SKF India was incorporated in the year 1961 as a result of collaboration between AB SKF, Associated Bearing Company limited and Investment Corporation of India Ltd and the first manufacturing plant was commissioned in Pune in the year 1965.
SKF started its operations in India in 1923 and provides industry leading automotive and industrial engineered solutions through its five technology-centric platforms: bearings and units, seals, mechatronics, lubrication solutions and services. Over the years the company has evolved from being a pioneer ball bearing manufacturing company to a knowledge-driven engineering company helping customers achieve sustainable and competitive business excellence.
SKF’s solutions provide sustainable ways for companies across the automotive and industrial sectors to achieve breakthroughs in friction reduction, energy efficiency, and equipment longevity and reliability. With a strong commitment to research-based innovation, SKF India offers customized value added solutions that integrate all its five technology platforms.
SKF has a pan India footprint consisting of manufacturing facilities, offices, a supplier network of distributors and an employee base of dedicated professionals. In India, SKF has consolidated its operations in three different companies – SKF India Limited, SKF Technologies (India) Pvt. Ltd and Lincoln Helios India Ltd.
Business area of the company
The company has evolved from being a pioneer ball bearing manufacturing company to a knowledge-driven integrated solutions provider, helping customers achieve sustainable and competitive advantage.
Products
- Rolling bearings
- Mounted bearings and housings
- Super-precision bearings
- Slewing bearings
- Plain bearings
- Magnetic bearings and systems
- Industrial seals
- Automotive seals
- Lubrication management
- Maintenance Products
- Condition monitoring systems
- Power transmission solutions
- Test and measuring equipment
- Vehicle Aftermarket
Services
- Application engineering
- Asset management services
- Condition based maintenance
- Mechanical maintenance services
- Remanufacturing and customization
- SKF Training Solutions
What are bearings:
Bearings are small metal parts which assist in rotation. They are used in machines, engines, vehicles, etc. to reduce friction for movement, protect the parts, and help in not displacing from the location. These bearings are very complex to make and require advanced technology. Of course, counterfeit products are present in the market, but they don’t last long due to poor quality which also affects the brand of the players. This is how bearings looking like
The bearings industry globally is dominated by few players like Schaeffler, Timken, SKF, NTN, NSK, etc. who account for 60% of the industry. Similar pattern applies to the domestic market where the top five players account for 3/4th of the industry, Timken India, Schaeffler India, SKF India, NRB bearings and NBC.
The reason for domination being complexity of product requirements with specific application and technology to make it. A single passenger vehicle could contain 60 bearings to 140 bearing for a Light Commercial Vehicle. It is difficult to get the high Surface hardness of the bearing which requires use of superior technology, but smaller diameter bearings are relatively easier to make, hence attracting more competition. Further, inventory management is also a task as the number of SKUs are very high in this industry ranging from 1400 to 4000. This creates another entry barrier for the players.
Bearings form an important part of many types of machines and is available in variety of shapes and sizes. The primary objective of a bearing is to prevent direct contact between two elements that are in relative motion. This in turn helps to prevent generation of heat and friction.
Rolling element bearings is a type of bearing that includes rolling components in the form of either balls or cylinders. These types of bearings aid in the free movement of parts in a rotational motion. The rolling element bearings usually consist of the following components:
Inner ring/ Outer ring/ Rolling elements (rollers or balls)/ Cage/ Other elements of bearing apparatus
About the global bearings industry
- The global bearing market has an estimated value of between 42.81USD and 44.81USD billion.
- SKF estimates that the global bearing market grew by 6% to 9% in 2022. The growth was seen in both industrial and automotive markets, but slightly higher in industrial.
(Source: SKF FY22AR Pg no.- 31)
- In 2022, the global bearing market expanse is anticipated to grow at a CAGR of 10.6% from 2023 to 2030.
(Source: https://www.grandviewresearch.com/industry-analysis/bearings-market).
