‘The efficiency of the internal combustion engine can continue to be enhanced using new technology solutions.'

The CEO and managing director of Schaeffler India, who took over the additional responsibility as the MD of FAG Bearings India earlier this year, speaks to Amit Panday about the Schaeffler India Group of companies, its expansion and investment plans across manufacturing and R&D operations, strategic restructuring and the new focus areas under emerging opportunities. 

How has Schaeffler India fared in the April-November 2017 period? Is it on cue for consolidated revenues of over Rs 3,600 crore in FY2017-18?
On a consolidated basis, the nine months’ (January-September 2017) total income (net) stood at Rs 2,973 crore, which is higher by 11 percent year on year. Our recent quarter-on-quarter growth was higher by 7 percent, backed by solid performance in the automotive markets – passenger cars, commercial vehicles, tractors, two-wheelers and our distribution business.

We had witnessed some uncertainties due to GST implementation but the company has delivered good growth in a challenging environment. We see a potential of upwards of double-digit growth, given our past performance.

All Schaeffler-made products go into a vehicle's powertrain and drivetrain. 

What is the annual turnover of the three entities within Schaeffler India — FAG Bearings India, INA Bearings and LuK India — and where do they stand in terms of market share and competition?
Schaeffler is well represented in India by three entities – Schaeffler India (formerly FAG Bearings), LuK India Pvt Ltd (LuK) and INA Bearings India (INA). For CY2016 ended December 31, Schaeffler India, LuK and INA revenues stood at Rs 1,814 crore, Rs 729 crore and Rs 1,041 crore respectively.

Over a period, we have successfully grown from a components manufacturer into complete components and integrated systems supplier by leveraging the collective strengths across our range of products and our strong product brands – LuK, INA and FAG. We are leading suppliers of a wide range of ball and roller bearings, needle roller bearings, engine, transmission and chassis components and a wide range of clutches.

Combining our diverse product presence, we are well positioned across the high growth automotive and industrial segments that enable us to offer complete systems and solutions for our customers.

What is the split between the business from automotive and industrial sectors for Schaeffler India? Is this split between the two verticals likely to change in the future, given that the auto sector is now opening up with several new mandates including BS VI norms?
Revenue for the combined entity in 2016 was split at 47:53 for automotive to industrial business. Our product range is very diverse, offering complete systems and solutions for our customers in the industrial and automotive markets. Particularly for the automotive industry, our product range includes components and systems for conventional internal combustion engine as well as hybrid and electric vehicle applications. India has announced the implementation of BS VI norms by 2020 and soon it will adopt CAFÉ (Corporate Average Fuel Efficiency) norms, which require cars to be more fuel efficient.

It is our belief that the efficiency of the internal combustion engine (ICE) can continue to be enhanced using new technology solutions. Schaeffler has the necessary technologies and solutions available to have a profound impact on helping engines to consume less fuel and comply with increasingly stringent performance and emissions standards. For example, we have developed a technology demonstrator car that takes a popular sedan and applying our range of technical solutions, we have achieved a 10 percent fuel efficiency improvement.

We will continue to invest and develop capabilities to provide technical solutions across sectors including automotive emission reduction, e-mobility, transmission automation, railways, wind, steel and infrastructure and more. 

What are Schaeffler India's R&D expansion plans and investments earmarked to execute the same?
In the past three years, Schaeffler has invested about Rs 145 crore each year in India. We particularly see big opportunities in the areas of automotive including two-wheelers, agricultural tractors, wind energy, railways, steel and other infrastructure-related sectors. Going forward, we are doubling our investment into the India market from next year onwards.

How much will the company invest in the expansion program in Pune? By when will the two new upcoming facilities (manufacturing and R&D units) at Talegaon commence operations?
Last month, we announced the expansion of our operations at INA Bearings in Talegaon, Pune. The expansion will include a new manufacturing facility and a new R&D facility within the existing premises. We are investing Rs 200 crore for this expansion. The new production facility will be operational by the end 2018, and will manufacture engine and transmission components, serving the domestic and exports markets.

The R&D facility, that will be operational by mid-2018, will focus on enhancing product development and engineering capabilities driving innovation for customers. The Pune plant, currently running at full capacity, employs 700 people and with the new facility it is expected to generate additional employment in the future as our operations grow.

What new products and product verticals does Schaeffler plan to add to its existing manufacturing portfolio at Talegaon, once the all-new facility starts operations?
Our manufacturing plant in Talegaon manufactures needle rolling bearings for automotive and industrial applications, precision parts for automotive engine, transmission and chassis systems under the INA brand. As a supplier of innovative products, INA provides solutions like valvetrain systems, belt and chain drive systems, transmission synchroniser systems and other parts that help improve fuel efficiency, reduce emissions and make powertrains more efficient.

With a very wide customer base ranging from industrial to automotive customers, including two-wheelers, INA is synonymous with efficiency and powertrain technology. We will expand our existing product lines and look at introducing newer technologies for engine and combustion management as the technology curve shifts with introduction of the new efficiency norms.

Is Schaeffler India looking to drive innovation at its all-new R&D unit at Talegaon? Will it cater to off-shore projects too?

Technology innovation and quality form the basis of our components business. As needs are evolving, we have invested into building systems solution approach in addition to the components. We are integrated with our global technology centres.

In Maneja (Vadodara, Gujarat) we have the Schaeffler Technology Centre, which primarily addresses all our industrial customers with bearing applications selection, product development and condition monitoring services. On the automotive side, Pune is the main centre of development for engine and transmission systems, while Hosur is focused around clutches. They work very closely with our HQ and other development centres around the world, depending upon the area of competence and expertise.

