SKF India Ltd Management Discussions

Global economy

The global economy emerged resilient in 2023, despite geopolitical tensions and challenges related to the cost of living. After reaching its peak in 2022, inflation is now receding more rapidly than initially expected. There is thus a less severe impact on employment and economic activity. This positive development can be attributed to favourable changes in the supply side of the economy and proactive measures taken by central banks to stabilise inflation expectations.

Global growth, which reached 3.2% in 2023, is forecasted to remain steady through 2024 and 2025. However, this falls short of the 3.8% historical average, attributed to restrained monetary policies, diminished fiscal aid, and sluggish productivity growth. On the other hand, global headline inflation is expected to moderate, decreasing from an annual average of 6.8% in 2023 to 5.9% in 2024 and further to 4.5% in 2025. This decline is owing to a more front-loaded decrease in advanced economies, with inflation expected to return to near pre-pandemic levels sooner than in emerging market and developing economies. Advanced economies are poised for a slight uptick, primarily driven by the Euro Areas recovery, with growth rates projected to climb from 1.6% in 2023 to 1.7% in 2024 and 1.8% in 2025. In contrast, emerging markets and developing economies are expected to sustain stable growth at 4.2% during 2024 and 2025. However, regional disparities exist, with growth moderation in Asia counterbalanced by growth in the Middle East, Central Asia, and sub-Saharan Africa.

Global economic growth (in %)

	Year-on-Year
	Estimates	Projections
	2023	2024	2025
World	3.2	3.2	3.2
Advanced Economies	1.6	1.7	1.8
United States	2.5	2.7	1.9
Euro Area	0.4	0.8	1.5
Japan	1.9	0.9	1.0
Emerging Markets and	4.3	4.2	4.2
Developing Economies
China	5.2	4.6	4.1
Russia	3.6	3.2	1.8

(Source: https://www.imf.org/en/Publications/WEO/Issues/2024/04/16/world-economic-outlook-april-2024)

Persistent trade distortions and geoeconomic fragmentation are likely to exert ongoing pressure on global trade levels. Recent attacks in the Red Sea, a critical route for 11% of global trade, and the ongoing conflict in Ukraine, pose new threats to global economic recovery. These events increase the risk of fresh adverse supply shocks, potentially leading to spikes in food, energy, and transportation costs.

Outlook

Looking forward to 2024, the global economic outlook appears cautiously optimistic. Due to moderate inflation and stable growth, there is a lower risk of a severe downturn. Despite the resilience exhibited in the face of tightening financial conditions and geopolitical tensions, the anticipated policy adjustments to curb inflation are likely to dampen economic activity. Given the reduced risks, there is a need for prudent policy management to avoid worsening economic conditions. It is imperative to accelerate the green transition and enhance resilience to climate shocks. This further requires strengthening multilateral frameworks and adherence to rules-based platforms for international cooperation.

(Source: https://www.imf.org/en/Publications/WEO/Issues/2024/04/16/world-economic-outlook-april-2024)

Indian economy

The Indian economy is growing strong and has emerged resilient amid global economic uncertainties. For the FY 2023-24, India is estimated to have grown at a robust rate of 7.6%, signaling a strong economic trajectory. However, looking ahead to the next fiscal year, there is a note of caution, with GDP growth expected to moderate to 6.8%. This projected slowdown is a result of tightening monetary and fiscal policies aimed at reducing inflation.

India has firmly established itself as the third-largest fintech economy globally, following closely behind the USA and the UK. Surpassing Hong Kong to claim the fourth spot in global stock markets, this achievement reflects both domestic and international investor confidence, supported by sustained IP- activity. Initiatives such as the Skill India Mission, Start-Up India, and Stand-Up India have played a crucial role in catalysing greater participation in human capital development, further enhancing the economys growth prospects.

The Government is also focussed on revitalising Indias growth potential through its economic policy agenda. This includes reinvigorating the financial sector, streamlining business conditions to spur economic activity, and enhancing both physical and digital infrastructure to bolster connectivity and competitiveness in the manufacturing sector. Guided by this vision, the Government has implemented a range of economic reforms aimed at fostering a business-friendly environment, enhancing ease of living, and fortifying governance systems and processes.

Outlook

India is ambitiously aiming to reach a USD 7 Trillion economy by 2030, and it is progressing well towards achieving this milestone within the next three years, positioning itself as the worlds third-largest economy. Furthermore, the Government has set an ambitious goal of transforming India into a developed country by 2047. Fuelled by stable and robust domestic demand, expanding private consumption and investments, and ongoing structural reforms, India is poised to sustain its upward growth trajectory in the coming years.

