Indian bearing market is estimated at Rs 95 billion and it constitutes less than 5% of global bearing demand. In terms of consumption, about 60% requirement is catered through domestic production while remaining is met through imports. Indian market is dominated by international majors as well as indigenous players like NEI, NRB and others. While there are large numbers of players present in the industry, the competitive intensity is moderate as top 5 players constitute ~80% of market share. Major market holders are having a robust technology collaborations with their parent foreign holding group which is a strength as bearings require highest standards of quality because of their end use in critical machine parts.
Market share of top players
SKF India: 27%
Schaeffler India: 16%
Timken India (including ABC Bearings): 10%
NRB Bearings: 6%
Let us get into the attributes of this industry.
Bearing as a component is in itself quite excluded with each category placing its important use in different machines/machine parts and not limiting to a specific manufacturing industry. Bearings have an extensive use both in industrial sector and automobile sector because of its functionality for which it is made; constraining relative motion to only the desired motion, and reducing friction between moving parts.
Types of bearings
- Plain bearings: Are the least expensive and most common type of bearing, compact and lightweight with high load carrying capacity. As being capable of running indefinitely they are used in very critical applications where failure of bearings might have severe consequences. Thereby used for power plant steam turbines, compressors operating in critical pipeline applications, ship propeller shafts; almost exclusively in engines.
- Rolling-element bearings: Includes further – Ball bearings, Cylindrical roller bearings, Spherical roller bearings, Gear bearings, Tapered roller bearings, Needle roller bearings. Their application is for aviation cargo systems, engines, agriculture industry, heavy equipment and machinery, solar panels, medical equipment, automobile industry, power houses and many others.
- Jewel Bearings: with largest use in mechanical watches.
- Fluid Bearings: are frequently used in high load, high speed or high precision applications where ordinary ball bearingswould have short life or cause high noise and vibration.
- Magnetic Bearings: used in several industrial applications such as electrical power generation, petroleum refinement, machine tool operation and natural gas handling.
- Flexure Bearings: often used in sensitive precision measuring equipment.
Thus numerous industrial/automobile manufacturers use varied kinds of bearings considering size, load capacity, shape, material, lubrication, principle of operation, and so on.
Segregation of the Industry
Broadly the bearings industry is classified on the basis of the end market use in 2 sectors; Automobile bearings and Industrial bearings.
Automobile Bearings Industry:
The share of this segment is ~48% which is quite higher than the global level of ~37%. It stands out to be the single complied up segment for being the largest consumer of bearings in India. The Auto sector in India contributes ~7.5% to GDP. Two wheelers attracting demand the most owing to a growing middle class and a young population followed by passenger cars.
Annual Production data of mobility sector of past 5 years
Annual growth in mobility sector over last 5 years
Launch of “Automotive Mission Plan 2016-2026” as it focuses on infusion of multiple times growth of automotive sector and auto parts sector. The key highlights of the mission are:
a. Indian automotive industry to grow 3.5 to 4 times of the current value of USD 74 billion to USD 260 billion to 300 billion.
b. By 2026, passenger vehicles likely to increase between 9.4 – 13.4 million units, commercial vehicle between 2.0 – 3.9 million units, two wheeler to grow to 50.6 – 55.5 million, and tractors to 1.5 – 1.7 million units.
c. Contribute over 12 percent to India’s GDP.
d. The industry will look to increase exports multi-fold to reach 35-40 percent of overall output.
e. Auto Component to grow to Rs 593,500 crore – Rs 732,000 crore.
% of Topline covered by Automobile segment of top 5 players
- SKF India: 50%
- Schaeffler India: 52% (Post merger of INA Bearings India Pvt. Ltd.)
- NRB Bearings: 62%
- NBC: 60%
- Timken India: 45-48%
Growth opportunities for Automobile Bearings Segment
- Growing demand for automobiles in India; on account of rise in middle class income and young population.
- India is expected to become a leader in shared mobility by 2030 providing opportunities for electric and autonomous vehicles.
- of India aims to develop India as a global manufacturing centre. India also attracts investment in the sector due to cost advantage.
- Planned capital expenditures by automobile manufacturers, to name a few Ashok Leyland, Mahindra & Mahindra, Hyundai, Mercedes Benz.
- The Ministry of Heavy Industries, Government of India has shortlisted 11 cities in the country for introduction of electric vehicles (EVs) in their public transport systems under the FAME (Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles in India) scheme. The government will also set up incubation centre for start-ups working in electric vehicles space.
On the minimum side, a car requires 36 bearings and obviously varies with the model.
Observing these growth opportunities for Automobiles and Auto components, Bearings market is a lot expected growing segment.
Industry bringing modifications for emerging electric vehicles market
Government launched the scheme namely Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME India) under National Electric Mobility Mission Plan 2020 in the Union Budget for 2015-16 to provide a major push for early adoption and market creation of both hybrid and electric technologies vehicles. It is expected that with the launch of the aforementioned scheme, market for hybrid and electric vehicles will gain momentum for all the vehicles segments including 2W, 3W, 4W, LCVs and Buses.