- The global bearing market will surpassed USD 50 bn and is projected to attain a CAGR of 8.5% from 2022 to 2032. In comparison, the Indian bearing market is expected to experience a higher CAGR of 11.3% from 2022 to 2027, with an estimated market value of USD 3.4 bn. The market’s growth is attributed to the increasing demand for ball bearings in industries such as automotive, construction, and mining equipment.
( Source: SKF India annual report)
Indian bearings industry:
- Indian bearings market accounted for a share of about 4.4% in the global bearings market in 2022.
(Source: SKF FY22AR Pg no.- 32)
- It is expected to grow the usage of bearings in several applications such as mining, automotive, infrastructure development and construction.
- TAM could grow at higher rate of 8-10% CAGR.
- It is estimated that more than 50% of the consumption of bearings in the country is met through domestic production. Meanwhile, less than 40% of the demand is met through imports and it has been declining due to increasing localization by multinational players operating in the domestic bearing industry.
(Source: IC Bearing Components)
Types of bearings:
- Ball Bearings: Ball bearings as the name suggests involves balls in a row as the rolling elements and this type of bearing gives very low friction when rolling but has limited load capacity. The usage of ball bearings is growing in two and four-wheeler vehicles as they can withstand both thrust and radial loads which could be attributed to the rise in demand for ball bearings and they accounted for the largest share of about 43%. in the global bearings market when split by type.
(Source: IC Bearing Components Pg. no.- 6)
- Roller bearings: The roller bearings segment in 2022 accounted for the largest revenue share of more than 47.37%. Against all odds, this segment is also appraised to continue its supremacy and materialize as the quickest-growing segment for the years to come. Bearings are virtually part of every kind of equipment’s or machinery, thoroughly ranging from automobile parts, farm equipment, and household appliances to segments comprising defence and aerospace equipment.
(Source: Timken Annual Report 2022)
- The remaining consists of an insert bearing mounted in a housing others.
Target industries:
Automotive:
- Bearings are used in an automobile are wheels, steering, pumps apart from internal combustion engines etc.
- The global automotive bearing market size was valued at $14.35 billion in 2022 & is projected to grow from $14.76 billion in 2023 to $19.46 billion by 2030, exhibiting a CAGR of 4% during the forecast period.
(Source:- https://www.fortunebusinessinsights.com/automotive-bearings-market-102229)
- The automotive industry in India is valued at over $222 billion and it makes up 8% of the country’s total exports and accounts for 7.1% of the GDP.
(Source:- Schaeffler technologies AR)
Auto Industry context and performance:
- The Automotive Market for India was valued at USD 100 billion in 2021 and is anticipated to hit USD 160 billion in 2027, inscribing a CAGR of 8.1% over the forecast period (2022-2027). The automobile sector accounts for 7.1% of India’s GDP and 49 % of the manufacturing GDP.
- Hence, the automobile sector in India is a significant driver of macroeconomic growth and technological advancement. Being a significant driver in the bearing market, it is said to propel India bearing market size from US$ 1,772.6 Mn in 2021 to US$3,374.4 Mn by the end of 2027.
(Source: Timken annual report)
Industrial sector:
- The Index of Industrial Production (IIP) grew by 3.1% to 133.5 in September 2022, as against the 2% forecast by the Ministry of Statistics & Programme Implementation (MoSPI).
- This growth was achieved on the back of rising manufacturing and mining output. There has been a significant increase in capital and infrastructure spending which is a strong indicator of the confidence the industry has in the changing tides of the Indian economy and its growing demand.
- In September 2022, the manufacturing sector grew by 1.8% to 134.3, mining output increased by 4.6% to 99.5, and power generation was up 11.6% to 187.5.
- The performance of the core industries is key to industrial growth as they make up around 40% of the IIP. These are electricity, steel, refinery products, crude oil, coal, cement, natural gas, and fertilizers. Government data revealed that the combined index of eight core industries grew 7.9% in September 2022, compared to the 4.1% rise in August 2022 and 5.4% in the year-ago period.
