The December 2025 quarter marked a continuation of Schaeffler India's impressive growth trajectory, with net sales reaching an all-time high of ₹2,724.20 crores, representing robust quarter-on-quarter growth of 11.89% and year-on-year expansion of 27.53%. The company's ability to maintain healthy operating margins whilst scaling operations demonstrates strong pricing power and operational efficiency in a competitive landscape. With the automotive sector showing resilience and industrial demand recovering, Schaeffler India appears well-positioned to capitalise on sectoral tailwinds, though investors must weigh these positives against stretched valuation multiples that price in significant future growth.
Financial Performance: Accelerating Growth Momentum
Schaeffler India's Q3 FY26 financial performance showcased impressive operational execution across key metrics. Net sales of ₹2,724.20 crores represented the highest quarterly revenue in the company's history, driven by strong demand from both automotive and industrial segments. The 11.89% sequential growth from Q2 FY26's ₹2,434.65 crores and 27.53% year-on-year expansion from Q3 FY25's ₹2,136.06 crores underscore robust momentum in the business. This growth trajectory has been consistent throughout FY2026, with the company posting double-digit year-on-year revenue growth across all three quarters reported thus far.
| Metric | Q3 FY26 | Q2 FY26 | Q1 FY26 | Q4 FY25 | Q3 FY25 |
|---|---|---|---|---|---|
| Net Sales (₹ Cr) | 2,724.20 | 2,434.65 | 2,352.59 | 2,174.41 | 2,136.06 |
| QoQ Growth | +11.89% | +3.49% | +8.19% | +1.80% | +0.93% |
| YoY Growth | +27.53% | +15.04% | +11.66% | — | — |
| Net Profit (₹ Cr) | 322.36 | 289.26 | 287.11 | 251.62 | 237.28 |
| QoQ Growth | +11.44% | +0.75% | +14.10% | +6.04% | +0.37% |
| YoY Growth | +35.86% | +22.36% | +16.97% | — | — |
| Operating Margin (Excl OI) | 17.77% | 18.73% | 18.28% | 18.07% | 17.34% |
| PAT Margin | 11.83% | 11.88% | 12.20% | 11.57% | 11.11% |
Profitability metrics remained healthy despite the rapid revenue expansion. Operating profit before depreciation, interest, and tax (excluding other income) reached ₹484.12 crores in Q3 FY26, marking the highest quarterly operating profit in company history. The operating margin (excluding other income) of 17.77% reflected a 43 basis points year-on-year improvement from 17.34% in Q3 FY25, though it moderated 96 basis points sequentially from Q2 FY26's 18.73%. This sequential margin compression likely reflects higher employee costs, which rose 13.45% quarter-on-quarter to ₹171.39 crores, possibly due to wage revisions or increased headcount to support growth initiatives.
Net profit margin stood at 11.83% in Q3 FY26, marginally lower than Q2 FY26's 11.88% but significantly ahead of Q3 FY25's 11.11%. The company's effective tax rate of 25.69% remained stable and in line with expectations. Other income contributed ₹43.31 crores during the quarter, up from ₹28.39 crores in Q2 FY26, reflecting efficient treasury management and higher interest income on surplus cash balances. The company's net cash position continues to strengthen its balance sheet, providing financial flexibility for growth investments.
Operational Excellence: Capital Efficiency Reaches New Heights
Schaeffler India's operational performance continues to impress, with the company achieving a return on equity (ROE) of 25.69% for the first half of FY2026, representing the highest level in company history. This exceptional capital efficiency metric significantly exceeds the company's five-year average ROE of 18.67% and places Schaeffler India amongst the top performers in the auto components sector. The elevated ROE reflects not only strong profitability but also efficient capital deployment and superior asset utilisation, demonstrating management's ability to generate attractive returns for shareholders whilst maintaining a debt-free balance sheet.
