Ladies and gentlemen, good morning and welcome to the SKF India Limited's Q3 FY 2024-2025 earnings conference call. For the smooth conduct of the meeting, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. Should you need assistance during the conference call, please press star then zero on your touch-tone phone. As a reminder, this conference is being recorded. I would now like to hand the conference over to Mr. Ashish Pruthi, Head of Marketing and Communications from SKF India Limited. Thank you, and over to you, sir. Good morning, everyone. Thank you for joining us today. With us, we have SKF India's Managing Director, Mr. Mukund Vasudevan, our CFO, Mr. Ashish Saraf, and our Legal Director, Company Secretary, and Compliance Officer, Mr. Ranjan Kumar. Before I turn the call over to the management, I would like to remind you that in this call, some of the remarks contain forward-looking statements which are subject to risk and uncertainties, and actual results may differ materially. Such statements are based on management beliefs as well as assumptions made by and on the information currently available to the management. The audience is cautioned not to place undue reliance on these forward-looking statements in making any investment decisions. The purpose of today's call is to purely educate and bring awareness about the company's fundamental business and the financial quarter under review. We can now open the call for Q&A. Thank you very much, sir. We will now begin with the question-and-answer session. Anyone who wishes to ask questions may press star and one on the touch-tone phone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Mumuksh Mandlesha from Anand Rathi Institutional Equities. Please go ahead. Yeah. Thank you, sir, for the opportunity and hosting this call, sir. So firstly, at a broader level, global level, there's a division of auto and industrial happening. I just want to understand the thought process on this division, what kind of benefits you see over the medium to long term, whether in terms of new products or many opportunities, and also how different is the margin profile for both this division when they separate out. This is Mukund Vasudevan, Managing Director. So I will answer the question to the best of my ability. So obviously, the separation is something which we believe is the right thing for the company, the customers, and our investors. And the reason for that is these are two fundamentally different businesses. We have been operating them fairly independently, but we believe by separating them into two separate companies, it will create additional value for everyone. And let me explain why. First, from a customer perspective, the customers are fundamentally different. As you can imagine, one automotive is a lot of automotive OEMs, which is where the solutions you provide, it's a longer sales cycle, but the solutions are sticky, and it takes a different kind of innovation to address that market. Industrial, on the other hand, has a lot more segments, a lot more verticals, each one requiring a different kind of innovation and a shorter sales cycle, typically. From a manufacturing perspective, also, the automotive is much higher volumes, and you have batch processing of much larger volumes in continuous manufacturing, whereas industrial has smaller batch sizes, typically, not all segments, typically, and it requires the main key there is faster changeover times and flexibility in the manufacturing line. The third is capital allocation also. In general, the automotive margin profile is a little lower than in the industrial, given the nature of the industry, and we also believe that capital allocation will be much more efficient if we have two separate companies. And last but not least, the future of both these industries also looks a little different in terms of automotive going towards EVs in many parts of the world faster than others. Industrial moving towards the industries, some sunrise industries like renewables. So all this is changes which, I think, can be more efficiently addressed as two separate companies. Got it, sir. And sir, just on the product side, how do you see the expansion of the product line, sir, from the current what we have, sir, because of the division happening, sir? Do you see that over medium term to play out, sir? The product line will continue to expand. It's not that it hasn't been expanding now. It will continue to expand. I would say this gives us the opportunity to actually innovate more and add more products specific to the industries we want to cover. Got it, sir. And sir, you mentioned auto margins being lower. But in India, sir, we have the auto more of a manufacturing than in India, while industrials have a lot of traded share. So also in India, do you see that margin in auto being lower than the industrial, sir? So again, if you look at Ashish Saraf, CFO at SKF, so if you look at the carve-out financials, as you rightly said, the mix is different. The automotive currently is 95% localized, whereas industrial is around 40% localized, right, so because of a different mix, the margin based on the carve-out financials, which we recently submitted, is going to be very similar for both the companies. Again, this is based on the analysis that we did on the historical results, and just to add to what Ashish said, globally, what I said was the industrial margins tend to be higher. In India, because of traded products being higher in industrial, it is a bit lower. But long term, as we localize more, we expect that to normalize. Got it, sir. And sir, in India, you also have this SKF Technologies as the listed entity. I just want to understand, will that remain outside the listed entity, or will that also be merged to the industrial part of the business, sir? At this point, there's no plan to merge that. They continue to serve both the entities as separate entities, meaning there'll be a technology center which will serve the industrial. There'll be a technology center which will serve