The foundation for the Schaeffler Group was laid in 1946 with the founding of Industrie GmbH by brothers Dr Wilhelm Schaeffler and Dr-Ing E.h. Georg Schaeffler, but the real rise began in 1949 with the invention of the needle roller bearing cage by Dr Georg Schaeffler. The company has since come a long way to become a leading automotive component and system solutions supplier to the global automotive and industrial sectors. We recently caught up with Dharmesh Arora, CEO Schaeffler India, to get a deeper perspective on the company’s business in India.
As the CEO of Schaeffler India, Dharmesh Arora is responsible for Schaeffler’s entire operations in India that includes automotive and industrial businesses. He began his career as a product engineer with Maruti, following which he joined General Motors and worked in product engineering, supply chain and purchase. He held key senior management and global leadership positions at GM in India, Thailand, Mexico and USA in a career spanning over two decades, prior to joining Schaeffler in 2012. A mechanical engineer from the University of Mumbai, Arora holds the prestigious TRIUM Global Executive MBA degree from Stern School of Business, NYU; London School of Economics and HEC Paris. Born in Ahmedabad, Arora resides with his family in Pune and in his spare time he enjoys travelling, photography and tennis.
ATR _ Schaeffler India will be a merged entity by August this year. What does this mean for the company?
Dharmesh Arora _ In India, the company has been operational for the last 50 years, when FAG set-up business in Baroda. LuK and INA came to India about 15 years back and since then we’ve been operating as three different companies, and have been going to the customers as three different entities. That clearly needed to change. With the merged entity, we’re able to bring all our capabilities together and offer them a complete systems solution.
It’s primarily a customer centric solution. For our shareholders and stakeholders, we’re bringing two unlisted entities – LuK and INA – into a listed entity, which let’s admit, doesn’t happen too often. We’re making a larger value available to our shareholders and investors to participate in our growth story. Schaeffler India Limited, which primarily is into industrial bearings, is now bringing in a lot of automotive components from the INA and LuK brands into its portfolio. The combined entity will have a very balanced portfolio; with almost 45 % of the business coming from the industry, and the remaining 55 % coming from the automotive sector. The company is becoming inherently stronger to weather any kind of downturns in the future.
Lastly, we are bringing in scale – 3,000 employees, four plants, in access of ` 4,000 cr in revenue and a combined market cap of € 2 bn plus. It will be counted as one of the largest automotive and industrial suppliers in the country.
Why is this the best time to integrate the three companies?
The companies came about at different times with different owners. I was hired in 2012 and one of the mandates given to me was to see how we’re synergising our operations in India. We’ve always worked as one entity since then. We implemented an organisational structure, wherein we could start going to the customer as if we were one company. This maturity has been coming about, but doing the legal merger really makes it easy – be it about issuing purchase orders, invoices or even maintaining our warehouses. Unless merged, we wouldn’t have been able to do away with a lot of these inefficiencies.
It creates value for every stakeholder, including our employees, customers, shareholders and suppliers. For our suppliers, for instance, they see a combined basket of products available to them to bid for. It’s a win-win for everyone. In fact, the group globally is looking at doing this at every place we operate in. The objective is to simplify the structure and be prepared for the future transitions with regards to the disruptive changes coming to the industry.
In terms of market coverage, how would the merger help?
Our business is very diverse and that’s really the strength. In automotive, we supply to every two-wheeler, four-wheeler, commercial vehicle and tractor manufacturer in the country, and our business extends to the railways and aviation sectors as well. Future growth would come from areas, where the country is highly focussed on, such as road infrastructure and railways in terms of safety, infrastructure, speed, building dedicated freight corridors and introducing metro and high-speed trains in several Indian cities. From a legislative perspective, we have BS VI, CO2 norms, CAFÉ norms, RDE – all coming upon us. Even the EV space would be of great interest to us, and we will be participating in what the government is pushing for. From a consumer behaviour perspective, automation of transmissions is picking up very fast, and that’s a great area for us to focus on.
What’s the focus on engineering and innovation at Schaeffler India? How much is the Indian company contributing to the group’s global work on R&D?