- Core output during the April- September of FY23 rose 9.6% against 16.9% a year ago.
(Source:- Schaeffler technologies AR Pg no. 47)
Automotive Aftermarket industry:
- It delivers innovative repair solutions in original-equipment quality. We offer comprehensive services to garages by conducting practical training seminars to enhance competency within the repair network.
- The Indian Automotive Aftermarket industry is forecasted to grow at a CAGR of 3.8% and reach $19.05 billion by 2025.
- With the average life of cars seeing an increase from 9.78 years to 11.33 years, people are now willing to spend on auto components like wheels, tyres, gears, suspension modifications, etc. Servicing needs have also increased, and there has been more demand for AV accessories.
(Source:- Schaeffler technologies AR Pg no. 49)
Market size of both the types of bearings:
Ball bearing: The global ball bearing market size was valued at $19.08 Bn in 2019 and is projected to reach $21.90 Bn by 2027, with a CAGR of 2.1 % during forecast period(2020-2027)
(Source:- https://www.fortunebusinessinsights.com/industry-reports/ball-bearing-market-101250 )
Roller Bearings: Roller Bearings Market Size was valued at US$ 21.05 Bn in 2018 and expected to reach US$ 26.71 Bn at 3.0% CAGR Forecast 2026.
(Source :- https://www.fortunebusinessinsights.com/industry-reports/roller-bearings-market-101249 )
Target industries where bearings are used and the possibility of growth in these industries:
- Railways: Auxiliary, Axel Box, Engine, Final Drive, Gear Box, Main Tractor motion, propeller shaft, transmission, wheel etc
- Aviation & Aerospace: passenger aircraft bodies, freight aircraft, helicopters, drones, aerospace engines, conveyors etc. This segment includes defense segment as well.
- Automotive: Passenger cars, passenger trucks, bus, commercial trucks, scooters, bikes, bicycles, etc
- Agriculture: Agriculture Trucks, Tractors, Loaders, Hay And Forage Equipments, Planting Machines, Floaters Tillage Machine etc.
- Electrical & Electronics: Alternators, Blowers, Compressors, Fans, Machine Tools, Power Tools, Pumps, Acs, Rolling Mills, Semiconductor Manufacturing, Computer Fans etc
- Construction: Cranes, Hydraulic Excavators, Asphalt Pavers, Motor Graders, Wheel Loaders, Off-Highway Trucks etc
- Mining: Crushers, Shaker Screens, Pulverisers, Shuttle Cars, Feeders, Mining Trucks, Excavators etc
- Others: This category includes the industries not classified above including wind sector.
Manufacturing locations of SKF
The company owns and operates 3 manufacturing units in Pune, Bengaluru and Haridwar, Uttarakhand in India. The company also has 4 solution factories. Co. has 50 new products in the pipeline as on 31st march 2022. The company also owns a plant in Ahmedabad, but this plant is outside the SKF India entity and part of the global company. That plant is mainly set up for making extremely large bearings – bearings of the size of a room.
Revenue break-up
During FY22, sale of manufactured goods accounted for ~54 % of revenues, followed by sale of traded goods (42%), sale of services (~2%) and others (1%). The company purchases a significant part of its raw materials, components and finished goods from its sister companies owned by the AB SKF, Sweden.
In terms of end industry, the revenue break-up of SKF is as follows:
Railways: 7%-8%
Wind: 7%-8%
Industrial aftermarket: 25%
Drives: 8%
Heavy: 2%
Metals: 2%
2-wheelers: 11%
Aftermarket: 11%
Trucks and tractors: 7%
4-wheelers: 6%
Powertrain: 6%
At high level, automotive constitutes 40% of the revenue, industrial constitutes 50% of the revenue and 10% comes from exports.
