Apr 4, 2011|
SKF vs FAG: Bearings biggies face off (Part I)
That India has emerged one of the fastest growing economies in recent times is a foregone conclusion. The same is likely to hold true atleast for the next decade as well. Not surprisingly then, sectors like auto and industry, which are a direct play on Indian economy, will also continue to do well. Infact, by virtue of their growth prospects, they have the capacity to leave even the Indian economic growth far behind.
The bearings industry, which derives a lot of its demand from the automobile sector and few of the other manufacturing sectors, is also likely to see good times ahead. Quite naturally then, investors would be keen to profit from this trend by buying shares in companies that manufacture bearings. But which bearings company can turn out to be a good investment from a long term perspective? We will make an attempt to answer the same through this series.
Over the next few articles, we will compare SKF India and FAG Bearings, two of the biggest bearings companies in India and try and make it easy for you to bet on the horse most likely to win this long term race.
An overview of the Indian bearings industry
Every machine or product that moves or rotates more often than not has bearings in it. Bearings help in reducing friction between moving parts thereby facilitating movement with optimal use of energy. Ball bearings are the most commonly used bearings commanding around 60% of the total bearing market followed by taper roller bearing which accounts for 25% of the total industry size.
The Indian Bearing market can primarily be divided into 2 sectors - Automotive and Industrial. Each of these segments may further be sub divided into OEM & End Users. Original Equipment Manufacturers (OEM) are the major users of bearings in India with about 60% market share while the end user segment contributes to the remaining. Within the OEM's, the Automobile segment consumes the largest share of bearings followed by the industrial sector.
The supply structure within the bearing industry is dominated by the domestic bearings manufacturers who account for 75% of the total demand. Balance is met through imports. Imports constitute both supplies of niche products not manufactured in India as also cheap imports from neighbouring nations.
As far as threats are concerned, steel and alloy steel constitutes the single largest component of the cost of bearings. Hence, margins of bearings manufacturers are susceptible to movement in steel prices. Another threat is that of cheap low quality imports. It should be noted that many of these imported bearings are being sold in the market as spurious bearings. As per estimates, these account for 20%-30% bearings sold in the replacement market. However, as technology improves and awareness increases, spurious bearings should see destruction of demand in the years to come.
Thus the fortune of bearings sector is a critical indicator of the direction in which the economy is moving. In the next article we will focus on how the topline growth of two of the biggest names in the sector viz. SKF and FAG Bearings has moved over the past few years and what factors have been responsible for the same.
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