Indian Bearing Industry

This Ball is on a Roll...

Analyst
Ajay Shethiya +(91 22) 2685 0101 shethiya@indiainfoline.com

October 18, 2003

Dealing (+91 22)2685 0505 Sandeepa Vij 98201 92387 Biren Patel 98204 43920

It’s all about money, honey!

Indian Ball Bearing Industry : This Ball is on a Roll...

Indian Bearing Industry
SECTOR RESEARCH

Investment Perspective
Bearing Industry is likely to witness good times ahead riding on auto sector boom, economic revival and export growth. Valuations of bearing companies have not seen the kind of run up seen by Auto Ancillary peer group due to concerns over industry demand-supply dynamics and huge presence of unorganized sector. However we expect the leading players in the bearing industry to report a better performance over the next two years, as demand growth in key user industries is expected to rise sharply. The automobile industry is the largest user segment for Indian bearing market accounting for almost 45% of total demand. The sector grew 16.5% yoy in FY03 and registered a similiar growth of 16.5% yoy in September 2003 . We expect all segment of automobile industry to report strong growth in the coming year. Infrastructure has received a fillip in last 2 years through N-S-E-W corridor and Golden Quadrilateral projects. The transformation of road transport through these initiatives as well as higher economic growth would lead to higher demand for commercial vehicle industry. Passenger Cars continue to grow in double digit driven by rising aspirations and cheap and easy availability of finance. Within two wheelers, we expect motorcycle industry growth to continue on its growth path. After two bad years, the tractor industry is also likely to witness a turnaround with completion of inventory correction phase and good monsoons is likely to drive demand. The engineering sector is the second largest user segment for Indian bearing market accounting for 28% of bearing sales. The manufacturing sector has grown at 6% in FY03 and capital goods have shown a robust growth of 10.5% in FY03. The Indian economy is expected to grow by 6.5-7% in FY03-04. The overall revival in industry and manufacturing will drive capital investments and spur growth in the engineering industry – the second largest customer for bearings industry. Exports of bearing companies has increased at a CAGR of 13% during the last 5 years. The domestic players are sensing the outsourcing opportunity and have initiated the process of producing a range of bearings for meeting the requirement of the parent or other global customers.

October 17, 2003

Recommendations

Buy

FAG Bearings CMP Rs: 98 ABC Bearings CMP Rs: 15 SKF Bearings CMP Rs: 84 NRB Bearings CMP Rs: 114

October 18, 2003

2

The remaining demand to the tune of 30% is being imported. railways and other industrial users. essentially for industrial applications and special purpose.Australia Suspension.. The domestic industry caters to almost 70% of total demand for common varieties and sizes of bearings.Italy Domestic Presence Spherical Roller Bearing Ball Bearing Needle Roller Bearing Taper Roller Bearing Ball & Roller Bearing Engine Bearing Bimetal Bearing Source: CompanyAnnual Report /India Infoline Research October 18. Most of the big players are having either technical or financial collaboration with leading auto manufacturers. The replacement. Exhibit1: Industry Structure Industry Structure 30% 15% 55% Domestic Organized Domestic Unorganized Imports Organized Sector The organized sector comprises of 12 leading manufacturers who contribute to over 55% of the total turnover. Gabriel India Collaboration FAG.Indian Ball Bearing Industry : This Ball is on a Roll. Exhibit2: Global collaboration Sl. International collaboration gives access to best technology in the world.France NSK. The Industry has established a highly diversified product range of around 1000 types of bearings. USA Clevite Corp. unorganized sector and imports. 2003 3 .No 1 2 3 4 5 6 7 Company FAG Bearing India SKF India NRB ABC Bearings Ltd Timken India Bimetal Bearings Ltd. having high volume demand.Sweden Nadella. The organized sector primarily caters to the OEM segment. The total investment in the organized sector is about Rs17bn with an annual installed capacity of 234mn bearings and employs more than 14000 people. which are predominantly automotive.Germany SKF. Bearing Industry in India can be divided into three segments – the organized sector. Japan Timken. Exhibit 1 shows the industry structure of bearing industry. market is dominated by unorganized sector.. Industry Structure SECTOR RESEARCH The Indian bearing industry is estimated at Rs30bn.USA Repco. Exhibit 2 represents the strong domestic presence and international collaboration of few big domestic players.

Though. encouraging imports. As a result . In the past. Legal Imports generally represent the specialized bearings not manufactured in India. While a part of the imports come through official channels. Eastern Europe dump their excess production at a very low rate. Russia. Exhibit3 shows the current duty structure on bearigns. The unorganized sector contributes to almost 15% of total industry turnover. Imports 30% of total demand for bearing industry is met by imports. There are a large variants of imported bearings. Illegal imports generally represent the entry of spurious imports of bearings. The unorganized sector players have a strong regional presence and mainly cater to the needs of the replacement market. SECTOR RESEARCH Huge Unorganized Sector The unorganized sector includes the small-scale manufacturers and manufacturers of spurious bearings. including combined ball/roller bearings Balls. This leads to a huge price differential between domestic and imported bearings (almost 40-50%).budget Rate of Duty 30% 30% 30% 30% 30% 30% 30% 30% October 18. the quality of bearings manufactured by large players in India is comparable to world standards.in. the Indian bearings industry was highly protected on account of very high import duties ranging from 150% to 240% ad valorem. illegal imports via smuggling and under invoicing of imports was the order of the day. each holding a small market share in India. While duty rates have come down over the last few years. It becomes uneconomical to manufacture such type of bearings as it includes huge capital expenditure. 2003 4 .. there is also a huge volume of illegal imports. accounting for a high 45-50% of total imports. Exhibit3: Present Duty Structure Category Ball bearings Tapered roller bearings. domestic manufacture is not viable due to the small size of the market segment.Indian Ball Bearing Industry : This Ball is on a Roll.. a few countries like China. needles and rollers Other Source: nic. including cone and tapered roller assemblies Spherical roller bearings Needle roller bearings Other cylindrical roller bearings Other.