The company's return on capital employed (ROCE) stood at 30.51% as of the latest period, marginally above the five-year average of 30.60%. This consistently high ROCE underscores Schaeffler India's competitive advantages, including strong brand equity, technical expertise, and established customer relationships across automotive and industrial segments. The company's ability to maintain ROCE above 30% whilst scaling operations is particularly noteworthy, indicating that incremental capital is being deployed at attractive returns rather than diluting overall profitability.
Capital Efficiency Leadership
ROE (H1 FY26): 25.69% – Highest in company history, reflecting exceptional profitability and efficient capital deployment. The company generates ₹25.69 of profit for every ₹100 of shareholder equity, significantly outperforming sector averages.
ROCE: 30.51% – Consistently above 30%, demonstrating strong competitive positioning and efficient utilisation of capital employed in the business.
Net Cash Position: The company maintains a debt-free balance sheet with net debt-to-equity of -0.25, providing financial flexibility for growth investments whilst eliminating financial risk.
Balance sheet quality remains pristine, with shareholder funds increasing to ₹5,334.43 crores as of December 2024 from ₹4,805.35 crores a year earlier. The company operates with zero long-term debt and maintains a net cash position, with closing cash of ₹463.00 crores as of December 2024, up substantially from ₹69.00 crores a year earlier. This strong cash generation capability, reflected in operating cash flow of ₹839.00 crores for calendar year 2024, provides ample resources for capital expenditure, research and development, and shareholder returns through dividends. Fixed assets increased to ₹1,871.64 crores from ₹1,346.03 crores, indicating ongoing capacity expansion to support future growth.
Industry Context: Riding the Automotive Recovery Wave
Schaeffler India's strong performance must be viewed within the context of India's automotive sector recovery and industrial expansion. The company's 27.53% year-on-year revenue growth in Q3 FY26 significantly outpaced the broader auto components sector, which delivered 16.83% returns over the past year. This outperformance reflects Schaeffler India's diversified product portfolio spanning automotive bearings, industrial bearings, and automotive components, which provides exposure to multiple growth drivers including passenger vehicle production, commercial vehicle demand, and industrial capital expenditure.
The company's market leadership position in precision bearings provides structural advantages including economies of scale, technical expertise, and long-standing relationships with major automotive original equipment manufacturers (OEMs). As automotive production volumes recover and OEMs increase localisation to improve cost competitiveness, Schaeffler India stands to benefit from higher content per vehicle and market share gains. The industrial segment, whilst more cyclical, is showing signs of recovery as capital expenditure picks up across manufacturing sectors, providing an additional growth avenue.
Competitive Positioning
Schaeffler India operates as the largest company in the auto components and equipments sector with a market capitalisation of ₹65,047 crores. The company's technical capabilities, established brand, and integrated manufacturing footprint create significant barriers to entry and support premium pricing power. With five-year sales growth of 12.64% compound annual growth rate (CAGR) and consistent profitability, Schaeffler India has demonstrated resilience across economic cycles.
Peer Comparison: Premium Valuation Amongst Sector Leaders
When compared to peers in the auto components sector, Schaeffler India commands premium valuation multiples that reflect its superior profitability and growth profile. The company's price-to-earnings (P/E) ratio of 59.88x significantly exceeds the sector average, positioning it alongside other quality names like Tube Investments (77.61x) and Bharat Forge (75.95x). However, this valuation premium must be justified by superior return on equity, which Schaeffler India delivers at 18.67%, the highest amongst major peers excluding Tube Investments (17.76%).