Capital is expected to play a dominant role in this growth trajectory, with productivity gains providing significant support. These gains will arise from the synergy between physical and digital connectivity, as well as ongoing economic and process reforms. India is set to excel in both manufacturing and services, indicating a solid and sustainable growth path.

(Source: https://www.crisil.com/en/home/our-analysis/reports/2024/03/india-outlook-2024-report/growth-marathon.html)

Ball-bearing industry

Bearings are crucial components in nearly every application involving motion. They play a vital role in minimising friction between various mechanical components in industrial machinery and equipment, leading to reduced energy consumption. India distinguishes itself as the worlds largest manufacturer and exporter of high-quality bearing products.

There has been a steady increase in the demand for bearings across industries such as automobiles, household appliances, aerospace, industrial machinery, water pumps, and fans. Consequently, the bearing manufacturing sector in India has experienced continuous expansion over the years to fulfill the increasing demand.

The global ball bearing market achieved a market size of USD 43.7 Billion in 2023. Looking ahead, the IMARC Group anticipates the market to expand to USD 62.0 Billion by 2032, with a projected CAGR of 3.8% during 2024-2032. This growth is driven by the increasing demand for machinery and equipment, rising adoption of automation and robotics across industries for process optimisation and enhanced productivity, and ongoing technological advancements aimed at improving durability.

The bearings market thrives on the applications it serves, with automotive and industrial machinery being the key sectors. The automotive industry is poised to be the dominant player, driven by the growing demand for cleaner transportation. The rise of electric vehicles (EVs) is a major contributor to this trend, as automakers strive for a more sustainable future. This focus on a cleaner environment and reduced emissions is pushing the automotive sector towards a more integrated approach. Similarly, the industrial sector is experiencing a surge in demand for precision bearings due to the increasing adoption of industrial automation. This highlights the crucial role of bearings in enabling advancements across various industries.

Government initiatives like ‘Make in India, ‘Aatmanirbhar Bharat, and the ‘National Infrastructure Pipeline are set to bolster the demand for ball bearings. Indias rapid industrialisation and its growing emphasis on renewable energy are expected to drive the need for bearings. Additionally, the countrys manufacturing sector is attracting significant foreign investments, with the potential to reach USD 1 Trillion by 2025. Despite these opportunities, the organised ball bearings market faces a notable challenge from counterfeit products, which are easily accessible at lower prices.

(Source: https://www.imarcgroup.com/ball-bearing-market)

Key segments

Automotive

For a considerable time, the Indian automobile industry has served as a reliable indicator of the economys well-being, mirroring both its growth and technological advancements. As the largest producer of tractors, the second-largest manufacturer of buses, and the third-largest producer of heavy trucks worldwide, India holds a robust position in the global heavy vehicles market. According to the Society of Indian Automobile Manufacturers (SIAM), the industry produced 2,84,34,742 units in FY 2023-24, a 9.6% increase from FY 2022-23.

The sector is poised for future growth, driven by trends such as vehicle electrification, especially in three-wheelers and small passenger cars. A key trend that will shape its future is the transition to EVs. With the Government targeting 30% EV penetration by 2030, the demand is expected to surge.

Bearings provide smooth and efficient rotational movement, reduce friction, and enhance the overall performance and durability of vehicles.

There is thus a rising demand for ball bearings in various automotive components, such as engines, transmissions, wheel hubs, steering systems, and suspension systems, which is contributing to the growth of the market. This growth is further bolstered by the increasing adoption of EVs among individuals.

The primary segment of the Indian automobile industry is its passenger vehicle category, which is followed by two-wheelers. Factors driving the increasing demand for passenger vehicles include rising incomes and evolving lifestyles. India is also emerging as a key market for EVs, with significant investments being made by various companies in their development. Apart from other initiatives supporting the growth of the automobile industry, the Governments ‘Make in India initiative has incentivised foreign companies to invest in the country and establish manufacturing facilities.

In a significant boost to the automotive industry, the budget reveals a substantial increase in the allocation for the Production-Linked Incentive (PLI) scheme, reaching INR 3,500 Crores for FY 2024-25. There is also a notable hike in the PLI scheme for advanced chemistry cell and battery storage, from INR 12 Crores to INR 250 Crores. Another significant trend is the increasing emphasis on connected and autonomous vehicles. Indian automakers are actively investing in advanced technologies that enable vehicles to communicate with each other, paving the way for safer and more efficient transportation systems.