Indian Ball Bearing Industry : This Ball is on a Roll. Exhibit 4: Bearing Demand Per Sector. The bearing capacity available in the country is in excess of demand. resulting in price reduction. The OEM bearing market is likely to witness better days ahead on account of up swing in automobile industry and manufacturing sector. OEM’s have been facing price competition in their own markets. This has led to lower growth in OEM segment and higher growth in replacement demand. continue to exert price pressure on the local bearing suppliers. OEM market accounts for 40% of total demand of bearing industry. Market Dynamics SECTOR RESEARCH Original Equipment Manufacturers (OEM) Market The OEM market for bearing represent the demand arising out of the original vehicle and industrial manufacturers. Indian automobile and industrial sectors were facing a slowdown. 2003 5 . The demand for the OEM market directly depends upon the growth in user industry.. The organized players have been concentrating on improving share in the replacement market. This market is characterized by requirements of high quality. Exhibit4 represent the bearing demand per sector. stringent delivery norms and lower margins. October 18. The replacement market is highly price sensitive and has higher share of unorganized players and cheaper imported bearings. The margins in this market are relatively higher placed as compared to OEM market.. Replacement Market The replacement market represents the demand arising on account of replacing the used and worn-out bearings. Replacement market accounts for 40% of total demand for bearing industry. Market Dynamics OEM Market 60% Replacement Market 40% Source: Industry In the last two years. The size of replacement market is dependent on equipment population and frequency of maintenance.

31 3..10 1.14 5.42 1.81 Source: CMIE/ India Infoline Research October 18.30 2.00 Total Domestic Production 75. Exhibit5 represents the trend in market share of leading bearing manufacturers.38 0.19 5.14 1.74 ABC Bearings Ltd.92 3.82 23.62 1.10 1.53 13.80 12.94 Timken India 4.18 76.52 5.85 2.48 66.00 1. as seen from the table.19 Others 3.92 10.06 0.01 4.89 3.78 5.73 4.00 0.68 70. 4. However.29 4.62 1.04 2.59 25.34 6.89 1..32 HMT Bearings 2.00 100.96 26. the share of major players has been declining.39 15.29 FAG Bearings India 5.62 2.41 74.73 NRB Bearings 3.81 2.05 5.77 4.95 4.36 68.14 3.00 100.78 13.88 1.77 Asian Bearing 1.00 0.50 3.25 4.02 0.02 5.41 1.65 Mahindra Sintered Products 3.88 0.69 1.29 72.98 4.63 Texspin Bearings 0.19 3.14 3.00 0.00 100.84 12.18 ARB Bearings 0.88 0.58 0.03 2.90 65.19 2.36 1.73 SBL Industries 1.08 32.69 2.01 3.53 0.53 6.47 4.39 8.17 0. SECTOR RESEARCH Key Industry Players The bearing industry in India is dominated by 12 organized players accounting around 55% of industry sales.72 3.43 5.98 8. SKF Bearing is the major player in the Indian bearing industry with a market share of 12%.92 3.72 5.52 4.00 0.23 3.97 Total 100.06 0.96 Austin Engineering Co. indicating entry of small payers and imports into the industry.00 100.00 0.69 0.47 4.88 3.00 0.86 1.71 4.63 1.41 4.52 Bimetal Bearings 2.99 2.88 74.Indian Ball Bearing Industry : This Ball is on a Roll.90 12.23 7.92 2.06 0.29 Sujana Industries 0.69 3.34 2.56 6.13 10.04 73.22 1.22 4.10 0.80 1.00 100.90 Harsha Engineers 0.81 0.00 0.26 67.39 1.97 1.03 3.24 0. 2003 6 .93 Mipco Seamless Rings (Gujarat) 0.27 6.35 3.19 2.40 TISCO 4.51 3.55 Total for above companies 71.57 28.86 Gabriel India 1.03 1.54 3.26 2.62 1.79 2.31 14.99 15.12 25.08 % to total market size SKF Bearings India 15. Exhibit 5: Changing Industry Trends Trends in Market Share 95-96 96-97 97-98 98-99 99-00 00-01 01-02 12.13 Kirloskar Oil Engines 3.20 2.00 67.98 1.47 3. 1.06 2.53 1.01 1.43 71.56 0.84 Imports 24.14 3.50 1.31 1.81 1.00 100.32 National Engineering Inds 13.62 0.41 1.85 1.82 4.

3 2084 18779 16478 5799 5528 692 1285 24578 22006 98-99 3300.6 3637 2812 1406 1110.4 770..5 3416. Co.3 1304 1912 1304 1212 1031 1007 694 640 324 255 211 16130 3663 19794 7772 2616 27566 01-02 3334 2418 1139 2023 1139 1427 1080 752 647 533 319 241 220 15278 2779 18057 8863 2540 26920 02-03 3824 2349 1509 2146 1139 1678 1102 819 692 573 325 235 46 16442 3417 19860E 10100E 2870E 29960E October 18.5 3130 1197 1564 1197 1013 836 717 670 521 261 338 149 14898 2753 17651 6190 1692 23841 99-00 3491 2953 1480 1714 1480 1209 999 1050.Indian Ball Bearing Industry : This Ball is on a Roll..3 Total of aboveCo.9 307 297 238 16627 3240 19867 7189 2198 27056 00-01 3396 2836. 2003 7 . 14291 Other 1922 Total Sales 16214 Total Imports 5354 Exports 588 Total Market Size 21568 Source: India Infoline Research 96-97 97-98 3781. SECTOR RESEARCH Sales Revenue of Key Players Company 95-96 SKF Bearings Ind 3449 National Engg Inds 2871 Timken India 904 FAGBearings India 1172 Timken India 904 NRB Bearings 824 TISCO 1016 ABC Bearings Ltd. 350 Mipco Seamless Rings209. 1028 Kirloskar Oil Engines 653 Bimetal Bearings 602 Gabriel India 303 Austin Engg.5 1296 1436 1406 1110 1036 943 990 690 1160 763 717 669 661 498 341 336 415 414 288 193 17139 14394 1639.8 633.