automotive. But at this point, there's no plan to merge that. There's lots going on with just the separation initially. So this is not under consideration right now. Got it, sir. So coming to the result for the Q3 quarter, gross margin has seen a contraction by around 600 basis points YoY. Just, can you explain the reason for the drop? And I just want to understand, is there any similarity in the gross margin? And just how will you see the Q4 for this gross margin right, sir? So if you look at our current quarter results, as you rightly said, our overall margin was down by around 4.5% year- over- year. And one of the reasons why it was lower was the high cost of the traded products, right? We were expecting some rationalization of the traded products from Q2 to Q3. It has rationalized a bit. That's where if you look at our margins quarter- over- quarter, it has slightly improved. We are expecting some further improvement as we move to next quarter, right? So you should see some further rationalization on the traded product cost as we move to Q4 of this financial year. So just to get it right, sir, basically, this traded products, is it a pricing difference between the end market and the sourcing prices, right? That's where the margin differ. And then basically, the temporary loss in margin is compensated over the coming quarters. That's right, sir? That's right, yeah. Got it. Got it. And sir, on the revenue side, this quarter has been seeing a very good growth of 15%, and within nine months, it's gone by 10%. Can you help us? How has been the subsegments growth? And also, can you share thoughts on the outlook for the key segments like wind, railways, general machinery, and aftermarket? Sorry, what was the second part of your question? Can you share? Yeah. Outlook. Outlook. Okay. For some key industrial segments. So I let Ashish also add to this, but overall, let me start with some of the industrial segments. Industrial, pretty much all the segments did quite well, including highlights where distribution, heavy, metals, and renewables, which did all very well this quarter. And some of those are lumpy orders like renewables, but in general, it was done. The distribution really stood out. Also, general machinery, sorry, came back strongly this last quarter. General machinery is motors, pumps, things like that, gearboxes. Automotive also did well. I think automotive overall was 10%. Yeah. 10%. And within that, both two-wheelers and passenger vehicles did well. Commercial vehicles, not as much. And outlook, I would say, continues to be strong, driven primarily by infrastructure spending, which at least for the coming quarter, right, long term with changing economy or global geopolitics, I'm maybe less clear. But at least for the current quarter, infrastructure spending will continue to drive some of metals, heavy industry, etc. And general machinery distribution will continue to be strong. Automotive, I think, two-wheelers will continue to be strong. Passenger vehicle is a little seasonal. So I would say that's the outlook for the coming quarter, at least. Got it. Just, I mean, in terms of growth number, can you share how was the industrial aftermarket, auto aftermarket, and the industrial segments, like wind growth and railway growth, sir? Sure. So I'll just go first by segment, and then I'll talk about the key subsegments within. So industrial grew by around 23% year- over- year for this quarter, and automotive growth was around 10%, right? If you look at within industrial, we saw a strong growth in the distribution business to the tune of around 20%, general machinery to the tune of 23%, and wind to the tune of around 16%, rail and defense to the tune of around 23%, right? So that's on the industrial side. On the automotive side, again, automotive aftermarket, we saw a strong growth of around 18%. Two-wheelers grew by around 10%+, passenger vehicles 11%, and tractor business around 30%+. So these were the growth year- over- year. Got it. So a very strong growth. Is it you're gaining some market share, or is it also a lot because of the strong underlying market, sir? So it's a mix of both, right? So in some segments, we are gaining market share. So say, for example, two-wheelers, we continue to gain market share with customers like Bajaj and Honda. Both in the vehicle market, vehicle aftermarket, as well as industrial distribution, our reach to our end customers is getting better. Industrial, we are kind of continue to onboard new industrial part sellers as well as engage new ADs across the market, both in vehicle aftermarket as well as on the industrial side. So that's kind of helping us significantly grow and gain share in the aftermarket business. In the general machinery side, we continue to increase our market share with existing OEMs, as well as we are onboarding a lot more new OEMs directly. And that's kind of helping us grow the market in the general machinery business. Wind and railways, I would say, is more seasonal and cyclical. It's more dependent on the orders that we have in hand, and that's where you see a strong growth in Q4. Got it, and sir, we had the earlier shift of some plant capacity from Korea to India. Has that also started flowing into revenue for current quarter, sir? Can you repeat your question? That's not very clear. Yeah. We recently shifted some Korea plant machinery to India, as we discussed last time. Any revenue from that, sir, that business? I think the transfer is still in because it takes, again, maybe you can correct me, but I think the transfer is still in process. It will take maybe a couple of quarters for it to kind of start production. Got it, sir. Thank you so much for the opportunity. I'll come back to you. Thank you. Thank you. We'll take the next question from the line of Mukesh Saraf from Avendus Spark. Please go ahead. Hi, yes, good morning, and thank you for the opportunity. Firstly, if you could just give this revenue mix, you did mention about each segment growth, etc., but the revenue mix between