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The bearing sector reported fall in profits in the quarter ended September 2008, largely due to spike in input costs and inability to fully pass on the same to customers. Though the revenues grew, the costs surged leading to fall in profits.
The Rs 5000 crore bearing Industry in India can be divided into two segments - the organized sector and unorganized sector. The organized sector primarily caters to the original equipment manufacturers' (OEM) segment, which are predominantly automotive, railways and other industrial users. While, the unorganized segment includes small-scale manufactures and manufactures of spurious bearings. Even though this segment is relatively small, the players in this segment have strong regional presence and cater by and large to the needs of replacement markets.
Plan Expenditure:
In order to provide a contra-cyclical stimulus via plan expenditure, the Government has decided to seek authorisation for additional plan expenditure of upto Rs 20000 crore in the current year. In addition, steps are being taken to ensure full utilization of funds already provided, so that the pace of expenditure is maintained. The total spending programme in the balance four months of the current fiscal year, taking plan and non-plan expenditure together is expected to be Rs 300,000 crore.
Reduction in Cenvat:
- Excise duty cut on ball and roller bearings from 14% to 10%.
- Excise duty on ferrous and non ferrous inputs cut from 14% to 10%.
Impact
Bearings largely find its use in two kinds of market, one the OEMs and other the after sale / replacement market. The entire benefit of cut in excise duty has to be passed on, in respect of sales to auto and industrial OEMs. However, the players can retain part or full of the cut in excise duties, in respect of after sales/replacement market sales. So, players with greater share of revenues from replacement market will benefit more than players with greater share of revenues from OEMs.
Outlook
If the government stimulus pack helps improve the demand for auto sector, then it will add demand for bearings sector. Even if this does not happen in the short term, the bearing sector will still benefit from better margins in the replacement market by not fully passing on the excise reduction benefits. Players with greater share of revenues from after sale or replacement market will be optimally benefited from the general reduction in excise duty from 14% to 10%. While the outlook for those having larger share in the OEM segment remains neutral.
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