Passenger cars continue to grow in double digit driven by rising aspiration levels and easy availability of cheap finance.Indian Ball Bearing Industry : This Ball is on a Roll. Exhibit6: User-Segments to Bearing Industry Heavy Industries including railways 21% User-Segments Electrical equipment & other 6% General Engineering 28% Automobile 45% Source: BRBMA/India Infoline Research Up Swing in Automobile Sector The Indian Automobile sector has grown 16. which accounts for 28% of total share. The automobile industry comprising of commercial vehicles. However demand in the latter category is met through imports and therefore does not have significant impact on domestic growth . which has steadily cut prices of automobile loans as interest rates went down. the fate of bearing industry is largely dependent on production of vehicles. holds the second growth driver. The demand of bearing is also linked to heavy-duty industrial application in rolling stock. Engineering sector. heavy earth moving equipments and other heavy machinery. multi-utility vehicles. October 18. After two bad years. we expect motorcycle industry growth to continue on its growth path.8%..Exhibit 6 shows the contribution of various user segments to the total bearing industry demand. 2003 8 .3% and domestic growth of 14. accounting for 21% of total bearing market. The positive outlook for auto sector augur well for bearings demand and we expect all segment of automobile industry to report strong growth in the coming year. Growth Drivers SECTOR RESEARCH The demand for bearing industry is derived from demand in two key user segments automobile and industrial sector growth. The automobile industry is the largest growth driver for OEM market as it accounts for almost 45% of total bearing market. intermediated by a competitive financial sector. The transformation of road transport industry through these initiatives will lead to higher demand for commercial vehicle industry. the tractor industry is also likely to witness a revival with completion of inventory correction phase and good monsoons likely to drive demand. Infrastructure has received a fillip in last 2 years through N-S-E-W corridor and Golden Quadrilateral projects. two/three wheelers and tractors has performed extremely well in FY03.. The sharp growth of this sector has been partly driven by the impact of lower interest rate on demand.5% in FY03 contributed by export growth of 65. rolling mills. Within two wheelers. Considering the high reliance of bearing industry on automobile sector. passenger cars.

It has set up a 100% EOU in Vadodara to cater to the growing export market. NRB Bearing is also planning to achieve exports share of 10% in coming year. especially the companies having technical/ financial collaboration with global players like SKF Bearings. which presently accounts for 6% of its net sales. Europe etc. 2003 Exports/Market Size 9 .Indian Ball Bearing Industry : This Ball is on a Roll. ABC Bearings and NRB Bearings are expected to garner higher pie in export market.. Exhibit7 shows the export trend of bearing companies over the years. Exhibit7: Export Trends Export Trend 3500 3000 Exports (Rs mn) 2500 2000 6 1500 1000 500 0 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 4 2 0 12 10 8 Exports Exports/Market Size Source : CMIE/India Infoline Reasearch Export revenues contributes more than 20% to net sales of FAG Bearings.Big players in Indian ball and roller bearing have been already exporting a part of their production to developed countries like US. Domestic players are already sensing the outsourcing opportunity and have initiated the process of manufacturing a range of bearings for meeting the requirements of global customers. FAG Bearings.5bn. The Indian bearing industry.. October 18. Timken India. SECTOR RESEARCH Export Potential Exports of bearings companies has increased at a CAGR of 13% in last seven years from 1995-96 to 2001-02 at Rs2.

0 3.5 1.9 5.2 2. Imports are widespread in the case of ball bearings. Spurious products mainly cater to the replacement market.3 103.9 Romania 94.5 USA 98.7 92.8 676.0 France 91.8 Sloval RP 44.1 5.3 3.9 57. Major imports of ball bearing are from China and have been rising.3 6.6 98.5 2. Threats SECTOR RESEARCH Spurious Products Spurious products form a significant part of the Indian bearing market. Apart from China. According to the study of National Council of Applied Economic Research (NCAER) on auto components.9 28272.Indian Ball Bearing Industry : This Ball is on a Roll.4 100 yoy % (2. Spurious bearings are of poor quality and are relatively unsafe and unreliable.7 16.0 0.6) 91. which are of inferior quality and the workmanship is also poor. 2003 10 .0 68.1 1. The imported bearings are targeted mainly at the replacement market .5 Other 2681.4 12.9 (4.2 525.6 7.6 2.9 93.4 Sweden 114..8 UK 72.8 1.7 Source: www.9 3.3 China PR 465.6 Singapore 175.0 122.2 2.8) 4.2 2.7 133.9 99.9 141.3 4.9 2886.3 59. They use material.9 14.0 53.com/India Infoline Reasearch Country % Share 24.4 3.4) 46.4 1.0) 14. original equipment components for about 33% and unbranded products for the rest 25%.7 (11.2 3.0) 49.2 6.0 16. The presence of unorganized sector in the bearing industry poses a real threat to the organized players. Import Threat The custom duty on imported bearings has reduced from 35% to 30% in FY03 and is expected to come down further in line with WTO agreements.9 1.7 65.3 24..ieport.0 Korea RP 71.2 Belarus 29.0 16.4 438.4 (5.7 October 18.2 Total 28747.6 158. imports are also routed from countries such as Russia and Romania. which is price sensitive. Exhibit 8: Imports of Ball Bearing (Amt in Mn) 2001-02 2002-03 Japan 689.3 183.5 Russia 178.5 4. Reduction in import duty is likely to attract more imports in the future. Exhibit 8 represents imports of Ball Bearing in India and each Country’s share in total imports to India.1 6.0 16. it stated that out of Rs64bn worth auto component market.0 German FR 459. spurious components accounted for about 40%.7 100 21. Coupled with inflow of spurious products the organized sector is also facing threat from smuggling of goods.1 4.5 (14.8 31158.4 Czech Republic 27.8 38.6 Total of above co’s 26065.4 Italy 69.3 3.

Steel prices therefore has significant impact on margins. SECTOR RESEARCH Increase in Raw Material Prices Steel and alloy steel forms the basic material for the manufacturing of bearings. Exhibit 9: Price Trend October 18. account for almost 45% of total net sales. Exhibit9 shows the HR & CR coil price in successive nine quarters.. The significant increase in steel prices have resulted in pricing and margin pressure on bearing manufacturers. 2003 11 .. Steel prices have appreciated 40% since January 2002. We expect the steel prices to show an upward trend or atleast remain firm in the coming future.Indian Ball Bearing Industry : This Ball is on a Roll. A look at the price trends in last nine successive quarters shows an increasing trend in HR and CR coil prices.