Segment-wise sales of automobiles in India from FY 2019-20 to FY 2023-24

(in Million)

	FY 2023-24	FY 2022-23	FY 2021-22	FY 2020-21	FY 2019-20
Two-Wheelers	17.97	15.86	13.57	15.12	17.42
Passenger Vehicles	4.21	3.89	3.07	2.71	2.77
Commercial Vehicles	0.97	0.96	0.72	0.57	0.72
Three-Wheelers	0.69	0.49	0.26	0.22	0.64

(Source: https://www.siam.in/pressrelease-details.aspx?mpgid=48&pgidtrail=50&pid=554)

Despite its growth potential, the Indian automobile industry faces challenges such as infrastructure limitations, high taxes and tariffs, and a need for skilled labour. Other likely challenges include evolving consumer preferences, heightened competition, and regulatory changes. Despite this, the industry is expected to continue growing and play a vital role in Indias economic advancement. However, the overall outlook for the Indian automobile industry remains optimistic, with its continued growth expected to contribute significantly to the countrys economic development.

Electric vehicles

The EV industry in India is experiencing rapid growth, due to several factors such as rising concerns about air pollution, Government incentives, and declining battery costs. As per projections, the Indian EV market, valued at USD 2 Billion in 2023, is expected to reach USD 7.09 Billion by 2025. Industry estimates also predict that the domestic EV market could potentially reach 10 million annual sales by 2030.

The Interim Budget of FY 2024-25 includes several key initiatives aimed at promoting environmental sustainability and boosting the automotive sector in India. One of these is the mandatory blending of compressed biogas into compressed natural gas for transport, along with piped natural gas. Additionally, the Government is expected to introduce the Biomanufacturing and Bio Foundry Scheme to promote eco-friendly alternatives for bio-degradable production.

Under the PM-eBus Sewa scheme, the Government aims to procure 10,000 electric buses for 169 cities through public-private partnerships, with a total outlay of INR 57,613 Crores, continuing until 2037. The Budget also emphasises urban transformation, highlighting the role of metro rail and NaMo Bharat trains in facilitating this change. The Government plans to support the expansion of these systems in large cities, focussing on transit- oriented development.

As per industry reports, electric two-wheelers are likely to constitute approximately 40 to 45% of all EVs sold in India by 2030, while electric passenger vehicles could represent about 15 to 20%. However, a report by Niti Aayog suggests that the Government aims for EV adoption to reach 40% for buses, 30% for private cars, 70 for commercial vehicles, and 80% for two-wheelers by that timeline.

Outlook

The outlook for Indias auto industry in 2024 is highly optimistic, supported by several favourable macroeconomic factors. Some of these include an expanding economy, ongoing investments in infrastructure, and robust demand for vehicle replacements. Other factors include an expansive domestic market, burgeoning pool of skilled engineers, the continuous evolution of our educational infrastructure, the widespread adoption of international standards, and a growing emphasis on innovation. In FY 2023-24, there has been a notable 8% growth in the industry, primarily due to factors such as the replacement of older vehicles with those compliant with BS-VI emission standards and the revised axle load norms. Indias robust economy, points toward continued growth in the commercial vehicle (CV) sector throughout 2024.

(Source: https://auto.economictimes.indiatimes.com/news/commercial-vehicle/ceos-take-on-2024-cv-industry-to-continue-growth-in-2024-with-strong-indian-economy-says-vinod-aggarwal-md-ceo-vecv/107824245#:~:text=Our%20outlook%20for%20the%20auto,year%2Dto%2Ddate%20FY2024)

Manufacturing

Manufacturing is playing an increasingly vital role in Indias economic advancement, driven by key sectors such as automotive, engineering, chemicals, pharmaceuticals, and consumer durables. Indias goal of reaching a USD 1 tn milestone by 2028 is within reach, especially with key industries like chemicals, pharmaceuticals, electronics, automotive, industrial machinery, and textiles driving growth. This optimistic projection highlights the diverse and expansive export opportunities in Indias manufacturing sector.

The Government has been actively implementing policies to bolster and expand the manufacturing sector, with the aim to enhance overall economic growth and employment opportunities. An example of this is the SAMARTH Udyog Bharat 4.0 initiative by the Ministry for Heavy Industries & Public Enterprises, which focuses on SAMARTH Advanced Manufacturing and Rapid Transformation Hubs. This initiative aims to enhance the competitiveness of the manufacturing sector in the capital goods market.

