TURNAROUND IN SKF INDUSTRIES

abhishreshthaa

New member
Some of the initiatives taken by the management of SKF Bearings have proved to be timely. These steps included the company’s voluntary retirement
scheme and the opening of the Rs 88-crore rights equity-cum-non-convertible debentures issue about a year back. These steps have begun bearing desired results over the recent quarters.


The company has made a turnaround. In Last year ended December 2001, it did well through improved operational efficiencies and major cost cutting in interest costs. It benefited through the across-the-board revival in most segments of the automotives sector, particularly commercial vehicles.


With SKF Bearings now starting to lay greater thrust on the replacement market where it was lagging behind earlier, the company has shown an impressive performance for the 12 months ended December 2002.



Turnaround factor:
From 1994-1997, India's bearing demand grew at a compound 22% rate, but in 1997 the economy dipped into recession which has gradually worsened.


FOR SKF Bearings, one key development has been the management's decision to float a Rs 88-crore rights equity-cum-NCD issue about 15 months back. The rights issue was floated when the company was in dire straits and minority shareholders were unwilling to subscribe to the rights issue.


And since its debts were mounting year after year at that time, the company wanted to use a major part of the funds (mopped up through the rights issue) for repayment of borrowings, thus cutting its interest burden.

The company was closely monitoring sales and administrative costs. The funding moves are designed to allow the company to pay down its existing debt load and fund unspecified future expansion projects.


The rights issue is an integral part of the company's comprehensive restructuring and allowed it to proceed with its investment plans in India, and at the same time allowed to reduce borrowings and thereby our financial cost. This, in turn, helped to improve bottom line.


This proved to be a masterstroke and the issue was fully subscribed. The company paid back Rs 87 crore in borrowings by December 2001. It used some part of internal accruals for modernizing its plants. Since then, growth in the auto sector picked up. All these factors helped SKF Bearings achieve a healthy 13.6% growth in sales and 127% surge in bottom line in the year ended December 2002.


The company's debt equity has also gained from the premium on equity rights, and repayment of Rs 90 crore in debts over the past two years.


Even with a combination of factors, within and outside, heightening competition, SKF Bearings India has drawn up a three-pronged strategy to stay ahead of others in a situation where margins have come under intense pressure.


The new game plan has already seen SKF Bearings

 Cut costs wherever possible,

 Reach out to end customers

 Take prudent recourse to outsourcing.


The company started outsourcing low value components from `competent suppliers'. In fact, it had even wound up its IT (information technology) wing and begun outsourcing the service.

The IT wing ``has been taken over along with its personnel by Electronic Data Systems, Chennai. The objective was to ensure that the company remained focused on its core business.


With the automotive industry going through a rough time, SKF Bearings, was consciously striving to pare its dependence on this sector which was ``experiencing big swings in business cycle." The company trained its eyes more on other segments such as industrials, after-market sales and the like.


At present, about 40 per cent of its revenue comes from sales to the automotive segment. In this context, the CEO explained the efforts taken by the company to provide new solutions like the introduction of a complete bearing hub to retain its share in the automotive field.


In fact, the company had invested heavily over the past few years in its Pune facility to design new bearing solutions. Ford, Telco and Fiat were among the car makers who got supplies from SKF Bearings.


The company had now started supplying to Volvo too. An upgraded Pune facility had started exporting as well. The Bangalore unit had already been catering to the needs of select overseas markets.


Over the last three years, the manpower had been slashed by around 800. Simultaneously, the Pune factory was upgraded so as to make high value bearings. It had drawn up a series of initiatives aimed at improving customer interface.


A significant constituent of this exercise would be alliances with distributors so as to become a part of their network, which sold `packaged kits' and not just a single bearing. SKF also endured a strike during mid-1999 at the Bangalore plant.


SKF India has been battered by India's continuing economic slump, combined with an ongoing battle against widespread counterfeiting of SKF bearings in the Indian market.


The company is also shifting focus away from dependence on automotive demand, expanding its focus on India's export markets and working to protect domestic market share by aggressively attacking counterfeits. Counterfeit bearings alone account for up to 40% of the Indian market.


That restructuring created three business units:

 Automotive Unit,

 Electrical Unit

 Industrial Unit.


In 2000, SKF India exported only 10% of its production. The Pune plant's modernization, along with an increased emphasis on unitized hub assemblies, will open capacity and quality to export markets more readily. The Bangalore factory currently exports a third of its production.


Demand for automotive applications has weakened dramatically in the recession, so SKF is moving production capacity away from automotive applications toward more stable general industrial equipment and service markets.


India's automotive sector currently absorbs 45% of SKF's output. They are continuously broadening our product portfolio. SKF and other Indian bearing manufacturers are also facing a growing challenge by cheap imports from Eastern Europe, Southeast Asia and China. Bearings from those countries are often sold into India below cost, a tactic known as "dumping".
 
Top