auto industrial and within each of these, the OEM aftermarket? Yeah. So if you look at the overall sales mix for this quarter, industrial is around 54%, auto is at 39%, and exports is at around 7%, right? And within industrial, or overall, I would say, industrial distribution is around 24%, and vehicle aftermarket is around 12%. Right. So there was this scheme of arrangement that you had filed in the stock exchanges. When we look at that, it says that the industrial revenue is 63% of revenue in F24, while in our commentary last few quarters and even this quarter, we're saying it's around the 50%-54% mark. So could you kind of help understand this difference here between the 63% and the 50% broadly that you've been mentioning on the industrial revenue side? Yeah. Yeah. So currently, if you look at our automotive business, our tractor business, which is predominantly around agriculture and electricals. So once basically the separation happens, that business, which we are currently reporting under automotive, will transfer to industrial as per our because in India, we've been reporting these numbers under automotive. Globally, agriculture and electricals are part of industrial. Hence, post-separation, we would transfer that business to industrial. Understood. But the manufacturing of those bearings will also move to industrial, or it's only the sales part of it that will move to industrial? So we also did a manufacturing split, exactly. But as soon as we have some information on that or clarity on that, we will walk you through. We'll kind of communicate that to you. But today, still, I would say there are multiple options open to us, whether it's transferring the manufacturing assets to the individual companies, split companies, or it's one company manufactures for the other. Both are open options. So we're still evaluating these to see what makes the most sense. Got it. Got it. And in one of the comments, you had mentioned that 95% of auto is localized and 40% of industrial is localized. This 40% industrial being localized, is it in the listed entity, or does this include the unlisted business? No, we're talking only about the listed right now. Okay. So 40% of industrial is already localized in the listed business. Got that. And just lastly, we're seeing new capacities coming up from the competition on localizing SRBs, CRBs, especially to address the industrial segment. Obviously, we are also looking at localizing more and more, but do you think immediately you might see some pressure on either market share or pricing, given that a lot of new capacity is coming up in the industrial segment? So obviously, we are aware that this is happening. We also are localizing as much as possible, whether it is in the listed entity or in the unlisted one, right, which will just make us more competitive. So I would say we are continuously working on it, and you'll see more announcements come up in the future on these. Thank you. Mr. Saraf? Yep. Do you have any further questions? No, I can take you. Thanks. Thank you. We'll take the next question from the line of Harshit Patel from Equirus Securities. Please go ahead. Thank you very much for the opportunity, sir. Sir, once again, on the margins, right, just wanted to understand a little bit more. Earlier, it used to be one occasion wherein there would be some adjustment to the transfer pricing, and consequently, it would get normalized on an annual basis. However, this seems to be happening very frequently in the past few quarters. So could you explain something structurally has changed over here? Yeah. So let me explain. So Harshit, if you look at the last couple of years, right, financial year 2022, 2023, and so that's 2023, 2024, right, we've had a lot of price increases, right, with our customers, right, because of the inflationary environment that we were facing, right? But as we talk about financial year 2024, 2025, most of our growth that you see in this quarter as well as the previous two quarters have predominantly been driven on account of volume growth, right, and not so much on account of price increases that we have been able to take with our customers, right? So because of that, there has been some amount of pressure on our margins, right, which has in the past years enabled us a better margin on our traded products, the price increases that we were taking. So, kind of give you an example for financial year 2023-2024, my traded margins were hovering close to double-digit, whereas in this financial year, my traded margins are lower than expected. So as I explained earlier, we are expecting some more rationalization to happen in the last quarter of this financial year, but are not expected to be close to double-digit. They are going to be in line with the transfer pricing practices, given that our end market pricing has been relatively constant this financial year. I hope this explains it to you. Yes, sir. So my earlier understanding was that no matter the end pricing, our overall distribution or traded margins would be in the mid-single digit kind of a range. If we are getting higher or lower margins, that would be passed on to the manufacturing entity from wherever we are procuring. So is this not so? Is there a gap in this understanding? There is a slight gap. Your understanding is right that if the margins are lower than the mid-single digits, then we would do a catch-up. But if the margins are higher, right, under the FEMA regulations, we cannot go and recover that by issuing a debit note to a supplier, right? So typically, if the margins turn out to be higher, which has been the case in the last two financial years, you would typically not be able to return it back to the manufacturer, right? And that's where we've had a higher margin in the last financial year on the traded products compared to what it should have been. Sure. So in that shell, we returned back those margins in these last two quarters, right? As I said, it's not that we returned back those margins. For this financial year, the