Moreover, the Indian Government is prioritising the development of industrial corridors and smart cities to create a conducive environment for industrial growth and manufacturing. Initiatives like the National Manufacturing Policy and the PLI scheme for manufacturing are also facilitating the gradual transition of this sector toward more automated and process-driven methods. This shift is expected to improve efficiency and boost production in the manufacturing industry.

As we enter Industry 4.0, Indias ability to integrate advanced technologies such as AI, robotics, and the Internet of Things into manufacturing processes is commendable. However, there is a need to invest in developing a skilled and adaptable workforce. Collaboration between industry and educational institutions is vital to create programmes that equip individuals with the knowledge and skills needed for modern manufacturing. Training initiatives should not only focus on technical skills but also on nurturing innovation, problem-solving abilities, and adaptability tc technological advancements.

(Source: https://economictimes.indiatimes.com/industry/indlgoods/svs/engineering/a-deep-dive-into-indias-manufacturing-landscape/ articleshow/106954446.cms?from=mdr)

Indian Railways

The Indian railway systems, spanning thousands of kilometres and practically covering the entire nation is considered as the backbone of the economy,. It ranks as the fourth largest in the world, followed by the US, China, and Russia. Besides being an energy efficient and cost-effective mode of transport, the railway network is particularly suited for long-distance travel and bulk commodity movement. Indian Railways is also the preferred carrier for automobiles in the country.

Recognising the significance of this network, the Government has focussed on investing in railway infrastructure through investor-friendly policies. It has taken steps to enable Foreign Direct Investment (FDI) in railways to enhance infrastructure for freight and high- speed trains. Currently, numerous domestic and foreign companies are exploring investment opportunities in Indian rail projects. According to sources, Indian Railways has surpassed the milestone of 1,500 Million tonnes of freight loading and achieved a record total revenue of INR

2.4 Lakh Crores during FY 2023-24.

The sector is currently undergoing rapid modernisation to enhance passenger experience. This includes significant investments in the development of new railway lines, modernisation of stations, and electrification of tracks. The establishment of the dedicated Western and Eastern freight corridors is aimed at improving the efficiency of freight transportation. Various measures have been implemented to enhance the sectors infrastructure and services. These include increasing freight loading, expansion of railway lines, production of locomotives, and electrification of existing and new tracks. Furthermore, the adoption of advanced technologies like AI and machine learning is improving the overall efficiency. achieved a freight loading of 136.60 MT, marking a 10.13% improvement over the same period last year.

(So urce: https://www.zeebiz.com/indian-railways/news-indian-railways-rakes-in-record-revenue-of-rs-24-lakh-crore-in-2023-24-280367

https://pib.gov.in/PressReleaseIframePage.aspx?PRID=2010619)

Outlook

The Government is prioritising infrastructure development, with schemes like the National Infrastructure Pipeline (NIP) emphasising social and infrastructure projects. The Ministry of Railways aims to fully electrify all existing and new routes, with the aim of creating the largest green railway network by 2030. These initiatives highlight the crucial role of Indian Railways in the countrys economic growth. With a focus on infrastructure and technology investment, the Indian Railways is poised to emerge as a world-class railway system.

Capital goods

Indias capital goods manufacturing industry serves as a vital foundation for sectors such as engineering, construction, infrastructure, and consumer goods. The industrys leading export subsectors include heavy electrical and power equipment, earthmoving and mining machinery, and process plant equipment, which collectively account for 85% of Indias total capital goods exports.

The current focus on ‘Make in India has heightened the

Indian Railways achieved a freight loading of 1434.03 Million tonnes (MT) until February 2024, showing an increase of 66.51 MT compared to the same period last year. The railways earned INR 1,55,557.1 Crores from freight loading during April 2023 to January 2024, which is an increase of INR 6,468.17 Crores compared to the same period last year. In February 2024 alone, the sector emphasis on strengthening manufacturing capabilities, shining as a spotlight on the capital goods sector. The capital goods and manufacturing sectors contribute to 12% and 17% of the total manufacturing output and the GDP of the country, respectively. The Government has consistently increased its capital expenditure as a percentage of GDP year-on-year. Additionally, it has offered interest-free loans and raised borrowing ceilings to incentivise state governments to prioritise their spending on capital projects. This heightened focus on infrastructure-intensive sectors such as roads, highways, railways, housing, and urban affairs is expected to have significant positive effects on medium-term growth.