Volkswagon.00 13. With entry into taper rolling bearings. It has an annual installed capacity of 22mn.In this move the company has already created dealer network and upgraded their facilities. segment respectively. Ltd.The manufacturing plant of the company is located at Maneja in Vadodara.It is a subsidiary of INA Schaeffler KG. FAG Bearings SECTOR RESEARCH Recommendation BUY CMP 52 week H/L Market Cap Rs 98 Rs 101/44 Rs 1. apart from the railways. Otis and General Dynamics. Volvo. it has a manufacturing unit and a 100% EOU in Vadodara. 2003 12 ..Exports of Rs444.FAG Bearing is a leading OEM supplier to the automotive industry.Indian Ball Bearing Industry : This Ball is on a Roll. rechristened as FAG Bearing India Ltd. Renault. Pune. in the year 1999. and FAG. In the spherical roller bearing segment FAG Bearings commands market leadership with around 52% of market share and notable market share of 31% and 17% in the cylindrical roller bearing and ball bearing.17 24.10 Cylindrical Roller Bearing 31% Investment Rationale Export Drive FAG Bearing India Ltd. Segment-Wise Share Ball Bearing 17% Spherical Roller Bearing 52% Share Holding Pattern Promoters Institutional Investors Other Investors General Public % 51. Bearings manufactured from EOU plant have already received staggering recognition from European and US customers such as Daimler Chrysler. Voith.. Germany. set up the country’s first 100% export-oriented unit for bearings. it will cater to the complete range of bearings.73 11. Share Price Chart 250000 200000 150000 100000 50000 11-Nov-02 0 10-Oct-02 08-Jan-03 04-Jun-03 02-Jul-03 06-Mar-03 05-Feb-03 10-Dec-02 04-Apr-03 30-Jul-03 28-Aug-03 07-May-03 25-Sep-03 120 100 80 60 40 20 0 October 18. This will help the company to tap highly competitive taper roller bearing segment of Rs4000mn.The plant has the annual installed capacity of 2mn tapered roller bearings sets..1mn in 2002 contributed to more than 20% to net sales. The company is also planning to set up two more plants in Vadodara.as precision Bearings India Ltd. This will mitigate the product risk and generate additional revenues.. Entry in Taper Roller Segment FAG Bearings in joint venture with FAG Roller Bearing Pvt. launched their first indigenously produced tapered roller bearings unit in Indian market at Chakan. Germany. Contribution from EOU and company’s initiative to upgrade non-EOU plant in order to meet export needs will further supplement the company to achieve higher exports.6bn Incorporated in 1962.. At present. mechanical and electrical engineering industry.

9 (7.6% respectively.3mn in H1 F12/02.5.9 0. on account of export potential and product diversification.0 20.2 790.0) 112. 2003 13 .5) 136.6) 238. FAG Bearings has declared a dividend of 40% for 2002.5 16. For FY02.6 (50.2) 227. The company was able to achieve better profits on account of extensive cost reduction measures and focussed product mix planning.5) 100.0 0.0 166.2 12.5mn in H1 F12/03 from Rs39. Valuation At the current price of Rs98.0 (35.6 21.2mn in 2001. the ROCE and ROE stood at 24.1 H102 (6) 1133 1.2 35.9 1243. The net sales of the company grew 9. FAG Bearing has signed a new technical know-how agreement with FAG Hanwha Bearing Corporation. Financial Review FAG Bearings has maintained consistent growth in spite of intense competitive pressure on prices. the stock is trading at P/E of 7.9 October 18.0 9.2) 0. margins and low volumes of orders from customers.6 (1005.0 86.5 (39.3) (76.9 in 2001 to Rs.3 Growth (%) 9.0 16.2 10.4% to Rs19.7mn in 2002 as against Rs150.0 16.2 (26.5 0.11. Korea for few special bearings and with its parent for Arcanol greases.2) 86. Financials Highlights Period to Rs mn Sales Other income Total income Expenditure Operating profit Interest Depreciation PBT Tax PAT Extraordinary items APAT OPM (%) Equity EPS (Rs) H103 (6) 1235 8.6% yoy to Rs197..0 4.9 in the 2002.Interest burden has significantly dipped 50.5) (82.4) 8.6 166.9% and 17.Indian Ball Bearing Industry : This Ball is on a Roll. net profit grew 31. FAG has maintained the same increase in topline for H1 F12/03. SECTOR RESEARCH Expanding Product portfolio It has established a milestone in product development by developing 84 types of bearings in the year and plans to add more to the portfolio..7 11.0 1133. We expect the company to show better results. the sales has increased to Rs1235 in H1 F12/03 from Rs1133mn in H1 F12/02.5 18.2x FY03E earnings of Rs13.0 (19.7 (906.0 100.2% to 2472mn while. The EPS has registered a growth of 32% increasing from Rs.

Indian Ball Bearing Industry : This Ball is on a Roll.9) 224.0 (79.7 166.0) 192. SECTOR RESEARCH Period to Rs mn Sales Other income Total income Expenditure Operating profit Interest Depreciation PBT Tax PAT Extraordinary items APAT OPM (%) Equity EPS (Rs) 2001 (12) 2274 6.1 (84.0) (170.0 (1848.0) (185.5) 483.0) 344.0) 150.0 150.5 (45.(Mn) October 18.1 (46.0 224.8 (2001.2 18.0) 297..0 166.0 166.2 11.0 2975.3 (59.8) 253.2 0.6 18.0 259..0) 512.2 13. 2003 14 .6) (169.5 (72.5 (2196.5 2004E (12) 2964 12.5 166.0) 433.6 0.0 2002 (12) 2472 12.2 9.3) 259.8 0.9 (56.(Mn) Bearings (Ball & Roller) Rs.9 (2400.2 (42.8 2484.8 19.0 197.9 2281.0 2708.8) (161.2 15.(Mn) Components Rs.7 19.9 2003E (12) 2694 14.7 0.2) 197.6 Production Trends and Segmentwise Revenues Capacity Bearings (Ball & Roller) Production Bearings (Ball & Roller) Components Sales Volumes Bearings & Components (Traded) Bearings (Ball & Roller) Components Units 000 Units 000 000 Units ‘000 ‘000 ‘000 1999 20371 1999 17449 114 1999 23 17487 119978 1999 120 1714 5 2000 20371 2000 20686 149 2000 28 20315 136343 2000 139 1912 6 2001 22000 2001 21733 104 2001 51 22455 133528 2001 193 2024 10 2002 22050 2002 24656 139 2002 66 23823 89077 2002 290 2146 7 Sales Value Units Bearings & Components (Traded) Rs.8) 575.

