis Scale

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Below Avg. Avg. Good Very Good Excellent

Sr. Rating
Remarks
No. (Score)

Overall score 4.71

1 Financial Ratios Index – (refer note below)
Past 5yr Revenue CAGR of 6% 3
Past 5yr EBDITA CAGR of 11% 4
Past 5yr PAT CAGR of 9% 3
RoCE: 18% in CY17 & Past 5yr Average RoCE of 17%, ranging from 15% to 19% 4
RoE: 15% in CY17 & Past 5yr Average RoE of 15%, ranging from 13% to 17% 4
D/E: Schaeffler is a debt-free company 5
Free Cash Flow Generation: Between CY12-17, FCFF Cumulative FCFF over the period has
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been Rs. 6.7bn with no negative FCFF

2 Management Pedigree Index

Ownership: Promoters: Promoter shareholding has been maintained at ~51% over past 15 yrs
with a recent increase to 74.13% after amalgamation with subsidiaries 5
Ownership: FIIs & DIIs: Institutional ownership in the stock is more than 17%. FIIs currently
own over 2.7% in Schaeffler while DIIs own 14.7%. Shareholding includes several Mutual 4
Funds, a FPI and Insurance Companies.
Promoter Shares Pledged: NIL 5
Key Management Profile: The company is run by professionals who are veterans in the
bearings industry. Recently, the company saw a change of guard at the helm, where the
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President and CEO of Schaeffler group (India) was appointed the new MD of Schaeffler
Bearing.
Track record towards Capital Discipline, Acquisitions, Capital Expansions 5
Track record towards Accounting Disclosures & Corporate Governance 5
Track record towards Business Risk Diversification & Mitigation 5
Rewarding & Protecting interests of Minority shareholders 5
Business foresight & Prudence – successful scale up of operations 5

3 Opportunity and Growth Index

Earlier last month, Schaeffler India announced that the filing of the merger order of its group 5
entities INA Bearings and LuK India with itself with the RoC with the merger process
expected to be completed by Q4CY18. The merged entity is likely to emerge as a larger
automotive and industrial supplier with combined revenue and profitability (CY17) of
Rs.40,216mn and| 3,896mn., respectively, with diversified product offerings across high-
growth automotive and industrial segments.

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 Schaeffler India Limited
Company Indexing & Ranking

Sr. Rating
Remarks
No. (Score)
The merger will result in revenue and cost synergies due to bundling of product offerings, 5
leveraging of distribution networks and reduction of overhead costs in sales, marketing,
distribution and admin functions.
Schaeffler India will add to the high‐growth attractive automotive business as currently it 5
accounts for 70% industrial and 30% auto sales versus 40% auto and 60% industrial sales for
the group.
Post-merger, in the bearings space, Schaeffler India’s range will expand to include needle 5
rollers, linear rollers and precision spindle bearings.

4 Stakeholder Satisfaction Index

Creditors: Creditor days have been maintained at an average of 68 over past 5 years. 5
Debt-servicing: Company is debt free. 5
Minority Interests: Dividend payout has averaged at 8.4% of PAT over past 5 years. Company
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has consistently paid dividend over past two decades.
Employees: The company has not issued any ESOPs. The top management has been associated
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with the company for more than 15 years.
Regulatory: There are no pending litigations or criminal cases against the company or any of
its promoters. The company has proper Board-processes and compliance mechanism 5
In-place.
Auditors: Nil auditor qualifications 5

5 Threat Management
The merger will result in revenue and cost synergies due to bundling of product offerings,
leveraging of distribution networks and reduction of overhead costs in sales, marketing, 5
distribution and admin functions.
Competitive dynamics: Competition in the bearings sector in India is limited to the top four
companies with other players being marginal in size or having poor quality. Also, among the
four players, each one has its own competitive niche in which it faces limited competition from 5
peers. In case of Schaeffler, its niche products are cylindrical and spherical bearings in which
it enjoys a 40% market share in India.
Regulatory risk management: The fortunes of the sector are linked to those of the automobile
sector and several industrial segments such as power, mining, railways, cement, steel, roads,
etc. Any policy changes in these segments would impact the bearings industry. However, 5
companies try to offset the impact (to a certain extent) by concentrating on exports and
aftermarkets at lean times.
Note – FY18/CY17 numbers were depressed in-line with the overall industry demand; as a result, 5yr and 3yr
CaGRs look weaker. We continue to maintain our high conviction on Schaeffler being most suitably positioned
to benefit from overall improving GDP growth and macro outlook.

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