As India progresses towards the future, the capital goods sector will play a pivotal role in empowering the country and increasing the manufacturing sectors contribution to the GDP. The National Capital Goods Policy of 2016 and the Scheme for Enhancement of Competitiveness in the Indian Capital Goods Sector of 2022 provide a visionary policy framework to further enhance the sectors growth and contribution to the economy.

(Source: https://www.investindia.gov.in/team-india-blogs/capital-goods- new-india-advantage)

Outlook

As per sources, the target production size of the capital goods industry is poised to reach USD 112 Billion by 2025. The Governments decision to allow 100% FDI under the automatic route has increased the sectors potential for growth. The next five years are poised to be a golden era for India, driven by demographic dividends, a vibrant democracy, and diverse talent. Budget 2024 sets the stage for this exciting phase, with increased infrastructure spending, a focus on innovation, and a commitment to ‘Sabka Saath, Sabka Vikas (collective effort, inclusive development). This creates an ideal environment for the capital goods industry to play a pivotal role in shaping the nations future.

The Interim Budget FY 2024-25 represents a significant advancement for the capital goods industry. By aligning strategically with the Governments vision and actively participating in nation-building projects, capital goods companies can capitalise on the current momentum. This will also enable them to contribute to building a ‘Prosperous Bharat in harmony with nature.

(Source: https://www.dsij.in/dsijarticledetail/investing-in-indias-future-budget-2024-fuels-growth-for-capital-goods-industry-36237

https://www.dsij.in/dsijarticledetail/investing-in-indias-future-budget-2024-fuels-growth-for-capital-goods-industry-36237)

Renewable energy

Indias renewable energy sector is positioned as a global leader in innovation and manufacturing, with investment potential exceeding USD 240 Billion. The country is expected to achieve substantial growth in solar photovoltaic (PV) and advanced chemistry cell (ACC) battery investments to secure a sustainable future for energy use. Indias self-reliance in renewable technology is supported by factors such as low-cost financing, a skilled workforce, and round-the-clock affordable electricity, further strengthened by export incentives.

India has been actively positioning itself as a global champion in renewable energy services, trade, innovation, and manufacturing in recent years. However, realising its full potential requires addressing several key challenges. These include ensuring affordability of renewable energy solutions, promoting domestic value addition in the manufacturing process, enhancing competitiveness in the global market, refining renewable energy policies to foster growth, improving regulatory environments to attract investments, and developing infrastructure to support the expansion of renewable energy sources. Addressing these challenges will be crucial for India to solidify its position as a leader in the renewable energy sector. As per Statista, in 2024, electricity generation in the renewable energy market is projected to reach 326.90 Billion kWh, with an expected annual growth rate of 7.01% between 2024 and 2028.

(Source: https://www.ey.com/en_in/energy-resources/unleashing-india-s-renewable-energy-potential-a-global-manufacturing-hub)

Outlook

India has emerged as a global leader in energy transition, particularly in the realm of renewable energy. This growth can be attributed to various factors, including the declining costs of renewable energy technologies, a rising demand for clean energy, supportive policies, and advancements in energy storage and grid integration.

India has set ambitious targets to reduce the carbon intensity of its economy by less than 45% by the end of the decade. By 2030, it aims to achieve 50% cumulative installed electric power from renewable sources and reach net-zero carbon emissions by 2070. Additionally, India targets 500 GW of renewable energy installed capacity by 2030. To support these goals, India aims to produce 5 Million tonnes of green hydrogen by 2030. This production will be backed by 125 GW of renewable energy capacity. These targets reflect Indias commitment to sustainable development and combating climate change.

The outlook for the renewable energy market remains optimistic, with the sector expected to play an increasingly crucial role in meeting global energy demands while reducing greenhouse gas emissions. The structured bidding trajectory will provide renewable energy developers with ample time to plan their finances, develop business strategies, and streamline the supply chain.

Growth drivers

Rising demand for machinery and equipment in various industries

There is a surge in demand for machinery and equipment across various industries in the global market. Countries are focussing on developing and modernising their machinery to ensure smooth and efficient operations. Industries like automotive, aerospace, construction, and manufacturing rely heavily on ball bearings to minimise friction and improve operational efficiency. Moreover, there is a growing need for advanced machinery to meet production demands and lower operational costs. The increasing number of infrastructure projects is also fuelling the demand for heavy machinery and construction equipment, further boosting market growth.

