Bearing sector is witnessing rising cost on the one hand and increasing dumping, especially from China on the other. Also, counterfeit bearing products account for nearly 20 to 30% of the bearings sold in the replacement market.

Traditionally, the Indian bearing industry can be broadly divided into automotive and industrial segments. Automobiles constitute the single largest user industry of the bearings sector. In both auto and Industrial segment, bearing sector supplies to both OEMs (Original Equipment Manufacturers) and Replacement market (After market).

NRB Bearings indicated that OEMs account for 65% - 70% of the demand while the rest is supplied to the Aftermarket (18% - 20%) and Exports. The domestic ball and roller bearings industry has till recently focused on small and medium diameter range bearings consumed by large volume industries like Automotive, Engineering, Power transmission, Renewable Energy, Railways etc. Now the industry is intensifying focus on large size bearings in their manufacturing plans to capitalize on growing demand for such bearings.

The automotive market mainly uses taper roller bearings, deep groove ball bearings and hub bearing units. Bearings find application in industrial segment in off highway vehicles, industrial drives, energy, railways, metal, mining, pulp & paper and cement etc. Industrial segment use spherical roller bearings, cylindrical roller bearings, slewing bearings, etc.

Aggregate of 12 bearing companies recorded mere 6% increase in net sales to Rs 1586 crore in the quarter ended March 2012. The growth in revenues decelerated sharply from 15% increase in the nine months ended December 2011 to about 6% in the quarter ended March 2012. This is partly due to sharp deceleration in the production of automobiles.

The operating margins of the sector improved by 30 basis points to 18.7% in the quarter ended March 2012. The depreciation of Indian rupee has marginally dented the competitiveness of imports from China, which has helped the players to marginally improve their share of the high margin replacement market. Finally, the sector recorded mere 5% increase in net profit to Rs 184 crore in the quarter ended March 2012.

SKF India

SKF India reported 8% rise in net profit to Rs 65.97 crore on 8% fall in net sales to Rs 580.35 crore, 42% rise in other operating income to Rs 6.76 crore and 266% surge in other income to Rs 10.90 crore. Other income included profit on sale of fixed assets used in the business of textile machinery components amounting to Rs 6.26 crore during this period. So, at PBT before EO level, the company reported mere 2% increase to Rs 93.14 crore during this period.

SKF India indicated that it derives 50% of revenues from auto sector, and the rest from various other industries including steel, cement, power, wind, textiles, Oil &Gas, defense, capital goods, construction equipments etc. Globally, Asia now accounts for 20% of total sales for SKF group as a whole, with Indian operations account for 26% of total sales of SKF Asia in 2011.

FAG Bearings

Fag bearings has been stepping up its exports from Rs 58.34 crore in 2009 to Rs 100.42 crore in 2010, which further increased to Rs 158.03 crore in 2011. To step up exports, the company continues to pursue growth through continued business development, Research and development, productivity and technology innovation.

Fag bearings reported 8% increase in net profit to Rs 46.31 crore on 17% rise in sales to Rs 360.10 crore, 75% rise in other operating income to Rs 3.20 crore and 59% rise in other income to Rs 11.27 crore.

Dr. Jürgen M. Geissinger, President and CEO of Schaeffler Technologies AG & Co., KG, Germany said, "We are anticipating particularly North America, but also China, India, and Russia providing impetus for growth. Based on these forecasts, we are currently aiming for sales growth of more than five percent and an EBIT margin of more than 13 percent in 2012. These targets mean our growth will continue to outpace that of our core markets." The parent company holds 51.33% stake in Fag Bearings India, through FAG Kugelfischer GmBH.

The parent company's operations are spread out in four continents through 75 companies. It is a preferred supplier to automobile majors like GM, Ford, Volkswagen, Volvo and Daimler Chrysler. Further, with lots of MNC automobile giants coming to India and those who are already in India are adding new variants to existing model, the demand for bearings in India will continue to grow and these Automobile companies would like to prefer a dedicated domestic partner for their ancillary requirements. This is likely to benefit Fag Bearings India in the form of increased demand from these players, as they would prefer Fag Bearings India to any other player due to their relations with FAG Germany.