margins have been relatively stable in line with the transfer pricing regulations. In the previous years, because we were getting more price increases from our customers, we were able to generate a higher margin, which, because we had to return it within the same financial year and we couldn't do so, as a company, we landed up retaining a higher margin because we cannot issue, as I said, credit notes or debit notes to our suppliers, right, because these are foreign exchange transactions. Understood, sir. Understood. But secondly, on the wind business, I believe we had done some customer pruning in this segment, and hence the growth was impacted in the first quarter of FY 2025. What has been the update on that in the second and the third quarter? Also, what percentage of our revenues have come from this wind segment in the first nine months of this year? Also, if you could give some color on the profitability in this particular segment, that will be very helpful. I'll let Ashish talk about the profitability and the percentage revenue from wind, but in terms of customer pruning, that is a continuous exercise where if we find something unprofitable, we do look at what do we do? Do we do price increases or do we not want to play in that market? That said, that is also an evolving situation because with our more localized manufacturing, exploring alternate sources, different solutions for the customer, adding more value to innovation, we sometimes get back into that. So I think our growth in the wind segment this quarter reflects some of those actions. We won back some of those businesses at a better margin because the customer understands the value we bring. But at the same time, there are still some which we have not got back into. In terms of percentage of business, go ahead, Ashish. So in terms of wind share of business, overall, it kind of continues to be in the range of 4%-5% of our total business. In terms of margins, the margins on the wind business after portfolio pruning, they have become definitely positive, and they continue to be in the range of mid- to high single-digit in terms of overall wind margin as a business. Thank you very much for answering my questions. I'll get back to the team. Thank you. We'll take the next question from the line of Viraj from SiMPL. Please go ahead. Yeah. Hi. Can I hear you well? Hello? Yes, sir. Please proceed. Yeah. Just a couple of questions. First is just wanted to understand the impact on gross margin a little better. If I look at our history over the last 12 years, right, and if I kind of derive the traded margin business, the traded margin business, except for one or two years in 2020 and 2021, has never traded below a single digit margin. It's always been around 13%-14% off. If I have to speak in a band, it's been around 9%-10% to upwards of in one of years to even 20% upwards. So I'm still not able to understand that when we kind of look at traded business portfolio and traded business margin, what is that the impact is? What is that driving the impact on the business? So again, I'm not able to understand your question, but as I said, right, the traded margins have been hovering, as I said, in the previous financial years. The margins were higher, right? They were close to double digit, whereas this financial year, the margins have rationalized to mid-single digits, right, which is in line. If you look at our long-term margins on traded products, they have been in that range in a steady environment, right? And that's where it's kind of gone back to. So sir, when you say just a small clarification, when you say margins in mid-single digit, are you talking at the operating level? Yeah. I'm talking at an operating level. That's right. Okay. So then going back to one of the earlier questions on margins in industrial versus auto, for current globally in auto, they own EBIT margins of somewhere of high single digit. For us in SKF India, listed entity, how would the margins compare at the EBIT level or the PBT level between auto and industrial? So again, we generally do not prepare segmented financial statements, right, at a statutory level for automotive and industrial, right? As I said, what you can refer because we did this analysis for the purpose of carve-out financial statements, and if you look at financial year 2023, 2024, the margins were similar, right? It kind of stood around 14%-15% each for both of them. Okay. Just two more questions. You talked about rationalization, which is driving the impact on gross margin and pricing being constant. Generally, from a pricing approach point of view, especially in the industrial business, pricing and margin point of view, usually how do we go about when we kind of decide the pricing strategy in the marketplace for the industrial piece? I'm not sure I follow your question. Again, can you repeat that again? So in terms of I think if I look at one of the earlier calls, we talked about having a transaction margin approach when it came to operating on traded business, especially in the industrial piece. So when it comes to pricing, you talk about pricing being constant in the last one year. So just trying to understand that what is usually how do we go about in terms of the pricing strategy? Yeah. So see, pricing strategy is relatively simple, right? If you look at financial year 2022- 2023, and 2023-20 24, we've had significant inflation, right, in the global economy, especially Europe, right, which basically pushed us significantly to increase end-user pricing, right, in India for the traded products. Now, since the pricing pressure has relatively stabilized, we have not taken significant price increases from our customers in this financial year, right? And that is where you don't see a significant variation in the pricing. In terms of the traded products margin, we continue to follow the transaction net margin method process in terms of arriving at the overall margins for the traded products. As I said, since in the previous two financial years, our