Government of India’s projected its vision of 100% e-mobility by 2030 around March 2018, but came out with a more realistic view as a wake up and set 30% electric vehicles by 2030.
Electric vehicles require far less number of bearings and major configurations to suit such vehicles. Many of the players have come out with different opinions on how they are to take up R&D for such upcoming change and are of the view that number of bearings will fall down by 15-20% but value wise there might be rise because of the quality requirements and backing R&D costs.
Such a reality is possible with a lot of efforts needed on the infrastructure modifications and subsidy support for electric and hybrid vehicles to make these saleable.
Industrial Bearings Industry:
Industrial segment constitute ~52% of domestic bearing demand which is largely driven by general machines/motors, electrical equipment (fans/appliances) as well as heavy industries.
The user industries of this segment include broadly Mining, Manufacturing and Electricty whose performance is indicated by Index of Industrial Production (IIP).
Monthly IIP growth (%) from September 2017 to September 2018
Growth of core industries till September 2018
1. Coal Industry
2. Steel Industry
3. Cement Industry
4. Electricity Generation
The performance of the core industries impacts the growth of industrial bearings segment. YOY each industry has shown positive trend and that is the back story of growth for bearings manufacturers in India.
Growth opportunities for core industries:
Cement Industry: Due to the increasing demand in various sectors such as housing, commercial construction and industrial construction, cement industry is expected to reach 550-600 Million Tonnes Per Annum (MTPA) by the year 2025.
A large number of foreign players are also expected to enter the cement sector, owing to the profit margins and steady demand. In future, domestic cement companies could go for global listings either through the FCCB route or the GDR route.
Steel & Coal Industry: Rise in infrastructure development and automotive production are driving growth in the metals and mining sector in India.
Power & cement industries will aid the growth in metals and mining. The Ministry of steel, Government of India aims to more than double the steel production capacity to 300 million tonnes by 2030-31, indicating new opportunities in the sector.
Allowance of 100% FDI in the mining sector and exploration of metal and non metal ores under the automatic route.
There is significant scope for new mining capacities in iron ore, bauxite and coal and considerable opportunities for future discoveries of sub- surface deposits.
Infrastructure projects continue to provide lucrative business opportunities for steel, zinc and aluminium producers. Aluminium production is forecasted to grow to 3.33 million metric tonnes by FY20.
Iron and steel make up a core component of the real estate sector. Demand for these metals is set to continue given strong growth expectations for the residential and commercial building industry.
Electricity generation: The Government of India has released its roadmap to achieve 175 GW capacity in renewable energy by 2022, which includes 100 GW of solar power and 60 GW of wind power. The Union Government of India is preparing a ‘rent a roof’ policy for supporting its target of generating 40 gigawatts (GW) of power through solar rooftop projects by 2022.
Coal-based power generation capacity in India, which currently stands at 196.10*GW is expected to reach 330-441 GW by 2040##.
The 2026 forecast for India’s non-hydro renewable energy capacity has been increased to 155 GW from 130 GW on the back of more than expected solar installation rates and successful wind energy auctions#.
India could become the world’s first country to use LEDs for all lighting needs by 2019, thereby saving Rs 40,000 crore (US$ 6.23 billion) on an annual basis.
All the states and union territories of India are on board to fulfil the Government of India’s vision of ensuring 24×7 affordable and quality power for all by March 2019, as per the Ministry of Power and New & Renewable Energy, Government of India.
These upcoming industrial opportunities set a great road map for Industrial bearings in India.
Concerns for the Bearings Industry
- Regulatory requirements of emission rules and improved safety norms demands for reduced vehicle weight and lower friction technology. Customers require lighter weight, intelligent vehicle control and of course low noise and improved reliability from their vehicles. It clearly requires companies to have robust R&D and new production facilities to cater such specifications.
- The companies with technological partnership with their foreign group entities do put forward as on stronger hold as compared to the Indian companies with no foreign collaborations as they have the advantage of tried and tested technical competencies before being brought into India.
- Raw material cost accounts for around 60-62% of bearings manufacturer’s revenue. Bearings are mainly manufactured using high grade steel or alloy steel, which exposes them to global steel price movement. Though the top players have the advantage of increasing prices on the back of technical know-how and quality standards, but still increasing input cost is a big hurdle to increase the margins beyond a constant level.
Global overall Steel Price Index
- Lastly the globally elevated crude price.
Considering the opportunities set in several industries along with prospective initiatives by Govt. of India, the Indian bearings industry has a great forseeable rodamap ahead. This makes the industry an opportunity for investors. Not all companies are investible and clearly the valuations have to been justifiable, but the industry is worthy of in depth research and continuous observing its performance.
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References: Economic times Auto, Companies’ Annual reports, Media reports, Society of Indian Automobile Manufacturers (SIAM), Automotive Component Manufacturers Association of India (ACMA), Central Statistics Office (CSO), Database on Indian Economy, RBI, Office of Economic Adviser