Indian Automotive Bearings Market - Horizons Expanding?

Published: 19 Jul 2004 By Pooja Verma The dawn of the 'speed age' has ushered in breathtaking growth in the Indian automotive industry. Such is the growth of the industry that the market is flooded with new entrants. Due to increasing competition, manufacturers are bringing in new models with advanced technologies in every vehicle segment. This has led the market for automotive components to grow at a rapid rate. We are only seeing a modicum of that growth today as the investments in the auto component industry are increasing at a phenomenal rate every year. Bearings are an important part of automotive components. There are various types of bearings such as ball bearings, tapper head bearings, cylindrical bearings, sphere bearings, and needle bearings. However, in the automotive industry, only ball bearings and tapper head bearings are largely used. Participants such as SKF bearings (leader in ball bearings market), ABC Bearings (leader in tapper head bearings market), FAG; and Timken {The Timken Company} are dominating the market. Manufacturers are building their competency through manufacturing specific bearings. The existing participants are entering into multiple alliances with the MNC's and with the vehicle manufacturers. Foreign manufacturers have started their subsidiaries in India with a 50 percent stake in management. With the increase in number of models and new types of vehicles entering the market, there is an increase in demand in the OE segment. Due to this, the number of participants entering the market has been increasing. Market Size The current Indian bearings industry is worth Rs.3, 000 crore. In this, automotive segment accounts for 45 percent of the revenues, which amount to Rs 1,350 crores and the remaining 55 percent of revenues are being contributed by industrial demand. In the automotive bearings market, the organized segment manufactures cater to 50 percent of the demand. About 15 percent of the production is by the unorganized segment in India, and the remaining 35 percent of demand is fulfilled through imports. Out of the total revenues in the automotive segment, 60 percent of the revenues are contributed by the OEMs and the remaining 40 percent is by the demand from the aftermarket. There has been a growth of 15 percent in the aftermarket segment and OE demand has increased by more than 25 percent from the financial year 2002 - 03.Though the demand from the aftermarket segment is increasing, the growth rate is declining compared to the year 2002 - 03. In the aftermarket, 6 percent demand is from the engineering applications segment, 5 percent from LCV segment, 4 percent from MUV segment, 8 percent from car segment, 11 percent from tractor segment, and the remaining 15 percent from automotive ancillary segment. Rest of the 50 percent demand is from the Railway sector. Market Trends The market for automotive bearings is growing at a rate of almost 25 percent per annum in the year 2003 - 04. This is mainly because of multiple models in every vehicle segment entering the market. The overall automotive industry has grown at the rate of 34 percent per annum from the year 2002. Hence, a definite increase in the demand for bearings in the OE segment is anticipated. Aftermarket demand for automotive bearings is increasing, but at a slower rate as compared to the growth in vehicle population. Manufacturers are expecting sustained growth of 15 percent in the aftermarket mainly due to increase in population of two wheelers, passenger cars, and utility vehicle segments. Some of the restraints faced by the bearings manufacturers are longer life due to improved technology, improved fuel quality, and better maintenance of the vehicles. This reduces the replacement rate, which in turn leads to slower growth in the aftermarket demand. Increase of imports due to a 5 percent decrease in duty rates is affecting the market for the domestic participants. Vehicle owners prefer imported bearings due to lower costs. Cost difference is almost 50 percent between the domestic bearings and the imported bearings. For example, the bearings manufactured in India are priced at Rs.25 and the bearings imported from China are priced at Rs.12 in the year 2003 - 04. There is an increase in imports from China and South Korea due to lower costs and greater demand. There has also been increase in prices of domestic brands as the cost of production has gone up due to increase in steel prices. Indian manufacturers are also facing a threat from the spurious parts manufacturers who manufacture duplicate parts and sell them in the names of both domestic and foreign companies. This is the biggest threat to the Indian manufacturers as this eats away their share in the aftermarket and affects their growth. Indian manufacturers are taking multiple steps to overcome the challenges facing the Indian market. Manufacturers are investing more in research to develop better technologies, which increase the life of the bearings. Companies are giving a warranty of 1 to 2 years on the bearings. Domestic