end-user pricing were constantly going up, right? We were able to generate a higher margin for the traded products in those two financial years, which, because in financial year current financial year the prices have more or less been stable, we have been able to maintain it at the mid-single digit, which ideally should have been maintained, right, for the previous two financial years as well. On a long-term basis, on a blanket basis, both for auto and industrial, given the kind of mix we have in traded versus manufactured, the kind of margins we earned, maybe not in 2023 or so, but we have been reporting around 15%-16% kind of operating margins. Given the kind of mix and our players, should we expect this kind of margin to sustain for us? So again, the way we are looking at margin growth is through localization, right? So we do expect our margins to improve, right? Again, currently, the current year margins are going to be lower than they are likely to be, lower than what you have seen in the last two financial years. But in the long term, we do expect our margins to improve as we kind of grow in the market and as we kind of continue to localize. Okay. Just last question. If you look at some of the competitors, they have announced and even commented on significant CapEx in SRB, CRB kind of bearings. When you look at SKF and in the industrial piece, you talked about 40% localization in the listed entity. So if you kind of look at the portfolio gaps globally versus what we have in India, and in that sense, look at localization, can you give some perspective? What are the low-hanging fruits or how should one understand localization play for us in the listed entity over the next three to four years? I think our investment is going to be. I mean, we have committed it's going to be largely this year in line with what it was last year. We're continuing to expand wherever there's capacity needed. In the automotive, for example, we need more capacity, and we will invest fairly rapidly. Similarly, in the industrial, we also have to make the right decision whether or not to make sure that the return on invested capital is good. If we have capacity elsewhere in the larger SKF entity, we will try and utilize that if that makes the most sense for even the listed entity in India. We're trying to optimize the supply chain to the extent possible. Where it makes sense, we will invest. Where it doesn't make sense, we'll continue to trade. But if you look at the parent presentation, they talk about Industrial Region grouping, which the India entity is. They talk about regionalization or localization in India plus Southeast Asia to the tune of close to 60%-70%. So in that sense, do you see any opportunities for localization, not just for the India market, but even for exports to other regions, other countries in that region? Yeah. Absolutely. We're continuing to explore that. I think there will be more opportunities coming up for those, whether it's for the local market or for exports. I think the global statement is you're right. It says region for region. But also, if you see the full statement, it says region for region, but competitive supply chains also. So we want to make sure that we make the best decision and not just invest for the sake of investing in every region. Thank you and good luck. Thank you. We'll take the next question from the line of Ravi Purohit from Securities Investment Management Private Limited. Please go ahead. Yeah. Hi. Thanks for taking my question. So again, I'll harp a little bit more on the margin side. So you refer to 2023 and 2024 years, right? But if I look at our operating margins since 2018, and I'm not referring to only the last two years. I'm talking about last seven years, right? Average operating margins for us have been around 16%-17%, right? So far, in the current year, we are at around 13%-14%, right? So there is a material drop, and this does not look like the last two years are unusual because last two years, margins are also in the same band as we have been doing since 2018. So sometimes there is a disconnect between either there is an increase in royalty or if there is an increase in margin that the parent is keeping at its end. If you could clarify, it would be helpful because the numbers do not match what you are mentioning about the last two years being unusually higher margins, right? I can go back to 2018, and we've been doing 16%- 17% margins in each of those years, then the last few calls, also, Mr. Bhatnagar had also reiterated that we will focus on these margins and be in this band, and in future, as localization improves, our margins can actually go up. Parent in SKF in industrial sides makes almost 19% EBITDA margin, right, so somewhere there is a disconnect. I think it would be helpful if you are more transparent and open to shareholders and help us understand this. Yeah. So again, so one is nothing has changed, right, in terms of when you say, is SKF India paying a higher royalty or any other charges to group? We haven't changed anything. It continues to remain the same, right? Yeah. As I said earlier, the transfer pricing calculations is governed by the law, right? It's not something that SKF India or AB SKF can decide how the transaction net margin method would work between the two companies. And we kind of consistently continue to follow that. I have already explained to you in terms of why the overall margins for this financial year were lower compared to the last two financial years. I can go back. I don't have the results for previous financial years prior to financial year 2022, 2023. I can go back and recheck and kind of come back to you on this if I see this anomaly. Sure. That would be very helpful, sir. We'll appreciate that explanation also because 2018, 2019, 2021, 2022, each of those years, their operating margins were 16%. And I think Mr. Bhatnagar had also kind of mentioned that. And sir, another thing I wanted to ask about is when you mentioned that currently, the operating margins between