Being the only lucrative player in organized bearing sector. reduction in labor cost and severe reduction in fixed cost will help the company to earn higher operating margins in the coming years. surrogating of expensive loans has assisted the company to put itself in black and see a strong turnaround for itself.Indian Ball Bearing Industry : This Ball is on a Roll. ABC Bearing manufacturers tapered roller bearing and cylindrical bearing. It has annual installed capacity of 8. The current supply to Toyota Kirloskar was possible only due to NSK alliance.. ABC Bearings SECTOR RESEARCH Recommendation BUY CMP 52 week H/L Market Cap Rs 15 Rs 25/4 Rs 0.5mn in FY02.3mn. This initiative has enabled operating margins to increase from 10% in FY02 to 16% in FY03. utilization of cost-effective measures.it entered strategic alliance with NSK. The steps towards reorganization of plant layout.25 22.while the fresh order is expected to commence from FY04 adding Rs100-200mn every year to companys topline. Anti Friction Bearing Corporation Ltd.02 22. Japan.The plants are located at Lonavala and Bharuch. ABC already enjoys being the exclusive indigenous supplier of Taper Roller bearing for TKM’s Qualis vehicles. New Order from TKM ABC Bearings has been identified as sole supplier of specialized bearings for application in their transmission by Toyota Kirloskar Motor Limited.51 Share Price Chart 180000 160000 140000 120000 100000 80000 60000 40000 20000 0 30 25 20 15 10 5 15-Nov-02 0 03-Jan-03 28-Jan-03 06-Jun-03 30-Jun-03 21-Feb-03 11-Dec-02 11-Apr-03 22-Jul-03 13-Aug-03 05-Sep-03 15-May-03 29-Sep-03 October 18. ABC Bearings has undertaken major initiatives in order to reduce the cost structure..2bn Incorporated in 1961.. renamed itself to ABC Bearings in the 2002. Share Holding Pattern Promoters Institutional Investors Other Investors General Public % 26. Any increase in further utilization of existing capacity will generate higher profits as the company has already turned around. Cost Cutting Initiatives During the current year. it swapped expensive debt with lower interest bearing debt. company is currently in the process of installing the machinery. Japan has been rendering valuable technical support and guidance to the company in the field of technical-upgradation and system improvements.This will further strengthen the alliance and help ABC Bearing to explore new markets and clients. NSK Alliance Paying Off NKS Ltd.March 2003. During February . Efficient working capital management. there is possibility of equity participation from NSK.6mn as against a loss of Rs47.. Investment Rationale Strong Turnaround ABC Bearings made a strong turnaround in FY03 reporting a profit of Rs14. 2003 15 .In 1998.The company is currently under utilizing its capacity to the extent of 60%. In order to meet the fresh requirement.22 29. reduction of excess work force.

the ROCE and ROE stood at 21% and 7. 2003 16 .2.5 3. We expect the company to show better results.2 from Rs -3.8) 7.4) 33. SECTOR RESEARCH Financial Review Annual Analysis For the FY03 ABC Bearing has shown a remarkable recovery with net profits standing at Rs14.5) 14.5mn as against the loss of Rs.1 186. The net profits of the company for Q1FY04 grew 186% to Rs9.The annualized EPS for the same period has increased to Rs3.0 9.00 (186..5mn in FY02.6) (15. the stock is trading at P/E of 3.3 0.The net sales of the company grew 12% yoy to Rs725mn in FY03 as against Rs649mn in FY02.6 (4.8) 13.8 52. For the FY03.9 (144.9) (12.5x FY04E earnings of Rs4.1 158.3 115.3 168.7) Growth % 16.2) (16. The setback in the tractor sector has affected the sales volume of the company.1mn in Q1FY03.0 (10.8 115.7% respectively.7) (186.6 (8. Financial Highlights Period to Sales Other income Total income Expenditure Operating profit Interest Depreciation PBT Tax PAT Extraordinary items APAT OPM (%) Equity EPS (Rs) Q1FY04 (3) 183 3.3 19. on account of effective turnaround and better utilization of existing capacity.8) 0.8) 38.2 Q1FY03 (3) 157 2. Valuation At the current price of Rs15..4 17.7 (51.47.7) (197.1) 4.3 (10. Exports of the company have marginally to Rs24.4 (147.5 (189.3mn as against a loss of Rs10.5) 0.3 2.1mn from Rs8.4 (16.7.5 (3.2) 9.3mn in FY02.5) - October 18.Indian Ball Bearing Industry : This Ball is on a Roll.

.8) (43.9 Capacity Bearings (Ball & Roller) Production Bearings (Ball & Roller) Components Sales Volume Bearings (Ball & Roller) Components Sales Value Bearings (Ball & Roller) Components Units 2000 ‘000 15300 Units ‘000 ‘000 Units ‘000 ‘000 Units Rs.2 872.3 137.0 0.0) 210.3) (610.6) 1.8 16.5 (44.0 1035.3 Interest (73.0) 67.7 Expenditure (582.6 17.3) PBT (28.6 19.0 115.6 748.0 APAT (53.8 69.(Mn) 2000 6623 2000 6444 2000 1050 - 2001 8300 2001 4584 2001 5223 2001 1008 - 2002 8300 2002 3010 2002 3315 2002 752 - 2003 8300 2003 3331 439 2003 3280 436 2003 820 20 October 18.0 67.5 (29.1 Tax (19.3 22.6 (825.3 Extraordinary items 0..7 Total income 668.3 15.9) (54.5 EPS (Rs) (4.8 19.0) (70.(Mn) Rs.0 Equity 115.4) 14.7) PAT (53.2 Period to FY05E (12) 1018. 2003 17 .3) (7.0 0.5 5.5 115.3 179.3) Operating profit 86.3 Production Trends and Segmentwise Revenues OPM (%) 10.5 115.3 4.2) 21.6 48.Indian Ball Bearing Industry : This Ball is on a Roll.2) (20. SECTOR RESEARCH FY02 FY03 FY04E (12) (12) (12) Sales 649 725 856 Other income 19.0) 96.9) (693.6 48.7) (60.0) Depreciation (40.6 0.4) 14.7) (67.

