OVERVIEW- ECONOMY & BEARING INDUSTRY:
The rearmost World Economic Outlook published by the International
Monetary Fund (IMF) has projected a slightly less caliginous picture than what we
anticipated a while ago. Among the top reasons cited were the robust consumer spending and
a less severe energy extremity than anticipated post-Russias irruption of Ukraine.
Nonetheless, global frugality still faces major headwinds. Global growth is now
anticipated to fall from 3.4 percent in 2022 to 2.8 percent this time, before rebounding
to 3 percent in 2024. The 2023 growth protuberance is in line with the October 2022
estimate of 2.7, as the IMF visualizes far smaller countries facing recession this time
and no longer anticipates a global downturn. One of the main reasons behind the watchful
and auspicious outlook is the rearmost downcast trend in inflation, suggesting that
inflation may have peaked in 2022. The projection given by IMF on global inflation is that
it will dip to 6.6 in 2023 and 4.3 in 2024, which is still above pre-pandemic situations
of about 3.5 percent, but significantly lower than the 8.8 percent observed in 2022.
(Source: International Monetary Fund)
Global Outlook:
Global Economic growth is expected to dampen to 2.7% in 2023 which is
0.2% higher than what was predicted in October of last year in World Economic Outlook
(WEO) but lower than the documented (2000-19) average of 3.8%. The upswing in central bank
outlays to fight inflation and Russias insurgence in Ukraine continue to chew on the
economic activity. The fleeting spread of COVID-19 in Chinas provinces dampened
growth in 2022, but the recent and more current reopening has shown a path for a
quicker-than-expected recovery. As a bonus, strong labor markets and solid remuneration
growth could strengthen consumer demand, while alleviating supply chain disruptions could
assist in cooling down inflation and curb the need for more monetary tightening.
Current Scenario:
Asias third sizeable economy recorded a year-on-year growth of
4.4% in October-December, dropping from 11.2 percent a year back and 6.3 percent in the
aforementioned quarter. The GDP growth forecast for India as provided by the IMF for FY
2023-24 has dropped by 20 basis points to 5.9 percent and for FY25 by 50 basis points to
6.3 percent. Despite a noteworthy drop in the growth rate projections from 6.8 percent to
5.9 percent, India reinstates its position as the fastest growing economy in the world.
The deluge from the recent turmoil in financial markets in the United States and Europe
constitutes an impending risk to interim investment flows to markets coming to the fore,
including India.
Future Outlook:
In contention with the rest of the world, India too encountered an
exceptional set of challenges in tightening the financial atmosphere and alleviated supply
chain disruptions from a prolonged and arduous war in Europe but combated them better than
most notable economies. As stated by the survey, India is the worlds third-largest
economy in PPP (purchasing power parity) terms and sizably fifth in terms of the exchange
rate. With the indication that inflation may not be too worrisome, borrowing/
commandeering costs are likely to remain ‘higher for longer as deep-rooted
inflation may prolong the tightening cycle. Indias recovery from Covid 19 was quick,
with a growth outlook to be supported by solid domestic demand, and a boost in capital
investment, but accentuated the defiance of the rupee with the prospect of further
interest rate hikes by the US Fed. This optimistic and buoyant growth forecasts stem from
several positives like the recoiling of private consumption giving a boost to production
activity, higher capital expense, and near-universal vaccination coverage permitting
people to spend on contact-based services such as restaurants, hotels, shopping malls, and
cinemas. Supporting further economic growth is the expansion of public digital platforms
and measures such as PM Gati Shakti, the NLP (National Logistics Policy), and the PLI
(Production-linked incentive) schemes to bolster manufacturing output. (Source:
International Monetary Fund and IBEF)
Bearing Market and Future Development:
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 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 equipments or machinery, thoroughly ranging from automobile parts, farm
equipment, and household appliances to segments comprising defense and aerospace
equipment. These factors are projected to drive this market.
(a) Indian Automotive & Agriculture Industry:
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 Indias 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 thus registering growth at a CAGR of 10.9%.
With the onset of a steep growth of about 26% in FY22, the momentum
continued into FY23 registering a staggering 32.88% uptick as compared to FY22 with
figures inching towards the one-million-unit sales mark.
The Indian Agriculture tractor market surpassed their all-time records
and have registered an increase of about 12% in sales over last year with 944,000 units in
FY23. Few reasons include an increase in farm income as a consequence of rising MSP
(minimum support prices) as well technological advancements in 40HP plus tractors aiding
to this increased demand. Mahindra tops the list with TAFE, John Deere and CNH following
up on the list. Tractors in the range of 41-60 HP have proven to be the market leader and
is expected to sustain growth at a CAGR of 5.78%.
(b) Indian Industrial Industry:
India is gradationally progressing on the road to Industry 4.0 through
the Government of Indias enterprises like the National Manufacturing Policy aimed at
increasing the share of manufacturing in GDP to 25 percent by 2025 and the PLI (Production
Linked Incentive) scheme for manufacturing which was launched in 2022 to develop the core
manufacturing sector proportionate with global manufacturing norms.
