New Delhi, July 6: With the automobile industry on the revival path, punters are zeroing on the bearing scrips. The fate of the bearings industry is linked to that of auto industry -- which is its main user. This coupled with the plans of the auto companies to launch newer models after the recent successes in the small car segment, will lead to higher demand for ball bearings. This is the reason why the stocks of the four bearing manufacturers touched their 52 week highs on July 5.SKF Bearings, the market leader, closed at Rs 1297.55 on July 5 as against Rs 890 a month ago. On July 5, the stock touched a 52-week high of Rs 1305. Similarly, NRB Bearings has zoomed from Rs 59 a month ago to a new high of Rs 102. Bimetal Bearings has, in the last six trading sessions, moved up from Rs 102 to Rs 142.4 (its 52-week high) on July 5. On NSE, too, the scrip scaled a new 52-week high of Rs 142.15. Fag Precision Bearings has moved up from Rs 38.9 to a new high of Rs 50.55 in just five sessions.
The performance ofalmost all majors players in the industry in the last fiscal had been bruised because of the recession in the user industry.
Operating as well as net profit margins were hit very badly. However, the trend is likely to be different in the current fiscal. SKF Bearings is expected to post a net profit of Rs 3.5 crore for the first-quarter as against a net loss of Rs 10.4 crore reported in the first quarter of 1998-1999. Another reason for the interest in the sector is the sector is likely shakeout in the industry. Analysts feel the stage is all set for an M&A drama to begin in the industry.
According to a study carried out by the Eastern India Ball Bearings Merchants Association on market trends by the year 2000, has predicted a shakeout in the industry (takeovers and mergers) with only the top few surviving from among the 500 big and small manufacturers at present. The main function of bearings is to help provide smooth frictionless movement of parts in a machine. The industry is highly capital andtechnology intensive.
Other than automobiles, bearings find usage in industries like machine tools, infrastructure sector and textiles.
The bearing industry suffers on account of smuggling. Smugglers, specially the ones operating through Nepal, earn a net margin of over 400-500 per cent on their CIF value. Thus, players find it very difficult to compete with them in the replacement market. Of the Rs 15,000-crore market, replacement sector constitutes 45 per cent and the remaining 55 per cent is held by the OEM market. About one-third of the replacement market is constituted by spurious products.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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