electrical and industrial OEMs and aftermarket customers. The company manufactures a product range comprising about 60 sizes of deep groove ball bearings. Sweden. bearing accessories like housings. such as Condition Monitoring Systems for Trouble-free Operations. Investment rationale Strong Presence SKF Bearings has strong presence in the Indian bearing industry.. it is planning to introduce similar kits for Sumo Model. SKF Bearings SECTOR RESEARCH Recommendation BUY CMP 52 week H/L Market Cap Rs 84 Rs 86/33 Rs 3. Approximately 60% of the total sales of bearings are from the Original Equipment Manufacturers (OEM) sector while the remaining 40% are after market/replacement sales.02 22.5:1 in 2002. sleeves.Simultaneously. clutch release bearing kits. SKFs strong presence coupled with growth in automobile industry is likely to improve companys growth.Capital restructuring resulting in reduction of interest cost burden is likely to improve the company’s profitability. 90 80 70 60 50 40 30 20 10 0 Share Price Chart 1200000 1000000 800000 600000 400000 200000 0 12-Nov-02 13-Jan-03 16-Jun-03 11-Feb-03 13-Mar-03 12-Dec-02 15-Apr-03 15-Jul-03 13-Aug-03 16-May-03 12-Sep-03 10-Oct-02 Innovative Product Launch Company is planning to launch a series of new products in the Indian replacement market. Secured redeemable non convertible debentures of Rs200mn were due to retire in August 2003. Linear Motion products.51 SKF Bearing India.22 29.25 22. commanding highest share of 12. Machine Tool Spindle maintenance etc. the leading global supplier of rolling bearing and seals. It serves to almost each and every segment of the industry. Automobile industry accounts for 35% of its total revenue. SKF Bearing made right issue in the FY01. it plans to offer imported wheel bearing kits. which is likely to reduce further. October 18. which accounts for 40% of total market.3% in total 23mn industry..Indian Ball Bearing Industry : This Ball is on a Roll.1:1 in 1999 to 0. The debt/equity ratio for the company has decreased from 2. In addition to its comprehensive range of bearings it is also offering a wide range of bearing related products and systems.7bn Share Holding Pattern Promoters Institutional Investors Other Investors General Public % 26. The company currently caters to the needs of automotive. The company has successfully launched a new wheel-bearing kit for Maruti 800. textile machinery components. Debt Re-Structuring In order to retire high cost debt instruments. etc.This move resulted in significant reduction of interest burden. This move will prove instrumental in increasing its revenue share in the market for automobile spare parts. 70 sizes of taper roller bearings. timing belt kits and other products from its groups overseas plant in Indian market. The company has annual installed capacity of the company is 71mn ball and roller bearings. automotive specials.In order to further increase it presence in the same segment. 2003 18 . is a subsidiary of SKF. which holds 54% stake in the company.

0 10.2mn against net profit of Rs89.8 Tax (59.8) PBT 184.5) (136.6 (66.0 (1739. EPS for 2002 stood at Rs4.8 (62.8mn in H1F12/02. The company increased its production capacity by 17% in 2002 (62mn Nos.6 2.5bn in 2001. Financial Analysis SKF Bearings has for the first time crossed the Rs4bn.0 87.4) Depreciation (131.2 12.0) 87.7 0.. 2003 19 .8 October 18.as against RS3..0 H102 (6) 1995 61.Indian Ball Bearing Industry : This Ball is on a Roll.8) (3.0 59.4) 316. Net interest payments for H1 F12/03 stood at Rs17mn. as well as savings from the debt restructuring undertaken earlier.0) 0.5 against EPS of Rs2 in 2001.4 (53.5 (49.1) Operating profit 350.7 10.7mn for the corresponding period of 2002. down 48 % from Rs32.4 110. SECTOR RESEARCH Valuation At the current price of Rs87.8 Total income 2311.1mn. the stock is trading at P/E of 15x FY03E earnings of Rs5. We expect the company to exhibit better results.The net profits of the company has shown a remarkable growth of 128%.6 EPS (Rs) 5.7) 59. Financial Highlights Period to H103 Rs mn (6) Sales 2171 Other income 139.6) 63. an increase of 9%.Working capital of the company have significantly improved and huge focus is given on receivable front.2mn in 2001.1 Expenditure (1961.5 452. Net profit after tax for the same period was at Rs112mn against Rs59.7 25.7) 113.3) PAT 125.1 OPM (%) 9.2 (100.) as compared to 2001 (53mn Nos.0 2056. Sales for the H1 F12/03 stood at Rs2171mn as against Rs1995mn in H1 F12/02.4 12. is the result of increased volumes in the automotive and industrial sectors. The robust increase in the net profit recorded for H1 F12/03. on account of its strong presence and implementation of growth strategies. Net profits for the 2002 stood at Rs204.6 Growth (%) 9 129.a significant increase of 88%.7 Equity 452.7.).4) APAT Financial Highlights 112.5 Extraordinary items (13.5% to Rs4.The topline grew by 13.0 Interest (33.

8 (14.0 4198.2 126.0 4642.1 14.2) (109.4) 269.9 796.0) 396.1 452.9 323.(Mn) 2000 56576 1961 2000 54039 1961 2000 9 3396 213 2001 52987 1559 2001 52634 1539 2001 60 3335 178 2002 62052 1318 2002 62586 1398 2002 56 3824 177 October 18.9) (125. Components & Accessories For Textile Machinery Sales Value Bearing Accessories & Maintenance Products (Traded) Bearings (Ball & Roller) Spares.9 5136.1 (71.0 141.2 (3900.0) (24.2) 329.6) (274.2 10.4) (3485.1) 742.2 Production Trends & Segmentwise Revenues Production Bearings (Ball & Roller) Spares..1 (127.3 0.6 452.1) 204.0) (275.7) (331.(Mn) Rs.6 5.Indian Ball Bearing Industry : This Ball is on a Roll.8 (12.0) (152.6 452.0 255.8 12.0 160.0) (280.0) 510.5 2003E 2004E (12) (12) 4463 4976 180.6 12.0) (40.5 (3210. Components & Accessories For Textile Machinery Sales Volumes Bearings (Ball & Roller) Spares.2 204.9 323.8 452.6 713.(Mn) Rs. Components & Accessories For Textile Machinery Unit ‘000 ‘000 Unit ‘000 ‘000 Unit Rs.1) (4340. SECTOR RESEARCH Period to Rs mn Sales Other income Total income Expenditure Operating profit Interest Depreciation PBT Tax PAT Extraordinary items APAT OPM (%) Equity EPS (Rs) December ending Company 2001 2002 (12) (12) 3573 4057 148.5 (203.0) 0.6) (37.9 476.7 7.6 2. 2003 20 .0 89..0 4.3 3721.