Automotive is 95% localized in terms of production and hence has higher margins currently but in the long run, industrial has higher margins. Industrial currently is around 45% localized and is expected to grow going forward. This localization will increase the margins of the company. Also, the growth rates of automotive will be slower in the long run compared to industrial.
Geographical break-up
In FY22, sales in the domestic market accounted for ~88% of revenues and exports accounted for the rest ~12% of revenues.
Parent company
The company is a subsidiary of AB SKF which holds ~53% stake through group companies. AB SKF is a Swedish bearing and seal manufacturing company founded in 1907. It manufactures and supplies bearings, seals, lubrication and lubrication systems, maintenance products, mechatronics products, power transmission products, etc. It employs ~44,000 in ~110 manufacturing units around the world.
The company pays royalty and trademark fees to its parent company. In FY22, it paid 93 crores towards royalty and trademark fees compared to ~70 crores in FY21.
Management team
Manish Bhatnagar – MD – Age 54 – BITS Pilani, IIM Calcutta and around 30 years of experience. He has worked with SKF for 5.5 years and has worked with HUL, GE, Danaher.
Gopal Subrahmanyam – Chairman – Age 67 – Mechanical engineer with more than 40 years of experience. Worked with L&T for more than 30 years. He is chairman of the company for more than 4 years.
Shailesh Sharma – Whole time director – Age 54 – Shailesh Sharma leads manufacturing, sourcing, and logistics at SKF in India and Southeast Asia. He has worked in SKF for more than 15 years.
David Johansson – Non executive director – Age 42 – David Johansson is the President for Automotive business at SKF Group, where he is responsible for the global automotive business functions.
Salary and commissions
Manish Bhatnagar drew salary of 3.28 crores and bonuses of 57 lakhs.
Shailesh Sharma drew salary of 1.18 crores and bonus of 15 Lakhs.
Both Manish and Shailesh drew less than 1% of PAT, but their bonuses are smaller than fixed salary indicating lack of incentivization.
Related party transactions and royalty
| In Million | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 |
| Purchase from global | 8496 | 10090 | 11211 | 8701 | 14827 | 14648 |
| Royalty to global | 477 | 490 | 439 | 429 | 571 | 660 |
| Sales to global | 2553 | 1956 | 2734 | 1754 | 3851 | 3034 |
| Dividend to global | 269 | 312 | 312 | 3379 | 377 | 377 |
| Purchase/ Total Sales | 30% | 33% | 39% | 33% | 40% | 34% |
| Royalty/ Sales | 2% | 2% | 2% | 2% | 2% | 2% |
| Sales/ Total Sales | 9% | 6% | 10% | 7% | 11% | 7% |
The purchase to total sales has not reduced significantly yet over the period though the management talks about reducing it. This should be monitored closely as reduction in global purchases will show the following:
Management focus on India business growth
Improvement in margins as traded goods have much lower margins than manufactured goods.
Contingent liabilities
The company has outstanding contingent liabilities of 480 crores which is substantial.
Institutionalization and succession plan
Being a global company, the management depth will not be much of a concern.
Shareholding:
Promoter group: 52.58% (SKF Global)
FIIs: 6.46% (reduced from 11.86% over last 3 years)
DIIs: 29.2% (increased from 20.84% over last 3 years)
Individuals: 11.77%
Clients and key strengths
In various concalls, the company has alluded to Tata motors, Mahindra, Bajaj auto, Tata steel, John Deere, TVS, Yamaha, Tesla as their clients.
Future growth prospects
The company is planning a capex around 150 crore each over the next 3 years. The growth capex will mainly be spent on trying to localize industrial bearings. SKF has the lowest localization between Schaeffler, Timken and SKF. Localization is key to generating higher margins and stronger customer relationships.
Investment triggers
Growth in Automobile and auto ancillary industry in India
Increased capex in railways
Increased capex in wind energy
Higher investments in manufacturing and growth of mining industry
