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Increase in manufacturing seen to boost demand from the non-auto segments - Miserji Research Team

The bearings sector caters to various industries such as auto, railways, steel, oil and gas. It outperformed the benchmark BSE Sensex and even its user industry, the BSE Auto index, in fortnight ended 17 June 2011. Clawed down by reports of lower GDP growth, food inflation of 9% in May 2011 over May 2010 and the consequential tenth hike in lending rate to 7.5% by the Reserve Bank of India over the past one year, the BSE Sensex and the BSE Auto index slumped 3% and 4%, while the bearings sector&146;s market capitalisation grew 7%.

In the bearings sector, Timken India, the subsidiary of US-based Timken Company, was in the limelight, spurting 23%. The scrip moved from Rs 191 on 3 June 2011 to Rs 235 on 17 June 2011 on speculation of open offer from the parent company to delisting. As per the listing norms, any listed company should have a minimum public shareholding of 25%, while Timken India has only 20%.

But even other bearing companies gave good returns. SKF India rose 4%, Fag Bearings 5%, ABC Bearings 5%, Menon Bearings 2%, and SNL Bearings 1%. The exceptions were Austin Engineering (-4%), NRB Bearings (-5%), and Bimetal Bearings (0%).

SKF India had earlier indicated that its board had approved the sale of assets used in the business of textile machinery components. This business clocked about Rs 21.35 crore of revenue in CY 2010. The company expects to grow in line with the market on expansion undertaken in 2010 and computed in the current fiscal, which should help achieve growth in volumes and better operational efficiencies.

A sizeable portion of the revenue of the bearing sector comes from the auto sector. But the auto sector is witnessing sluggishness in demand growth due to hardening of interest rates, rise in vehicle prices and spike in fuel prices. So far, the growth has been lukewarm in other manufacturing sectors, too. Rebound in the capital goods sector and increase in manufacturing activity should boost demand from the non-auto segments, while the auto segment can get a push by good southwest monsoon, which will spurt demand from rural areas, and later on by possible easing of interest rates as the interest-rate hike cycle is coming close to its peak with another 50-75 basis point hike in the offing.