Industrial Production in India ballooned 5.2% year-on-year in January
of 2023, following a 4.3% ascension in December and equated to market forecasts of a 5%
increase. Yields from the manufacturing sector rocketed to 3.7%, mining 8.8% and
electricity 12.7%. Considering the April 2022- January 2023 period, the artificial product
went up 5.4%. (Source: Report released by the Ministry of Statistics and Programme
Implementation)
(C) Future Growth Rates:
The Indian government continues to bestow momentum on the Manufacturing
and Mining industry. Early January 2023, the mining growth stood at 8.8% versus 9.8% back
in December last year, while the manufacturing output stood at 3.7% versus 2.6% and
electricity growth came in at 12.7% versus 10.4%. Expectations are that the mining
production in India will be 2% by this quarters end. The current projections for
2024 and 2025 are 3.10% and 2.50% respectively with a CAGR of 3.07% (2023– 2025).
Indias output of 8 core industries registered a growth of 7.8% in January 2023
against 4% growth during January 2022 (Source: Ministry of Commerce) The production of
coal, fertilizers, electricity, steel, cement, natural gas, and refinery products
increased early this year in January over the corresponding month of last year. The
government has recently taken several initiatives to boost growth in the industrial
sector. Among notable ones are PLI (Production linked incentive), PM Gati Shakti
(Multimodal connectivity infrastructure), Bharat Mala (Northeast India connectivity),
Startup India, Make in India 2.0, Atmanirbhar Bharat Campaign, Disinvestment plans, and
MSME innovative schemes.
Additionally, there are measures that have commenced to strengthen the
railway infrastructure. As per the Union budget, which was discussed, Indian Railways
finalized a tender to procure 90,000 freight wagons by 2025. The investment involved is
about INR 1 trillion. They are also set to achieve a loading of 2024 MT (metric ton) in
2024 from the current 1600-1700 MT loading in 2023. Also, Indian Railways launched the
National Rail Plan, Vision 2024, to facilitate the implementation of important and
critical projects, such as multitrack congested routes, achieving 100% electrification,
upgradation of the speed to 160 kmph on the Delhi- Howrah/Mumbai routes, upgrade speeds to
130 kmph on all other golden quadrilateral/diagonal (GQ/GD) routes /circuits thus
eliminating all level crossings for the same, by 2024. Indian Railways have prepared an
NRP (National Rail Plan) which is directed at formulating certain strategies based on both
functioning capacities and business-oriented policy initiatives to increase the modal
allotment of the Railways in freight to 45%.
As it is known, the bearing industry is highly capital intensive and
technology driven. The market is driven mainly by two key user segments namely automotive
and industrial sectors. Organized sector companies including global bearing majors meet
the needs of the Indian market through a mix of domestic manufacturing and imports. The
business is further divided into Original Equipment Manufacturer (OEM) and End User
Market. In terms of consumption, organized sector dominates the OEM market and industrial
aftermarket demand, while the unorganized sector primarily caters to the low performance
and lower end cost-sensitive segment of the aftermarket. Your Company, with its overall
reputation and its wide range of products will continue to deliver the performance and
sustainable results to its customers.
OPPORTUNITIES:
The Indian Economy is presently growing positively and is expected to
play a significant role in the global economy. Apart from accelerating the economic
reforms, the industry has to address the challenges of job creation, growth-oriented
investments and innovating outreaches to drive sustainable and inclusive growth. Indian
urbanization is taking shape at rapid pace. The governments ambitious call for
"Make in India", "Youth development as the Starts-up" "The
Atmanirbhar Yojana" creates various opportunities in this industry. Indian Railways
is all set to upgrade with major spend allocated for key development projects. The growth
of bearing industry thus seems to be on positive mood.
THREATS:
Bearing industry being capital intensive, there is always a threat of
under utilization of expensive resources to be used and lesser absorption of fixed cost
faced by the Company. Continual increase in raw material and consumables is another area
of threat. Increase in labour cost will have to be matched by the corresponding increase
in the productivity to retain competitiveness of industry. The shortage of appropriately
skilled labour across is emerging as a significant and complex challenge to the
companys growth and future.
Your Company continues to focus on quality and technology innovations
besides further developing application engineering and R & D capabilities to
strengthen the competitiveness.
STRENGTH:
The Directors and the top management of the Company are well
experienced and technically qualified and sound. The Company is in this line of business
for more than three decades and enjoys high reputation in the name of its brand and in the
market. The Company has wide market network with established customer base. The Company is
able to obtain skilled workmen at comparatively lower cost.
