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B. Krishnakumar

THE steady increase in automobile production has had a positive effect on quite a few companies. Bearings industry major SKF Bearings is one such beneficiary of the vehicle boom.

Taking into account its growth prospects and eminent position in the industry, long-term investors may contemplate equity exposure in the company.

SKF Bearings enjoys a dominant position in the domestic bearings market. Its product range includes ball and roller bearings.

Though the automobile industry is its major business segment, the company has a presence in electrical and engineering industries too.

The original equipment market accounts for about 60 per cent of revenues while the replacement market makes up the remainder.

Aided by the growth in automobile production, the company reported a sharp improvement in earnings for the year ended December 2002.

Turnover for this period increased by 14 per cent to Rs 405.7 crore, while post-tax earnings improved 124 per cent to Rs 20.4 crore.

Considering that the earnings of the year 2001 were boosted by extraordinary income of Rs 12.7 crore, the performance for 2002 would be even better if this income is not taken into account.

Apart from the recovery in automobile sector, the efforts taken to broadbase the product portfolio along with other cost-control measures helped SKF record improved performance. This trend is continuing in this financial year as well.

For the quarter ended September 2003, the company posted a 25 per cent increase in turnover to Rs 121.9 crore, while post-tax earnings grew 22 per cent to Rs 8.98 crore.

The earnings growth has slowed a bit in the past few quarters owing to the sharp rise in the price of steel, which is the company's key input.

The company is also making efforts to provide its clients value-added services byoffering integrated mechanical and engineering services. It also provides preventive and predictive maintenance services, which will result in improved profitability.

The company is also setting up a special two-wheeler competence centre at Bangalore that will cater to the global two-wheeler market.

SKF is also actively targeting the grey market, which accounts for a sizeable chunk of the bearings market. Taking into account these factors, SKF Bearings is likely to improve steadily.

At the stock market, the share price has almost doubled from the level of about Rs 47 in January. Considering the growth prospects and strong fundamentals, there is scope for further capital appreciation.

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