auto and industrial in India are roughly very, very similar, right? So we make, on an average, about 16% operating margin. And you just mentioned that the traded good margins are mid-single digit, right? So is it fair to assume the manufactured industrial margin are significantly higher? And if you have to kind of put a sequence of order, manufactured industrial margin, then auto margin, and then traded margin, is there a correct sequence to follow? And will that be a path that we? That is right. That is right. Okay. And sir, I think we had also mentioned in a couple of our calls and AGMs in the past that we are looking to spend INR 100 crore-INR 150 crore every year for the next three years. Are we on course on that? And could you break up on that CapEx between industrial side and auto side? Again, we continue to spend our CapEx in line with what we have promised. If you look at even the current financial year, we have spent close to almost already around INR 100 crore for this financial year. We kind of continue to be in the range of INR 120 crore-INR 130 crore as we had communicated earlier. In terms of the CapEx split between automotive and industrial, I currently do not have numbers available for me to kind of tell you what's been the mix of our investment into industrial and automotive business. Okay. Just one request. Will it be possible for you to kind of give us at least two-year or three-year pro forma numbers between industrial and automotive just to see? Because the thing is, it's a big event that is happening, and it will be useful if shareholders have all the information before. I don't know if there will be a vote for this, and if there is a vote, it will be easier for us to kind of take an informed decision once we have some clarity. We are not talking of audited numbers, but at least pro forma some idea of last three years of. That has already been shared, right, as a part of the carve-out financials that we had to submit to SEBI, the same as available if I'm not wrong on the SEBI website. But those numbers indicate zero sales and zero profit numbers everywhere because this entity did not exist. This 100% subsidiary that we have been formed, and if I look at the three-year financials for that subsidiary, it will not reflect any revenue because there was no revenue for that subsidiary, right? No, no. As a part of our demerger requirement, we had to share the carve-out financials of the previous three years, right? Of the industrial division? Were we overlooking or? No, no. Previous three years. Previous three years. So previous three years have been shared with SEBI. It's public information available on the website. You can go and have a look. I have checked, sir. I have checked three times. I could not find the numbers, and the numbers that were given for the three-year actually indicated zero revenues because the. For SKF Industrial, you need to check for SKF India. There you will see the demerged accounts between industrial and automotive. We have provided those for three years? Yes. That's right. Okay. Okay. We'll check. If you are not able to find, I'll reach out to our company secretary and seek help. You can send us an email, and we can share the link where it's available. Okay. Thanks a lot, sir. Thank you. Really appreciate it. Yeah. Thank you. The next question is from the line of Bharat Sheth from Quest Investment Advisors. Please go ahead. Hi, sir. Thanks for the opportunity. It's good to understand a little more about this scheme of demerger. So when we are talking of industrial side of 40% manufacturing, so that 40% which is currently being manufactured by SKF India, or it also includes our SKF technology sales? This 40% is the products which are manufactured in SKF India. Okay. So post-demerger, how does this transaction between this SKF India and SKF industrial unit take place? Can you repeat the question? It's not clear to me. I'm sorry to interrupt. Mr. Sheth, your voice is muffled. Could you use your handset, please? Yeah. I'm using now. Is that clear? Yes. Please just. Currently, it is being manufactured. Once both the divisions will be split, and there will be a separate entity, so SKF India will sell it to this SKF industrial unit, or that manufacturing will be also shifted to SKF industrial? So again, this is currently being worked out, right? This is not something we have finalized yet. Once we have internally finalized, we will definitely share with all the investors. Okay. And sir, one second, please. I mean, when we are talking of product regionalization, it is trading business. So how we are placed, I mean, first, I mean, vis-à-vis peers, we have a lot of domestic manufacturing. And second thing, with our portfolio coming down, so providing a full solution, sorry, to our industrial unit side? Again, can you be more clear with your question? We are pruning the portfolio. I mean, some of the regionalizing the portfolio on the industrial side. So how it is going to affect our sales? So as I said, portfolio pruning is a continuous process, right? Wherever we see opportunities, wherever we see that as a company, we are making losses, right? We constantly prune those products. Either we modify those products to be more competitive or create a unique value proposition with our customers to get a better value from the customers. In case none of them is possible, as a company strategy, we do not want to be in a loss-making business. So we kind of continue to prune some of those accounts as well as those products. Okay. Coming back to the solution side of the business, which we started about a few years back, so that business will go under with the industrial, or it will be also there is an auto side also. There is some kind of solution business is there? You mean the services business, right? Correct. Correct. Yeah. So the services business is predominantly industrial. It will move to the industrial business. Last point, sir, with this portfolio regionalization, I mean, our product gap, how do we plan to compete