| Company | P/E (TTM) | P/BV | ROE (%) | Div Yield (%) | Debt/Equity |
|---|---|---|---|---|---|
| Schaeffler India | 59.88 | 11.74 | 18.67% | 0.69% | -0.25 |
| Samvardhana Motherson | 39.17 | 3.76 | 9.96% | 0.43% | 0.35 |
| Bosch | 44.97 | 7.42 | 14.23% | 1.50% | -0.12 |
| Bharat Forge | 75.95 | 9.49 | 12.80% | 0.43% | 0.50 |
| Uno Minda | 58.75 | 10.94 | 15.47% | 0.08% | 0.40 |
| Tube Investments | 77.61 | 6.58 | 17.76% | 0.14% | -0.23 |
Schaeffler India's price-to-book value (P/BV) ratio of 11.74x represents the highest amongst peers, reflecting the market's recognition of the company's superior return profile and asset-light business model. The negative debt-to-equity ratio of -0.25 (indicating net cash) provides additional comfort compared to leveraged peers like Bharat Forge (0.50) and Uno Minda (0.40). However, the dividend yield of 0.69% remains modest, with the company retaining significant profits for reinvestment in capacity expansion and technology development.
The key question for investors is whether Schaeffler India's premium valuation is sustainable. With a PEG ratio of 3.64x (P/E divided by five-year earnings growth rate), the stock appears expensive relative to growth, suggesting that much of the future growth is already priced in. For the premium to be justified, the company must demonstrate accelerating earnings growth beyond the 8.21% five-year CAGR in operating profit, which appears challenging given the current strong base and maturing Indian automotive market.
Valuation Analysis: Expensive But Quality Has Its Price
Schaeffler India's current valuation of 59.88x trailing twelve-month earnings places it firmly in "very expensive" territory by historical standards. The stock trades at more than double the industry average P/E of 28x, reflecting investor willingness to pay a significant premium for the company's quality characteristics including consistent profitability, strong balance sheet, and market leadership position. The enterprise value-to-EBITDA multiple of 37.86x and EV-to-sales ratio of 6.86x further underscore the rich valuation, with the stock pricing in substantial future growth and margin expansion.
Historical context suggests caution at current levels. The stock has been classified as "very expensive" or "expensive" consistently since July 2020, with brief periods of valuation normalisation. Despite this extended period of premium valuation, the stock has delivered exceptional returns of 310.69% over five years and 137.62% over four years, significantly outperforming the Sensex. This performance validates the quality premium but also raises questions about future return potential from current levels.
The stock currently trades just 2.31% below its 52-week high of ₹4,392.85, indicating strong momentum but limited near-term upside cushion. From the 52-week low of ₹2,851.00, the stock has rallied 50.52%, reflecting the market's positive reassessment of the company's growth prospects. For investors considering entry at current levels, the key consideration is whether Schaeffler India can accelerate earnings growth to justify the premium multiple, or whether mean reversion in valuation could result in muted returns despite strong operational performance.
Shareholding Pattern: Stable Promoter Base, Modest Institutional Interest
Schaeffler India's shareholding pattern reflects a stable promoter base with 74.13% holding maintained consistently over the past five quarters. The promoter group, comprising Schaeffler Schweinfurt Beteiligungs GmbH (27.28%), Schaeffler Buhl Verwaltungs GmbH (20.56%), and other German entities, demonstrates strong commitment to the Indian operations with zero pledging of shares. This stable promoter holding provides governance comfort and alignment of interests with minority shareholders.
| Shareholder Category | Dec'25 | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|---|
| Promoter Holding | 74.13% | 74.13% | 74.13% | 74.13% | 0.00% |
| FII Holding | 4.44% | 4.46% | 4.58% | 4.49% | -0.02% |
| Mutual Fund Holding | 14.84% | 14.86% | 14.78% | 14.86% | -0.02% |
| Insurance Holdings | 0.99% | 1.07% | 1.06% | 1.15% | -0.08% |
| Other DII Holdings | 0.30% | 0.23% | 0.16% | 0.05% | +0.07% |
| Non-Institutional | 5.30% | 5.25% | 5.30% | 5.32% | +0.05% |
Institutional holdings totalling 20.57% indicate moderate interest from sophisticated investors, with mutual funds representing the largest institutional category at 14.84%. The sequential decline of 0.02% in mutual fund holdings during Q3 FY26 is marginal and does not signal any meaningful shift in institutional sentiment. Foreign institutional investor (FII) holdings of 4.44% have remained relatively stable, declining marginally by 0.02% quarter-on-quarter. The modest FII participation likely reflects the stock's premium valuation and limited free float availability given the high promoter holding.