Increasing demand for automation and robotics to perform numerous tasks

Automation and the integration of robotics in various industries are driving market growth of the bearing industry. They help improve efficiency, reduce costs, and enhance quality in manufacturing, logistics, and service sectors. Robots are becoming more adaptable and intelligent, thereby helping streamline workflows and perform accurate, repetitive tasks in industries. Industries are increasingly adopting automated systems that rely on precision components to optimise processes and boost productivity.

Demand for hybrid bearings

SKF India offers a range of products designed to support the electrification of passenger transport. These products aim to increase energy efficiency, enable compact design, and simplify assembly, ultimately leading to the creation of a new generation of vehicles with improved mechanical and electronic robustness.

One example of SKF Indias offerings is hybrid bearings, which play a crucial role in EVs. While EVs are instrumental in reducing emissions, the powerful electrical motors they use can be damaging to bearings. Hybrid bearings address this challenge by combining steel rings with rolling elements made from silicon nitride, an effective electrical insulator. This allows hybrid bearings to insulate the housing from the shaft in both AC and DC motors, as well as in generators.

Hybrid bearings with silicon nitride rolling elements have higher-speed capabilities and provide longer service life under identical operating conditions compared to equally sized, all-steel bearings. As a ceramic material, silicon nitride offers several advantages, including low density, high strength, stiffness, toughness, and hardness. Additionally, bearings with this material can withstand excess vibration and oscillation, often eliminating the need for bearing preload or special grease application.

Technological innovations to create high- performance ball bearings

Manufacturers are consistently investing in research and development (R&D) to produce high-performance ball bearings with improved durability, higher load capacities, and reduced friction. These innovations enable ball bearings to operate more efficiently and withstand higher stress conditions, making them suitable for a wide range of applications across various industries. Additionally, the development of specialised coatings and materials for these bearings expands their use in extreme environments and challenging operating conditions, such as high temperatures or corrosive environments. Furthermore, the continuous technological advancements encourage industries to adopt these bearings for diverse applications, leading to increased productivity.

Threats

Raw material sourcing

The global sourcing of raw materials for bearing manufacturing presents several challenges. Manufacturers rely heavily on both metallic and non-metallic materials, and ensuring a stable supply of high-quality materials can be challenging. Fluctuations in prices, geopolitical tensions, and trade restrictions can all impact the sourcing process. To mitigate these risks, manufacturers must carefully manage their supply chains and seek alternative sources when necessary.

Sustainability concerns

Sustainability concerns are becoming increasingly important in bearing manufacturing. Manufacturers are facing pressure from both environmental regulations and customer demands to adopt more eco-friendly processes. However, balancing sustainability with cost-effectiveness remains a challenge for many companies. Finding innovative solutions that meet both environmental and economic goals is crucial for the long-term success of bearing manufacturers.

Cost pressures

Cost pressures are a significant challenge for bearing manufacturers, with rising energy costs and increased labour expenses impacting profitability. It is crucial to find ways to reduce operational costs while maintaining quality. Manufacturers may explore strategies such as optimising production processes, implementing energy-efficient technologies, and enhancing workforce productivity to mitigate these challenges. Additionally, leveraging automation and digitalisation can improve efficiency and reduce costs in the long term.

Way forward for the Indian ball bearing industry

The precision ball bearings market in India is experiencing significant growth. This growth is driven by various factors such as Government schemes promoting local manufacturing, a focus on energy efficiency, and increased usage of bearings in motor-based machinery.

According to forecasts, the market is expected to clock in a substantial CAGR of 10.78% between 2023 and 2029, reaching USD 3,939.58 Million by 2029. The key growth drivers include rapid industrialisation, which is increasing the demand for high-quality machinery, as well as Government initiatives aimed at boosting manufacturing in the country. As India continues to advance its manufacturing sector and emphasises technology and innovation, the demand for precision ball bearings is projected to rise. Additionally, the trend towards automation in the automotive and electronics industry is expected to further drive the demand for precision ball bearings in the Indian market.

(Source: https://www.linkedin.com/pulse/india-precision-ball-bearings-market-size-grow-cagr/)

Company overview

SKF India (also referred to as ‘the Company), a pioneer in ball bearing manufacturing in India, was established in 1961. Since commissioning its first manufacturing plant in Pune in 1965, the Company has grown significantly.

As of 31^st March 2024, SKF India operates three manufacturing facilities and four offices, with a network of over 2,000 suppliers and 1,701 employees. SKF India is a renowned supplier of ball bearings, serving over 40 industries globally with products and services that help customers achieve sustainable and competitive advantages.