We have our pockets of excellence and are taking a few baby steps. We do 100 % of the bearing design and application work in India. Similarly, we are completely independent and self-sufficient when it comes to clutches. In everything else we are at various levels of maturity. Our intent is to bring in more maturity and competency to our operations. Currently, we have about 180 engineers working in the R&D space. Two of our R&D centres – in Hosur and Talegaon – are approved by the DSIR (Department of Scientific and Industrial Research), Government of India. We intend to continue to invest more in these centres, and increase the number of engineers and also bring in more capability. By 2022-23, our intent is to do all the engineering activities in the country.
We’re also creating IPs in India. Last year, we had 65 IPs that originated from India and 24 of them were filed for patents. Globally, Schaeffler registers about 2,300 patents every year, and it is one of the most innovative companies in Germany. Considering we have 24 out of those 2,300 coming out of India, I think we’ve made good progress. We also have good interest coming in from our colleagues globally, who are keen to look at what else we could do.
The modular hybrid system for two-wheelers is a fantastic innovation that the world could adopt?
Yes, absolutely. The idea originated here, and was 100 % conceptualised, developed, prototyped, benchmarked and tested by Indian engineers in India. The modular hybrid system offers the performance and fuel economy meeting customer expectations, while providing opportunities for minimising emissions to reduce negative impact on environment. We are now working with customers to make a commercial business out of it.
Talking about engineering challenges, how big a challenge is BS VI emission regulations for the company?
It’s something that the OEMs have a bigger challenge with. Being part of a global company, we do have solutions that we can bring to India. They need to be adapted to the Indian requirements, and that’s where our local Indian engineering inputs and capabilities become important. The local organisation is working very closely with the customers to localise and industrialise those products in India at a cost that is acceptable to the market.
Having products is one aspect, but to test them to suit the Indian market needs enough time. That’s one challenge a lot of companies face. What’s your view?
Typically, bearings go through multiple product programmes. Once a customer has developed and validated a particular solution for their existing business, they would probably carry forward those designs into the next generations as well. That’s a good thing because we don’t have to go through the iterative cycle too often. With regulations such as BS VI or electrification, the next generation of bearings will need to be able to address such concerns.
In the powertrain area – for the hydraulic lash adjustors or the valve train components we supply – they’ll also have some amount of carry over. Powertrains generally last longer than vehicles. As a supplier, we can’t miss the validation bus. Missing the cycle could mean missing the opportunity to be part of the powertrain for the next 10 years or more.
What’s your view on an EV future? Do you see a market for hybrids in the interim?
I do hope we have hybrids in the market. In our view, the path to full electric mobility passes through hybrids, and I don’t think we’re the only company saying that. Our aspiration as a country to go to electric mobility is clear, but I think we’ve reconciled to the fact that 100 % EVs won’t happen in India by 2030.
Schaeffler has a global view on this. We think, globally, by 2030, 30 % of all new vehicles produced that year will be full Battery Electric Vehicles (BEVs). Another 30 % that particular year will be pure internal combustion engines. The remaining 40 % will have both an IC engine as well as an electric motor, which is hybrid. We also call it a 70-70 view, depending on where you start from. In India, we’ll probably be behind that and it could be anywhere between 10-20 % EVs that year. Maybe that’s an optimistic view, but that’s a view we need to be prepared for as a responsible listed entity.
Despite the move towards EVs, ICEs have continued to become more efficient and cleaner, especially with mild hybrids coming in. So, ICEs still, arguably, are a good business case.
Indeed. Despite this 30 % view by 2030, the absolute numbers for IC engines produced globally every year will continue to grow until 2027, after which it would start declining. We still have nine years of continued growth in IC engines, and even thereafter, ICEs will remain a part of 70 % of the vehicles. ICEs still have a long life ahead, and will continue to be improved – efficiency will grow, emissions will reduce and we’ll continue to invest more money in developing solutions to make that happen, including in India. We’re installing new capacities to produce ICE emission-related components. Our efforts have always been to make ICEs inherently more efficient.
What’s the future roadmap for Schaeffler in India?
We are in the process of putting together our strategic roadmap for the next years and our intent is to grow better than we’ve done in the past. From the ` 4,000 cr we did last year, in Q1 2018, we have had a 17 % growth. Growth would come from all businesses we’re in currently – renewable (wind) energy is big for us, and so are railways, agriculture, aviation and automotive, of course.
TEXT: Deepangshu Dev Sarmah
PHOTO: Schaeffler India