Insurance company holdings declined 0.08% sequentially to 0.99% in Q3 FY26, continuing a gradual reduction trend from 1.25% in December 2024. This reduction could reflect portfolio rebalancing or profit booking at elevated valuations rather than fundamental concerns. Other domestic institutional investor (DII) holdings increased 0.07% to 0.30%, suggesting some accumulation by pension funds and other long-term investors. Overall, the shareholding pattern reflects stability with no dramatic shifts that would signal changing investor sentiment.
Stock Performance: Exceptional Long-Term Wealth Creation
Schaeffler India's stock performance over multiple timeframes demonstrates exceptional wealth creation for long-term shareholders. The stock has delivered 310.69% returns over five years, significantly outperforming the Sensex's 62.22% gain during the same period, translating to alpha of 248.47 percentage points. Over ten years, returns of 455.46% dwarf the Sensex's 260.36%, with alpha of 195.10 percentage points. This consistent outperformance validates the company's strong fundamentals and market leadership position.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Day | 5.11% | 0.69% | +4.42% |
| 1 Week | 10.47% | -1.12% | +11.59% |
| 1 Month | 18.62% | 1.54% | +17.08% |
| 3 Month | 9.42% | -2.12% | +11.54% |
| 6 Month | 9.33% | 1.42% | +7.91% |
| YTD | 10.45% | -2.84% | +13.29% |
| 1 Year | 37.39% | 10.98% | +26.41% |
| 2 Years | 46.83% | 13.20% | +33.63% |
| 3 Years | 46.27% | 39.24% | +7.03% |
| 5 Years | 310.69% | 62.22% | +248.47% |
Recent momentum has been particularly strong, with the stock gaining 18.62% over the past month and 10.47% over the past week. Year-to-date returns of 10.45% compare favourably to the Sensex's decline of 2.84%, demonstrating resilience in a challenging market environment. The stock's one-year return of 37.39% significantly exceeds the auto components sector's 16.83% gain, with outperformance of 20.56 percentage points highlighting Schaeffler India's superior execution and growth trajectory.
Technical indicators paint a mixed picture, with the stock currently in a "sideways" trend after transitioning from "mildly bearish" on February 24, 2026. The stock trades above all key moving averages including the 5-day (₹3,930.19), 20-day (₹3,822.22), 50-day (₹3,793.83), 100-day (₹3,900.17), and 200-day (₹3,968.47) moving averages, indicating strong underlying momentum. With a beta of 1.20, the stock exhibits higher volatility than the broader market, offering amplified returns in bull markets but also carrying greater downside risk during corrections. The risk-adjusted return of 1.31 over one year compares favourably to the Sensex's 0.94, suggesting the additional volatility has been rewarded with superior returns.
Investment Thesis: Quality at a Premium Price
Schaeffler India's investment case rests on four pillars: strong operational performance with accelerating growth, exceptional capital efficiency with ROE above 25%, market leadership in precision bearings with structural competitive advantages, and a fortress balance sheet with net cash position. The company has demonstrated consistent execution over multiple quarters, with Q3 FY26 marking all-time highs in revenue, operating profit, and net profit. The financial trend is classified as "positive" with no key negative triggers identified in the latest quarter.
However, the investment thesis is significantly challenged by valuation concerns. With a proprietary score of 54 out of 100, the stock falls into "HOLD" territory, reflecting the tension between strong fundamentals and expensive valuation. The PEG ratio of 3.64x suggests the stock is pricing in growth that may be difficult to achieve, particularly given the modest 8.21% five-year CAGR in operating profit. For the stock to deliver attractive returns from current levels, the company would need to meaningfully accelerate earnings growth or expand margins beyond historical levels, neither of which appears imminent given current business trends.