Specialising in deep groove ball bearings, SKF India has a strong presence in the industrial and automotive sectors. With expertise in designing and manufacturing bearings, seals, and lubrication systems, the Company offers unique solutions for companies in automotive, agriculture, construction, food and beverage, oil and gas, metals, and other industrial sectors. Embracing technological advancements, SKF India has integrated digital technology and wireless sensors into its offerings, enabling machine health assessment, engineering, and remanufacturing services.

Sustainable development is central to SKF Indias operations. The Company has incorporated clean technology, innovation, and digital solutions into its world-class manufacturing facilities. SKF India follows a clear and differentiated strategy in verticals such as industrial markets, automotive OEM, and automotive aftermarket. With the support of employees and suppliers throughout the value chain, SKF India aims to achieve net-zero emissions across its production facilities by 2030 and make the entire supply chain net-zero by 2050.

Business segments

The Company focusses on offering a rotational equipment solution across its automotive and industrial segments. It offers a wide range of products and services, including bearings, seals, lubrication systems, mechatronics, and services such as technical support, maintenance, and condition monitoring.

Automotive

SKF India provides solutions for various applications in the automotive sector, such as engines, transmissions, wheel-end, and steering systems. The Companys products help improve vehicle performance, reduce fuel consumption, and increase safety and reliability.

It offers customised solutions for various applications, including wheel-end, driveline, e-powertrain, engine, suspension, and steering systems. These cater to manufacturers of cars, light and heavy trucks, trailers, buses, and two-wheelers. Additionally, SKF India supplies spare parts to the vehicle aftermarket through a network of more than 430 distributors in India.

The demand for these offerings is driven by electrification, energy efficiency, and reduction of emissions in the light vehicles market. The truck market focuses on total cost of ownership, connectivity, and integrated systems. Meanwhile, the aftermarket is driven by changing buying patterns, new channels, product performance, and cost optimisation.

The Company holds a strong position in developing components for automotive electrification and wheel-end solutions. It also has a leading position in providing application-driven powertrain solutions and an extensive distribution network in the aftermarket.

Industrial

In the industrial segment, SKF India offers bearings, seals, lubrication systems, rotating shaft services, and solutions for machine health assessment, reliability engineering, and remanufacturing. The Companys industrial products are supplied to over 40 industries globally, both directly and indirectly, through a network of more than 140 distributors in India.

The demand for these offerings varies from application to application, such as low friction, low energy use, maintenance-free solutions, and total cost of ownership. Digitalisation further enables monitoring and predictive maintenance throughout the product lifecycle, providing additional value to customers.

The Company holds a leading position in railways, heavy industries, and the industrial distribution market, and a prominent position in other sectors.

Financial overview

The Companys standalone Revenue from Operations for FY 2023-24 stood at INR 45,701.3 Million compared to INR 43,049.2 Million the previous year. Profit After Tax (PAT) for the year ended 31^st March 2024 increased from INR 5,247.9 Million in FY 2022- 23 to INR 5,517.7 Million in FY 2023-24.

Statement of profit and loss for 31^st March 2024 (MINR)

Particulars	FY 2023-24	FY 2022-23
Revenue from Operations	45,701.3	43,049.2
Other Income	940.1	518.7
Total Income	46,641.4	43,567.9
Expenses
Cost of Materials Consumed	11,600.7	10,416.9
Purchases of Stock-in-Trade	16,325.5	15,536.5
Changes in Inventories of Finished Goods, Work-in- Progress and Stock-in-Trade	(143.3)	(295.2)
Employee Benefit Expense	3,433.7	2,996.3
Finance Costs	12.1	15.1
Depreciation and Amortisation Expense	746.0	668.4
Other Expenses	7,308.8	6,900.6
Total Expenses	39,283.5	36,238.6
Profit before Tax	7,357.9	7,329.3
Income Tax Expense
Current Tax	1,900.4	2,075.7
Deferred Tax Charge / (credit)	(60.2)	5.7
Total Tax Expense	1,840.2	2,081.4
Profit for the Year	5,517.7	5,247.9

Key ratios

Ratios	FY 2023-24	FY 2022-23	% Change	Reason for change
Debtors Turnover (Times)	6.4	6.3	1.3	-
Inventory Turnover (Times)	4.1	3.8	7.7	-
Current Ratio (Times)	3.0	3.1	(4.2)	-
Debt-to- Equity Ratio (Times)	0.0	0.0	(28.9)	This ratio has decreased primarily on account of increase in retained earnings by way of profit for the year and a reduction in lease liabilities.
Operating Profit Margin (%)	16.4	17.3	(5.3)	-
Net Profit Ratio (%)	12.1	12.2	(1.0)	-
Return on Net Worth (%)	22.0	24.8	(11.5)	-