vis-à-vis other peers when there will be a product gap? So as I said, we constantly continue to compete with our peers, right? And we would do, as a company, whatever possible, either to create a strong value proposition for our customers, be cost competitive, right? And if for any specific reasons or challenges, we are not able to overcome that, and we are not able to compete in the market at the price point at which the market is asking us to compete, we would do portfolio pruning to make sure that we cut our losses. We do not do loss-making business. Okay. Thank you. All the best, sir. Thank you. Ladies and gentlemen, in order to ensure that the management will be able to address questions from all the participants in the conference, kindly limit your questions to one per participant. Should you have a follow-up question, please rejoin the queue. The next question is from the line of Lakshmin arayanan from Tunga Investments. Please go ahead. Hello. Thank you. Two questions. One is that if I understand the industrial business, which you're saying is around localized, almost 35%-40% is localized, just in the last nine months of maybe the calendar year, if you can just give me the split of the industrial business made in SKF India, made in SKF Technologies, and made outside, what is the split of the business between made in the listed, made in India but not in the listed, and imported? How does it compare for the previous calendar year or previous nine months, whichever you have? So, currently, I don't have this data available with me. If you can send us an email, we can get back to you. Okay. And the second question is that there is some kind of agreement between how all the things have to be going through the listed company, all the transfer margins, that SKF Ahmedabad as well as SKF imports, all the sales of the industrial bearings will go through the listed entity, right? That's the current arrangement, if I'm not wrong. That is right. Okay. Now, is there a possibility of this getting changed, or is it in the annual? What will happen if there is a decision that you're actually creating another company, whether the same kind of rights would be applicable on the new subsidiary, or it will be different? It will continue. As of now, there are no plans to change that. It will continue as is. Got it. Got it. Got it. And the last question is that among your various facilities, which are in the listed entity, which locations will have the industrial operations also? So how do you intend to separate out when you have industry? For example, in Pune, if you have both industrial and automotive under the same premises, how do you intend to demarcate and change? Which are the plants where this issue will be there? So this is still under evaluation. As you can imagine, it takes time to make those decisions. So it's still under evaluation. As soon as we have an answer, we will communicate to you, right? Hopefully, in the next couple of months or so, we will communicate this to you. But it will be done in a way which kind of makes both companies successful and sustainable in the long term. So it's not that there'll be a bias towards one listed entity versus the other. Thank you, sir. Mr. Narayanan, I would request you to rejoin the queue for follow-up questions. Please limit your questions to one participant. The next question is from the line of Priya Ranjan from HDFC AMC. Please go ahead. As the current participant did not answer, we'll move on to the next question, which is from the line of Mayank Bhandari from Asian Market Securities. Please go ahead. Thanks for the opportunity. So my question is again on the margin side, as you've been highlighting, localization, pricing, portfolio cleanup, a lot of initiatives are there which should ideally be leading to increase in the margin. But we have seen very sharp fall in the last two, three years. So just to understand, have we reached the bottom of the margin? What do you say? So we would hope so, right? I think you would continue as Ashish should also mention. Even the next quarter, you will see hopefully an uptick. As it has come, even the last two quarters, you would have seen an uptick itself. So you'll continue to see that. We expect this to kind of normalize back to the 14%-15% range. But in terms of long term, 2018, 2019, we said we'll come back to you. Let us come back to you with that. Compared to 2018, 2019, if there has been a drop and why. Sir, in the numbers you've given, like 23% growth for the industrial quarter, how do you categorize this as a volume versus value growth? Largely volume, right? We can give you exact numbers. So in industrial, almost 19% was driven on account of strong volume growth year- over- year. Out of the 23%. Thank you. The next question is from the line of Dhanshree Sharma from Anand Rathi. Please go ahead. Hello. Another audible? Yes, sir. Please proceed. Yeah. Thank you for the opportunity, sir. So my question would be, what is the traded mix currently and for Q2? Can you repeat your question? Couldn't hear you. What is the trade rate mix in Q3 and Q2? And what is our expectation for the medium term? Yeah. So Q3, traded business was to the tune of around 39% overall. Sorry to interrupt. I meant trade rate mix. Yeah. So that is of the overall, traded was 39% is what, if that's what you're asking. Okay. Thank you. The next question is from the line of Lakshmi Narayanan from Tunga Investments. Please go ahead. Good morning, everybody. I have two questions, and the first one is, when you highlighted that you would demerge back in December, as shareholders, we were expecting some separate meet or a call where you would explain the rationale, and you would give us some sense of the value creation roadmap, so in this earnings call, I don't know if it's the right forum, but would you intend to do that maybe a couple of months later? That's the first question, so we are not really sure how you would go about creating value in the new business, which is the industrial. As it