Key Strengths & Risk Factors
KEY STRENGTHS
- Exceptional Capital Efficiency: ROE of 25.69% (H1 FY26) represents highest in company history, demonstrating superior profitability and efficient capital deployment
- Consistent Growth Momentum: Net sales reached all-time high of ₹2,724.20 crores in Q3 FY26, with 27.53% YoY growth reflecting strong demand across segments
- Fortress Balance Sheet: Debt-free with net cash position, providing financial flexibility for growth investments and shareholder returns
- Market Leadership Position: Largest company in auto components sector with ₹65,047 crore market cap and established relationships with major OEMs
- Strong Profitability: ROCE of 30.51% and operating margins above 17% demonstrate pricing power and operational efficiency
- Institutional Confidence: 20.57% institutional holdings including 14.84% mutual fund ownership reflects sophisticated investor interest
- No Promoter Pledging: Zero pledged shares with stable 74.13% promoter holding ensures governance comfort and alignment
KEY CONCERNS
- Very Expensive Valuation: P/E of 59.88x significantly exceeds industry average of 28x, with limited margin of safety at current levels
- High PEG Ratio: 3.64x PEG suggests stock is expensive relative to growth, with much of future performance already priced in
- Modest Long-Term Growth: Five-year operating profit CAGR of 8.21% appears modest relative to premium valuation multiple
- Sequential Margin Pressure: Operating margin (excl OI) declined 96 bps QoQ from 18.73% to 17.77%, raising questions about sustainability
- Limited Dividend Yield: 0.69% dividend yield provides minimal income cushion for investors at current valuations
- High Beta: Beta of 1.20 indicates greater volatility than market, amplifying downside risk during corrections
- Near 52-Week High: Trading just 2.31% below 52-week high limits near-term upside potential and increases correction risk
Outlook: What to Watch
POSITIVE CATALYSTS
- Sustained revenue growth above 20% YoY driven by automotive sector recovery and market share gains
- Operating margin expansion beyond 19% through operating leverage and efficiency improvements
- Acceleration in earnings growth beyond historical 8% CAGR to justify premium valuation
- Capacity expansion initiatives translating to increased market share in industrial and automotive segments
- Continued strong cash generation enabling increased shareholder returns through dividends or buybacks
RED FLAGS
- Further sequential margin compression below 17% indicating pricing pressure or cost inflation
- Revenue growth deceleration below 15% YoY suggesting demand slowdown or market share loss
- Valuation multiple compression as market reassesses growth prospects or risk-free rates rise
- Automotive sector slowdown impacting OEM production volumes and component demand
- Increased competitive intensity from imports or new entrants pressuring market share and pricing
The Verdict: Quality Warrants Holding, But Valuation Limits Fresh Buying
Score: 54/100
For Fresh Investors: Schaeffler India represents a high-quality business with strong fundamentals, but the current valuation of 59.88x earnings prices in significant future growth that may be difficult to achieve. Fresh investors should wait for a meaningful correction of 15-20% to the ₹3,400-₹3,600 range, which would provide a more attractive risk-reward profile. Those seeking immediate exposure could consider building positions gradually on dips rather than committing capital at current levels near 52-week highs.
For Existing Holders: Continue to hold given the company's strong operational performance, exceptional ROE of 25.69%, and market leadership position. The Q3 FY26 results demonstrate robust execution with all-time high revenue and profits, validating the investment thesis. However, consider booking partial profits if the stock rallies beyond ₹4,500, as valuation risk increases significantly at higher levels. Maintain trailing stop losses around ₹3,800 to protect gains whilst allowing for continued participation in the growth story.
Fair Value Estimate: ₹3,600 (16.11% downside from current levels), based on 45x forward earnings assuming 15% earnings growth in FY2027. The current premium valuation of 59.88x appears unsustainable without meaningful acceleration in earnings growth beyond historical trends.
Note- ROCE= (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions.
