Harsha Kadam
Dear stakeholders,
A year of major organisational changes at Schaeffler India saw us integrating as one brand. While we work together to fulfil our vision and achieve our goals as One Schaeffler, the year also had us demonstrate our resilience and agility in the face of an unfavourable macroeconomic environment and a weak demand scenario.
However, it makes me happy to inform you that we could round the year off with several good tidings, winning crucial projects with prestigious customers. The overall outlook, especially in the automotive sector, continues to lean towards being challenging. However, we have already taken strategic decisions to continue delivering growth. We will prioritise driving technological excellence, enhancing operational efficiencies and flexing costs further, while focusing on customercentricity by improving the quality and delivery of our products.
We continue to face a multitude of challenges that are contributing to weak demand. These include a sharp decline of average 12% in the automotive sector, a weakening of demand in the manufacturing sector, liquidity crunch at the heart of the NBFC sector and higher acquisition costs of vehicles, among others. The IIP growth too remained under pressure for most part of 2019. Essentially, consumer sentiment remains subdued and is unlikely to improve over the short term.
While the government continues to take measures to boost demand, the benefits are likely to accrue over the medium term. Some of the key measures taken include a cut in corporate tax rates, expediting of reforms in the banking and financial services sector and possible incentivising of scrappage scheme to dispose off older vehicles from the road, among others. However, the sustainability of the uptick witnessed in December is yet to be ascertained.
The industrial side witnessed growth, but not without challenges. Along with the slow consumer demand, the increased inflation continued to be a concern. Moreover, liquidity crunch at OEMs and end consumers continues to pressure demand. One silver lining is that the country experienced a healthy monsoon and as a result, we expect a boost in tractor sales.
With low demand impacting our revenues as well as our working capital management and capacity utilisation rates, we focused on managing our costs and optimising our operations for greater efficiency. We registered an EBIT margin of 11.2% for 2019, as compared to 13.4% for 2018, despite revenues witnessing degrowth of 4.4% y-o-y.
As our business is well distributed between the automotive and industrial markets, it helps to balance the growth. Thus, while the auto segment revenues witnessed degrowth during the year, the industrial business (particularly railways and wind energy) registered solid growth and offset the demand pressures. By actively ensuring efficient cost management, we have managed to protect our margins.
Customer centricity remains our priority, and we are improving our service offerings and increasing our reliability as well as relationships. We launched a mobile training van to equip mechanics with superior repair competency. We train them using video-based as well as live sessions. These units are helping to improve brand recognition and brand value across markets. During the year, we witnessed strong growth in the industrial aftermarket business on the back of enhanced reach in the rural markets, strengthened industrial distribution network and our continuous focus on launching new products in this space.
While we respond to the market scenario with resilience, we are also focusing on being agile. We are investing energetically into innovation and expansion. The planned capacity expansion at the Savli plant in Vadodara is progressing swiftly.
We are driven more than ever to deepen our relationships with our customers, understand their needs better, develop innovative products that will help make their businesses more efficient, and deliver with greater reliability to their consumers. On the automotive front, we are taking charge of leadership in technology, ably supported by our parent company’s capabilities in innovation.
In the automotive business, we are getting ready to cater to vehicles across categories – be it petrol, diesel or hybrids. Considering the magnitude of opportunity with India’s thrust on EVs, we are working to bring in our parent company’s expertise in providing highvalue offerings to hybrid and EVs.
2019 was a year of consolidation for us wherein we reaped the benefits of multiple synergies from the merger – particularly cost rationalisation and cross-pollination of ideas yielding to better creativity across the organisation. As we continue to make strategic investments, we will be well placed to tap the opportunities arising from a pick-up in the macro economy.
It is a matter of great significance to us that we continue to make huge strides in achieving our goals in the ESG space. A part of it is this Report, which marks the first step in our journey towards Integrated Reporting <IR>. We are happy to provide our key stakeholders with a comprehensive view of our business and value-creation journey through financial and non-financial parameters.
I would like to conclude with an expression of gratitude to our key stakeholders: our investors for their continued support; our Board and parent company for being a major source of inspiration; our customers and suppliers for their belief in us; and our bankers, business associates and our employees, without whom none of this would be possible.
Sincerely,
Harsha Kadam