Additionally, in India we are also developing a global competence centre of expertise for two-wheelers up to 250cc motorcycles and agricultural vehicles like tractors and other equipment. For us, the most important thing is to be closer to the customers and add value by providing faster and sustainable solutions.

What are the key reasons behind the ongoing restructuring within Schaeffler India? You have recently taken up additional responsibility as the managing director of FAG Bearings India, and INA Bearings and LuK India are in the process of being merged. What key changes do you foresee once these two entities will/are merged? 
Schaeffler India (formerly FAG Bearings India) was incorporated in 1962. In 2002, FAG brand became part of Schaeffler Group joining INA and LuK to form a strong global network. INA Bearings India was incorporated in 2001; LuK India started its business in 1997.

Over a period, we have also successfully grown from a components manufacturer into a complete components and systems supplier by leveraging the collective strengths across our range of products and our strong product brands. Going forward our strategy – mobility for tomorrow – can be realised by implementing the ‘One Schaeffler’ principle.

We have been operating under the three product brands as three different entities. The merger is a logical step forward to simplify how we operate as an entity versus how we are structured. The whole idea behind the merger was to bring all the three entities under one single listed entity named Schaeffler India. There won’t be any change in the product brand names of FAG INA and LuK, but all the three will function under a single umbrella brand name of Schaeffler. This will:

 Create a leading solutions provider in the Indian automotive and industrial markets and raises the corporate profile of the listed company from a component supplier with a single brand to a system/solutions provider.

 Establish a diversified product presence across the high growth automotive and industrial segments with a relatively equal revenue split between the two master segments and access to new customers.

 Enhance the financial profile given the superior growth and margin of the unlisted companies.

 Establishment of an efficient and lean corporate structure to streamline processes and synchronize efforts to strengthen our presence across brands.

On November 27, 2017 Schaeffler India held the groundbreaking ceremony at INA Bearings in Talegaon, Pune, in the presence of Schaeffler AG’s global automotive leadership team. The expansion will include a new manufacturing facility and a new R&D facility. 

What are the new emerging opportunities in India that Schaeffler is keen to tap into?
India is one of the fastest growing markets in the world. It's a good thing we recognised the opportunities early enough. For example, we have been operating in India for more than five decades. We have a strong local organisation that is well integrated and supported by the Europe region. Last year the country did business close to Rs 3,600 crore and is growing. With a very progressive government in place and long-term growth forecasts for the country, we remain very bullish of our opportunities. In 2012, we opened up our fourth plant in the country in Savli and expanded our Hosur plant. We are further increasing our capital allocation to the region and already announced our plant expansion in Pune. We particularly see big opportunities in the country in areas of automotive including two-wheelers, agricultural tractors, wind energy, railways, steel and other infrastructure related sectors.

Schaeffler is regarded among the leading specialists in products that contribute to the reduction of CO₂ emissions and help protect the environment. The innovative and lightweight design of Schaeffler-made parts gives significant advantages in terms of space, weight and fuel consumption, such as bearings, lightweight differentials and others.

Our product range offers maximum benefits to our customers – an extended operating life of their vehicles via highly-developed components and assemblies with durable materials; reduced fuel consumption and increased cost-efficiency through weight-optimised products and systems. Friction reduction by targeting stringent performance and emission norms being offered as well as weight reduction and improvement in NVH. Smart bearing solutions that help in condition monitoring is another area of new technology development.

What is your outlook on the growing market for automatic transmissions in India? How, according to you, do passenger car OEMs see this trend and how aggressively is Schaeffler looking to tap or drive this demand?

Our current forecast shows transmission automation is likely to reach 15 percent penetration by 2020. This conditions, and, according to our study, for most consumers the biggest pain-point is constant clutching and de-clutching and not changing gears.

What will be the impact of electrification of vehicles on Schaeffler's existing bearings business?
It is certain that we will start seeing the electrification of vehicles in the coming times. The pace of change would depend on many factors, including infrastructure, affordability of vehicles and for the ecosystem to respond. Our view is that by 2030, 30 percent of vehicles will still be having IC engines while another 30 percent will not have an engine at all – it will be completely battery operated. However, 40 percent will have both, engines as well as electric motors.

We have solutions for the full range of electrification, starting from P0 (mild hybrid) to P4 (electric axle). We are already working with global manufacturers in Europe and China to provide advanced solutions for fully electric vehicles and hybrid technologies and as India adopts the technologies, we are ready with our solutions for our local customers.

Is the company following some five-year (or 2020 or 2025) roadmap for its India operations? 
Schaeffler, with its global strategy of ‘Mobility for Tomorrow’, is establishing the course for future sustainable and profitable growth. The entire strategy is developed by keeping in mind the growing customer demands in all forms of mobility. The strategy is based on four highly important megatrends- climate change, urbanization, globalisation and digitalization. The company’s attention is centred upon eco-friendly drives, urban mobility, inter-urban mobility and energy chain. Schaeffler is progressing towards all the four focus areas through its research and development activities and is also playing a crucial part in the field of innovation and technology.

We have a strong local organisation that is well integrated and supported by the Europe region. Over the next three to five years, we will continue to invest in expanding our plant capacities and product lines and also get prepared for our future businesses. We are going to invest in our distribution network and all the logistics areas which will provide us substantial benefits in the long run.

(This article has been published in Autocar Professional's December 15, 2017 Anniversary Issue)