is, by and large, it is mostly a trading operation. Because the way we think about it is the management has a fantastic opportunity to bring in focus and ensure better capital allocation, so that's number one. And secondly, if I look at your gross profit margin, it came in around 33% and somewhere around that for the last two quarters. But this is the lowest I've seen, even going back to FY 2016. So the lowest was never this bad. So I just wanted to understand what's changed on the ground for us to report this, especially when the peers are reporting exactly reasonably good margins. So I couldn't understand how this transfer pricing thing worked so suddenly, drastically, for us to report such low numbers. So these are the two questions. Thank you for having me. Yeah. So to answer your question, we will come back to you. I think we are planning to have some kind of a call to talk about more in detail about the demerger. But the timing is not right right now. It's very, as we said, it's right now high level in terms of the rationale. Specifics, we will share with you soon. Yeah. So we will try and set up another meeting or a call for this. Yeah. And especially on the gross margin at an overall level, I don't see a significant change, right? We continue to be in the range of 35%-36%, right? Because I don't know how you are calculating the gross margin. If you can come back to me with a specific question around that on an email, I can come back to you with a response. Thank you. We'll take the next question from the line of Senthil Manikandan from iThought PMS. Please go ahead. Good morning, sir. So globally, Parent has secured a company in the lubrication space, JSG. So if you can just share how this will impact our business in India, either directly or indirectly, that's my first question, sir. Okay. So JSG was doing two things. One, it was distributing some of the lubricants which we make. That is one. Second, they were making solutions to do lubrication. This is machines to either automatically or manually lubricate industrial machinery. Okay. That's what JSG was doing. It's a large business in Australia and Southeast Asia, and less so in India. But this is an opportunity for us to bring some of those solutions also into India. It's still early days. The actual closure happened only in October. Right now, we're still evaluating how we structure it, what are the synergies to bring it into India. But there will be opportunities. Just to add here, lubrication business per se is not core to the lubrication business that we have in India, is not done through the listed entity. So even if there is an opportunity, as of now, based on the current structure, any lubrication business may not come to the listed entity as well. Thank you. The next question is from the line of Ravi Purohit from Securities Investment Management Private Limited. Please go ahead. Yeah. Hi. Thanks again for taking my question. So outside of margins and mergers now, so just wanted to understand a few things on the business side, right? If you could kind of just give us a sense of how the realization on general bearings as a product has changed over the last few years. The context is in the previous CapEx upcycle, we saw a lot of CapEx being done by thermal power companies and infra companies. And this current CapEx cycle, you're seeing more and more electronics manufacturing companies, renewable companies who are doing the CapEx, right? Earlier, the CapEx in railways used to be on rakes and conventional bogies. This time around, a lot of all the new bogies or coaches or rakes that are coming in are of different types. They are faster. They look better. They are also far more equipped in terms of braking systems and in terms of other things. So for the same unit of capital stock on the ground, the realizations on bearings, is it a fair assumption that the bearing realizations are far higher this time around compared to what they were in the previous cycles? And going forward, in terms of electronics manufacturing or solar, you have solar tracker, I think. So we have done a lot of work on solar trackers also. So if you could just kind of share some insights into the kind of bearings that are coming into the market today and the realizations on that. And based on that, what kind of growth can the overall sector itself see in the next five to seven years? It's a very broad question, but I'll try and answer it as quickly as possible since we are over time. Okay. Let me start with I think the current CapEx cycle, we're still seeing contrary to what you were saying, we're still seeing some in the metals industry, still going on in steel, aluminum, etc. With the infrastructure spending and cement, sorry. With infrastructure growth happening, we're still seeing some CapEx cycle there. Okay. That said, you're right that some of the emerging industries are we're getting higher realization and probably capturing more market share also. Railways, for example, they're going more to high-speed trains, and we're getting more share there. Whether in renewables, less so on solar, more so on wind. There are changes in technology which we are capturing our fair share in. In electronics, globally, we have a fairly strong presence, especially in China and America. In India, because the industry is relatively small right now, we don't have as much. But as and when it emerges, we will see that. And those are high margin. To your point, they are high margin products. So yeah, I think what you said is right. There are changes. Also, in automotive, EVs is something which is emerging, and that also plays to our strengths. Some of the products we have, we have very high market share in EV bearings with high realization in each bearing. Thank you very much, sir. Ladies and gentlemen, as there are no further questions from the participants, we will close the conference now. On behalf of SKF India Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you. Thank you, members of the management. Thank you. Thank you.