NRB Bearings SECTOR RESEARCH Recommendation BUY CMP 52 week H/L Market Cap Rs 115 Rs 130/52 Rs 1.13 Cylindrical Roller Bearing 16% Needle Roller Bearing 70% Investment Rationale Share Price Chart 250000 200000 150000 100000 50000 10-Oct-02 11-Nov-02 0 08-Jan-03 06-Mar-03 04-Jun-03 02-Jul-03 10-Dec-02 05-Feb-03 30-Jul-03 28-Aug-03 07-May-03 25-Sep-03 04-Apr-03 120 100 80 60 40 20 0 Diversified Product Range NRB has most diversified and specialized bearing and manufacturers almost all types of bearing.. 2003 21 . NRB has already entered talks with some of the major OEMs. This has resulted in NRB Bearings to achieve leadership in the Indian needle roller bearing markets with the market share of 70%.Indian Ball Bearing Industry : This Ball is on a Roll. Waluj. Segment-Wise Share Ball & Roller Bearing 14% Share Holding Pattern Promoters Institutional Investors Other Investors General Public % 84.It the first company in India to manufacture Needle Roller bearings. cylindrical roller bearings.91 4. The company renamed itself to NRB Bearings Ltd. It is into manufacturing of needle roller bearings. In this move. NRB has successfully developed customization and applications expertise as their strength. France.which presently accounts for only 6% of total sales. Sona Steering. spherical roller bearings. With a continual drive on tailoring bearings to meet specific needs. Export Potential The company is eyeing on the export market. The company has also taken up the manufacturing of ball and taper roller bearings. NRB manufactures over 600 different types of bearings at its plants located at Thane. NRB expects the Share of exports to contribute 10% of total sales by 2004. Telco. NRB is also exploring the possibility of tapping replacement market October 18. it has already started getting its facilities QS 9000 certified being prerequisite to supply to many markets. Mahindra & Mahindra. In tapered roller bearings and in ball bearings. NRB is focussing on manufacturing of ‘specials’ for selected customers like Maruti.It is also manufacturing ball bearings for two and three wheeler segments.as Needle Roller Bearing Company in joint venture with Nadella.39 1. In the needle roller bearing segment NRB Bearings commands market leadership with around 70% of market share and notable market share of 16% in the cylindrical roller bearings.. The wide product range has confirmed it strong position in virtually each segment of the industry. Aurangabad and Hyderabad.57 9..1bn Incorporated in 1966. crank pins and wide inner ring bearings. in view of diversified range and types of bearings being manufactured. ball bearings. tapered roller bearings. Jalna.

4mn in Q1FY03.5mn in Q1FY04 to Rs2.6 to Rs12. The net profits of the company for Q1FY04 have increased from Rs22.The bottom line of has increased by 19% from Rs381mn in FY02 to Rs321mn in FY03. The company is also increasing to expand its dealer network in the lucrative regions of semi-urban and rural market In order to increase the overall reach it is planning to set up country wide plan.1.The EPS for the same period has significantly increased from Rs7. October 18. Valuation At the current price of Rs114. At present Renault Vehicle Industries . the stock is trading at P/E 8x FY04 of Rs14.7mn in FY02 .France is sourcing components for its truck division from NRB. 2003 22 . Financial Analysis The net profits of the company grew 42% yoy to Rs130.4 in FY03.1mn in Q1FY03..1mn in FY03 as against Rs91.4% from Rs5.2. Technical collaboration with Nadella.The interest burden has dipped by 56. Interest expenses have significantly decreased by 36%. These initiates will aid the company to increase its penetration in lucrative areas and margins being higher in case of replacement market will translate in higher margins.The net sales of the company increased from Rs1284mn to Rs1454mn for the same period. on account its strong dominance in market and diversified product portfolio. SECTOR RESEARCH in Asian and European countries. In order to increase its penetration in replacement market it is focusing on market development.. The EPS increased from Rs9. We expect the company to show better results.5 in FY02 to Rs13. It plans to develop new products to cater to the requirements of international market. France will prove significant in achieving the export targets.Indian Ball Bearing Industry : This Ball is on a Roll.5mn as compared to net profit of Rs49. Eyeing penetration in replacement market The company is all set to garner higher share in replacement market.

0 137.7 Total income 386.2 FY05E 2076 22.9 Equity 96.1 Period to Rs mn Sales Other income Total income Expenditure Operating profit Interest Depreciation PBT Tax PAT Extraordinary items APAT OPM (%) Equity EPS (Rs) December ending Company Q1FY03 (3) 321 5.0) 118.9) 91.7 Expenditure (301. SECTOR RESEARCH Financial Highlights Period to Q1FY04 Rs mn (3) Sales 381 Other income 5.8 (103.0 96.1 0.9 EPS (Rs) 12.0 91.1) 175.0) (108.3 FY03 (12) 1454 27.9 18.6) (105.7) 330.0 2098.5 0.4) PBT 57.6 1481.2 FY04E 1730 22.5 326.1 76.0 22.0 130.8 (9.6 18.0) 218.6 0.9 14.4) 130.0) 22.9 (81.9) 144.7) 395.4) PAT 49..6 (52.2 (100.7 18.7) 208.7 (1051.7 1318.8) APAT 29.Indian Ball Bearing Industry : This Ball is on a Roll.5) 32.0 175.9 0.5 (1702.5) (23..5 October 18.4 (1418.5 17.0 (17.9 (16.5 Tax (8.7 (1151.9 13.4) 8.8) (103.4) Depreciation (25.9 9.4 Growth % 19 3.9 18.1 FY02 (12) 1284 34.3 Interest (2.1 Extraordinary items (19.7 0.0) 61.3 (27.6 18. 2003 23 .5 (9.9 9.4 13.4) 267.5 (265.7 (56.0 96.0) 137.8 96.0) 30.8) (94.1 20.5 (5.0 1752.5 (78.0) 278.1 96.7 38.3 OPM (%) 20.5 (10.9) 333.4) Operating profit 85.4 96.