manufacturers are entering into technical alliances with foreign manufacturers to improve the technology being used. Domestic manufacturers are looking at foreign markets to increase their revenues. There is an increase in demand from the countries in the Middle East, Eastern Europe, and some of the countries in Asia Pacific. Government incentives such as reduction of duty rates and tariffs are likely to help boost the exports. The increase in exports is leading to an increase in installed capacity, production, and revenues of the domestic participants. On the other hand, multiple foreign companies are entering into joint ventures with the Indian manufacturers considering the increasing demand. Competitive Analysis The market for automotive bearings is extremely competitive. The number of participants in the automotive bearings market has increased in the past two years. Manufacturers have increased their production capacity looking at the increasing demand in the OE segment. Improved performance of the automotive sector has played a key role in triggering the competition for market shares in the automotive bearings markets. SKF Bearings is the leader in the ball bearings segment. FAG and SKF have captured the total ball bearings market with a combined share of more than 55 percent in the financial year 2003 - 04.FAG Bearings India Limited, which is a subsidiary of FAG Kugelfischer Germany, supplies to most of the automotive manufacturers, both in OE and aftermarket segments. The company supplies bearings to Bajaj Tempo Ltd., Tata Motors, Ashok Leyland, and Punjab Tractors Limited. ABC Bearings Limited is the market leader in the tapper head bearings and cylinder head bearings segment. ABC Bearings has entered into a technical alliance with NSK Bearings Ltd due to which the company received a contract from Toyota Kirloskar Motor Private Limited. There are many other companies such as NSK and New Hemisphere Bearings, which are present in the market. Japanese bearings manufacturer Hephaist Seiko has set up its plant in Bangalore and is expected to commence production from September 2004. There is a trend of technical and marketing alliances that is being observed in the market. The market is opening up to multiple foreign companies entering the market.

Distribution Channel The common distribution channel adopted by the domestic participants for distribution in the aftermarket is through distributors and retailers. The margins earned by the distributors average between 3 and 4 percent and the retailers earn about the same level of margins. The credit period given by the manufacturers ranges from 30 to 35 days. Distributors are given various trade incentives on achievement of targets. A well-set distribution channel accounts for more than 50 percent of the sales in the aftermarket. Technology Trends Improved technology is one of the basic factors driving the market as the vehicle owners are becoming quality-conscious. Companies in India have now set up their own designing units wherein they aim to achieve higher level of precision in designing. Manufacturing units are using techniques such as "process guazing" to improve the smoothness of the bearings. Emphasis is being laid on testing of bearings on the standards, which are set for testing of bearings. There is a greater level of importance being laid on the testing of the bearings by the manufacturers. Companies are increasing investments in research and development to come up with techniques, which lead to precise measurements. Timken Bearings has its manufacturing and research base in India. The company is investing in research and development to increase the product life and quality and has set up an R&D unit in Bangalore. Thus, technology is the key issue, which has to be looked into by the bearings manufacturers. Outlook The market for automotive bearings is defiantly expected to look up due to increase in the vehicle production and population in the aftermarket. Due to the growth in the overall automotive industry, the growth rate continues to look positive. The aftermarket for automotive bearings is expected to continue to remain competitive and is likely to depend on effective distribution channels and reasonable pricing. Technology will be the key factor affecting the market in the OEM segment. Competition will increase with the increase in the number of participants and joint ventures in the market. Demand for imported brands might affect the aftermarket due to lower prices. This will have to be countered by better quality and reasonable pricing by the Indian brands. Indian manufacturers will gradually have to start focusing on exports. With the increase in demand for Indian auto components globally, domestic manufacturers can shift their focus towards global markets and focus on increasing their exports. Automotive bearings market is a developing one and it is opening to foreign participants entering the market. The market for automotive bearings will continue to increase, nevertheless, Indian manufacturers will have to broaden their horizons and venture into further