SEGMENT WISE PERFORMANCE:
The Company primarily operates in two segments of activities namely
"Bearing", "Power". The segment wise revenue results and capital
employed has been given here under by way of amount Rupees in Lakhs.
|
2022-23 |
2021-22 |
2022-23 |
2021-22 |
2022-23 |
2021-22 |
| Particulars |
Bearing |
Bearing |
Power |
Power |
Total |
Total |
| 1. Segment Revenue |
10,963.50 |
8952.46 |
83.70 |
71.66 |
11,047.19 |
9,024.12 |
| 2. Segments Results (PBT) |
407.72 |
84.42 |
64.26 |
52.57 |
471.98 |
136.99 |
| 3. Capital Employed |
5,296.80 |
4,980.30 |
42.81 |
44.46 |
5,633.25 |
5,254.63 |
INTERNAL CONTROL SYSTEMS:
An important aspect of good Corporate Governance is a well-defined
"Internal Control" and "Internal Audit" system. Therefore, your
company views internal audit as a continuous process to keep management regularly
appraised about the existence, adequacy and effectiveness of control systems and processes
in the operations of the organization.
The Company has a sound system of internal controls for financial
reporting of various transactions and compliance with relevant laws, rules, and
regulations. The Company has well documented policies, procedures, and authorization
guidelines commensurate with the level of responsibility and standard operating procedures
specific to the business.
The Internal Audit Department has extensive audit programs for the
year. The post audit checks and reviews are also carried out to ensure follow up on the
observations made by the Audit Committee. The Audit Committee reviews the internal audit
reports and the adequacy of internal controls periodically and takes corrective action as
and when necessary.
All transactions are authorized as per companys approval and
signature guidelines, which are recorded and reported in an organized manner.
FINANCE:
"AECL" operates primarily in bearings and related components
segments which are used in a wide range of applications across industries. The government
policy appears to be on positive front. The macro environment has improved.
Your company has been consistently practicing prudent finance and
working capital management. The strong focus on working capital and liquidity management
has helped timely generation of sufficient internal cash flow to invest in long-term
strategic objectives of the company.
BUSINESS STRATEGY AND OUTLOOK:
"AECL" is the leading manufacturer of all types of
anti-friction bearings, and it offers wide range of varieties to the different segments of
people.
The Company blend optimism with caution as it looks ahead to short term
future. Easing of inflation and liquidity will set better chance for investment and
consumption.
At the company level, the majority of product range is the import
substitute and we are focussing more and more on export front. A number of steps for
strict cost control and improving efficiency and production at all levels have been taken
which is expected to further enhance the performance of company in the years to come. At
the core of "AECL", technical up gradation and advancement is a perpetual effort
soliciting involvement of the top management which itself endeavours to encourage new
development, continuous quality improvement and strong desire to prove that your
companys technology is proficient to compete with any top technologically advanced
organization and thus, resulting in unshakeable customer confidence in India and abroad
for "AEC" bearings.
The Company is trying to focus on sharpening its competitiveness and
offering various product- mixes which is totally market driven. The Company restricts its
export domain only to the most quality-conscious market like the United States and
European Union which accounts majority of its revenue. We have 100% subsidiary in USA
which also acts on marketing front. What may come as a surprise to the most is that,
despite our very modest size, we have the widest range of bearings in the domestic market,
weighing from 50 gms to over 500 kgs. We manufacture bearings for demanding applications.
It is among a handful of customized bearing manufacturer worldwide producing bearings of
1800 mm diameter.
Ours special bearing range includes:
1. Steel Plant bearings
2. Mining Equipment.
3. Material handling equipment.
4. Bearings for cement, sugar, paper and other continuous process
industry
5. Special bearings for high-speed heavy-duty turbines (used in power
plants)
6. Oilfield applications
7. Agro-machinery
8. Gear Box
9. Motor/Pumps
HUMAN RESOURCES AND INDUSTRIAL RELATIONS:
The Company believes that the quality of its employees is the key to
its success in the long run and therefore is committed to provide necessary human resource
development and training opportunities to equip them with skill, enabling them to adapt to
contemporary technological advancements. Industrial relations during the year continued to
be cordial. The company is committed to maintain good relations through negotiations and
meetings and it encourages its employees to be "entrepreneurial" and focus on
experimenting and being innovative. The performance linked bonus and rewards were
instituted, which not only helped to improve productivity but also brought the culture of
healthy competitive performance within the organization. The gap between existing and
desired skills has been filled up in the employees through training and development.
Your Company firmly believes that Human Resource Development strategies
and practices will continue to provide sustained competitive advantage. The management of
your company deeply appreciates the spirit and commitment of dedication of its employees.
CAUTIONARY STATEMENT:
Certain statements in the Management Discussion and Analysis describing
the companys objectives, projections, estimates, expectations, or predictions may be
‘forward-looking statements within the meaning of applicable securities laws
and regulations. Actual results could differ from those expressed or implied therein.
Important factors that could make a difference include raw material availability and
prices thereof, cyclical demand and pricing in the companys principal markets,
changes in government regulations and tax regime, economic developments within India and
the countries in which the company conducts business and other incidental factors. The
Company will not be in any way responsible for any actions based on such statements and
undertakes no obligation to publicly update these forward-looking statements to reflect
subsequent events or circumstances.
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