(Mn) Rs... SECTOR RESEARCH Production Trends & Segmentwise Revenues Capacity Bearings (Ball & Roller) Components (Automobile) Electrical Steel Stamping And Laminates Loose Needle Rollers Needle Roller Brushes & Cages Production Bearings (Ball & Roller) Components (Automobile) Loose Needle Rollers Needle Roller Brushes & Cages Sales Volumes Bearings (Ball & Roller) Components (Automobile) Loose Needle Rollers Needle Roller Brushes & Cages Sales Value Bearings (Ball & Roller) Components (Automobile) Loose Needle Rollers Needle Roller Brushes & Cages Others Unit ‘000 ‘000 MT ‘000 ‘000 Unit ‘000 ‘000 ‘000 ‘000 Unit ‘000 ‘000 ‘000 ‘000 Unit Rs.Indian Ball Bearing Industry : This Ball is on a Roll.(Mn) Rs.(Mn) Rs.(Mn) Rs.(Mn) 2000 8025 1500 2001 10000 1500 2002 10500 2500 2003 10500 2500 500 500 2029120 2029120 32794 32794 2000 2001 6377 7110 1233 640 1223077 1174353 23554 21977 2000 6531 1126 589481 22777 2000 689 39 109 520 2001 6540 664 486525 20948 2001 717 24 91 496 25 500 500 2029120 2029120 35294 35294 2002 2003 7289 8230 1314 1674 1041570 1198754 23644 21299 2002 7310 1367 525232 22594 2002 785 54 100 536 1 2003 7835 1661 593815 20344 2003 878 83 110 605 1 October 18. 2003 24 .

the outer ring. Taper roller bearings accounts for of 30% to total production of bearings. Roller bearings can be further sub divided into Tapered Roller. The bearings are meant to reduce the friction between the moving part of an engine crankshaft or camshaft and its associated support surface. heavy industries and railways. Bimetal bearings (also known as engine bearings) are primarily used in the engines of automobiles or machines. The automobile industry is the major user segment for bearings. the precision in dimensions form a key factor to the performance of the machines as whole. or inner ring. or outer ring. Cylindrical Roller. Needle Roller.. the greater the ability of the bearing to handle thrust loads. SECTOR RESEARCH Annexure1 Basics of Bearing Bearing are used in the rotating parts of virtually every machine. Thrust bearings and other special application bearings.Anti-friction Bearings. It is critical component of any equipment that rotates.Tapered Roller Bearing Tapered roller bearings consist of four interdependent components: the cone. the cup. The taper angles allow the bearing to handle a combination of radial and thrust loads.. Bearings can be broadly classified into two segments: 1. the tapered rollers. October 18. the rolling elements. The main component of an anti-friction bearing are the inner ring. The steeper the cup angle. and the cage. Rotation movement is an indispensable characteristic in utilizing mechanical power. 2003 25 . Distrubution of Produc tion 6% 3% 7% 30 % 54 % Ball Bearing Needle Roller Taper Roller S pherical Roller Cylindrical Roller 1. or roller retainer.Indian Ball Bearing Industry : This Ball is on a Roll.Bimetals 2. or rolling elements. the cage and the seals. Anti friction bearings includes ball bearing and roller bearing. followed by general engineering.

. Double row angular contact ball bearings. even when marginal lubrication.Indian Ball Bearing Industry : This Ball is on a Roll. SECTOR RESEARCH 2. gear drives rolling mills etc. October 18. The different types of Ball bearings are Single row deep groove ball bearings. lowest in the industry.. Double row self aligning ball bearings.Cylindrical Roller Bearing In this type of bearings. The rollers are guided between two lips on either the inner race or the outer race. 2003 26 . contamination.Spherical Roller Bearing They are designed to manage high radial loads and perform consistently. These bearings are detachable and suitable for carrying only radial loads. 3. 5.Ball Bearing In this type of Bearing the steel ball are used in cage. they have the advantage of a very small difference bet. Bearings magneto type ball bearing. oil field.Needle Roller Bearing Needle roller bearings comprise of special form of cylindrical roller bearings in which the rollers are of a very small diameter and comparatively long therefore. accounts for 3% of total production of baerings. It accounts for 6% of total production of bearings. mining and aggregate processing wind turbines. the cylindrical roller bearings have very high radial load carrying capacity as compared to ball bearings of the same size. Angular contact ball bearing. 4. however they may be ground slightly curved in order to achieve small degree of flexibility. It accounts for 7% of total production of bearings. extreme speeds and critical-application stress are present. Due to line contact. Double row deep groove ball. Potential applications of SRB are seen in power generation. the rollers racetracks are essentially cylindrical. Ball Bearings have a point contact on the races whereas all types of cylindrical roller bearings have a line contact. Ball bearings market has highest production and accounts for 54% of total production of bearings.

2003 27 . the cone assembly and cup will be thoroughly washed in the washing machine by Kerosene by pressure jets and then dipped in anti rust preventive oil.Indian Ball Bearing Industry : This Ball is on a Roll..Grinding of End Surfaces 3. The assembly of the bearings consists of putting finish-graded rollers in the cage along with cone and closing with closing die in the press.Rough Grinding of outer Dia and Bore 2. The process involves: Preheating—>Hardening—>Marquenching—>Annealing (Tempering)—>Washing Step3 Grinding 1. who are specialized in bearing races turning. Step2 Heat Treatment: Turned races are heat treated on salt bath furnaces for hardening and tempering.Finished Grinding of outer Dia and Bore 4. then will be put in the cartoon manually. October 18. after this the process of TURNING is provided by the outside vendors at the premises of the suppliers only. SECTOR RESEARCH Annexure2 Manufacturing Process Step1 Rolled / Forged Rings are procured from the suppliers. Step 6 Packing: After the above steps. bearings are put in the pillow wrapping machine and puch packed and sealed.Superfinsihing Grinding of the Tracks Step4 Demagnetizing and cleaning Step 5 Inspection and Assembly All the components are again checked thoroughly in different specified checks and segregated for different tolerance levels. The cup is separately put on the cone assembly.. After this.Rough Grinding of the Tracks 5.Finished Grinding of the Tracks 6.

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