NRB Bearings

NRB bearings plan to set up a Joint Venture company NRB IBC Bearings Private Limited, which will manufacture super precision bearings.

NRB bearings also plans to hive off its industrial bearings business into a separate business entity NRB Industrial Bearings, effective from 1^st October 2012. Earlier, this scheme was supposed to become effective from 1^st April 2012, but vide a meeting on 16^th March 2012, the Board decided to advance the date of demerger to 1^st October 2012, subject to various approvals.

NRB bearings has 73.45% stake in SNL Bearings, which is a listed entity. Schneeberger India Private Limited is a Joint Venture between NRB Bearings and Schneeberger Holdings AG, Switzerland. The JV is an exclusive agent in India for market and sales of Schneeberger products. Schneeberger products find application in machine tools, semiconductor robotics automation, metrology medical equipments packing machinery etc.

NRB Bearings reported 3% fall in net profit to Rs 13.06 crore on 11% increase in net sales to Rs 143.75 crore and 46% spike in other operating income to Rs 7.16 crore, in the quarter ended March 2012.

Timken India

Timken India reported 22% fall in profits to Rs 18.01 crore on 4% increase in sales to Rs 170.99 crore, 38% improvement in other operating income to Rs 1.88 crore and 63% spike in other income to Rs 6.58 crore in the quarter ended March 2012. US-based Timken Company, a major manufacturer and supplier of bearings, alloy steel, power transmission components etc, currently holds 80.02% in Timken India as of March 2012.

Expansions, and move up the value chain by SKF India

In Calendar Year 2011, Hardiwar operations continue to augment its capacity and the company incurred a Brownfield expansion in Bangalore as well which has also started production. For 2012, the company plans for further Brown field expansion in Pune and Haridwar plants at an outlay of Rs 80-100 crore. These plans will not only improve capacity, but will also bestow high end technology benefits for the company.

SKF India has already ventured into manufacturing tracking systems and gears used in solar power and wind segments. The company is also present now in high end bearings for off highway customers, which will drive demand as newer and larger players are coming in India and has selected India as a base.

SKF India benefits from EO income, forex gain and change in accounting policy

The Parent SKF has changed its accounting policy regarding allocation of global expenditure to its subsidiaries. Previously, onshore salaries, travel etc costs were grouped at group level and were allocated to respective subsidiary. However, from now on, the Parent will not allocate such expenses to respective subsidiaries, but will directly charge higher royalty and technology fees. Accordingly, for Q1, CY'12, there was a saving of Rs 12 crore, which would get adjusted out in subsequent quarters. However, as per the management, because of the change in policy, SKF India will gain and the total costs in terms of such allocable expenditure for CY'12 will be lower than CY'11.

The forex rate for all the imports to be made by SKF India from the Parent is fixed at the beginning of the year and subsequently whatever rates fluctuate, SKF India has to bear the same by the year end. The company predominately imports in Euro and any depreciation of rupee will hurt to some extent. However, for Q1 CY'12, there was a forex gain of Rs 5-6 crore, as the company hedged it very well.

Change in accounting policy by parent, forex gain and Rs 6.26 crore of profit on sale of fixed assets facilitated SKF India to report 8% rise in profits in the quarter ended March 2012. Otherwise, the company would have actually reported fall in profits during this period.

Outlook

Automobile sector recorded nearly 14% growth in production, including 20% increase in production in commercial vehicles in FY 2011-12. But the growth decelerated sharply to mere 8.2% growth in auto production in April-May 2012, with 1.3% fall in commercial vehicle production. The current fiscal is set to witness deceleration in the pace of growth in auto sector. On a relative basis, the demand from OEM is sluggish, but the demand growth is better in the high margin replacement market. However, the replacement market is dominated by small and medium enterprises, and also sharp acceleration in the pace of imports. In this regard, the sharp depreciation of Indian rupee in the recent times has marginally dented the competitiveness of Chinese players in the domestic replacement market, which augurs well for the domestic players.