 

Details of any change in Return on Net Worth as compared to the immediately previous financial year along with a detailed explanation thereof	FY 2023-24	FY 2022-23	Reason for Change
	11.5	11.2	Increase in Net worth

Risks and mitigation strategy

Given its complex and dynamic market environment, SKF India is exposed to various potential risks that can impact its financial, operational, and reputational performance. Recognising the critical importance of effective risk management in safeguarding its reputation, the Company proactively conducts risk assessments, establishes contingency plans, and maintains adequate insurance coverage. This comprehensive approach enables SKF India to minimise the impact of potential risks and position itself

for long-term success.

SKF India considers risk management to be a core part of its business philosophy. To ensure effective management of risks, the Companys Board has established a dedicated Risk Management Committee. This committee systematically manages, reviews, and improves SKF Indias risk management systems, policies, and strategies.

Risks	Description
Economic uncertainty	An economic slowdown initiated by geopolitical tensions and high inflation might have an adverse effect on the Companys operations.	SKF India has been actively monitoring and evaluating macro-environmental conditions to determine the most suitable course of action to sustain its business growth. This ensures that any emerging challenges are promptly identified, addressed, and managed, thereby helping to maintain the Companys upward trajectory.
Competitive landscape/ challenges	Rising industry rivalry, both globally and domestically, can exert pressure on pricing and margins.	The Companys exceptional expertise and solid reputation have helped it establish an unparalleled position in the market, leading to strong and enduring customer relationships. Furthermore, its innovative and superior quality products and services provide a distinct advantage over competitors in the industry.
Data security	Cyber-attacks can result in the loss of data and personal information, potentially creating a negative impact on the Companys brand and operations.	SKF India has developed a comprehensive and robust security system that utilises multiple layers of protection to detect and prevent potential security breaches. Additionally, the Company maintains a detailed policy framework that is continuously updated to ensure the smooth and effective management of data.
Counterfeit products	Challenges in e-commerce and fintech sectors may impact the Companys business.	The Company is strongly committed to pursuing new and innovative business models, including developing an e-commerce platform, to achieve unprecedented growth and expansion. It actively explores various avenues to enhance its operations and optimise its performance. By embracing cutting-edge technologies and exploring novel approaches to conducting business, the Company is poised to achieve unprecedented success in its future endeavours.

Human resources

Human resources are crucial to the ongoing success of SKF India. The Company aims to create a diverse, equitable, and inclusive workplace that attracts, retains, and advances exceptional talent. Through ongoing employee learning and development, comprehensive compensation and benefits, and a focus on health, safety, and overall well-being, the Company strives to foster a culture that supports its employees in all aspects of their lives. This further enables them to achieve their true potential while learning, growing, and feeling engaged.

As the operating environment continues to evolve rapidly , the Company remains committed to investing in its employees. The Company aims to further enhance learning and development opportunities to better meet its evolving business needs and strengthen its culture to achieve and sustain profitable growth. Given that a people-centric approach has been a key differentiator for the Company, it provides employees with learning experiences focussed on building multi-dimensional leadership skills and offers training programmes that are closely aligned with its business strategy.

During the year under review, the Company implemented major initiatives to promote inclusion and diversity.

Similarly, it undertook multiple initiatives to build market-leading skills and capabilities of employees thereby addressing skills gaps. For example, the LeadX programme was rolled out to enable employees to get exposure to various cross-functional projects of their preference and build cross-cultural and multi-industry experience.

Specifically, the Company continues to embed new ways of working and leadership principles to instill a growth mindset, drive innovation, optimise processes, and tackle industry challenges. As a manufacturing organisation, the Company has a culture of working together through joint consultation between the Union and Management and is strongly committed to creating an environment of trust and collaboration. The Companys HR framework encompasses several essential business aspects, including job design, recruitment, onboarding, training and development, compensation and benefits, performance management, managerial relations, and labour relations. HR initiatives, such as equitable treatment, a people-centric approach, and performance- based reward systems, have led to a higher retention rate and strong employee loyalty.

As of FY 2023-24, the Company had 1,701 employees on its payroll.

IT and digital infrastructure

A robust information technology and digital infrastructure ecosystem is a critical enabler for todays businesses. Digitalisation and blockchain technology have become important tools for research, design, and regulations. Additionally, IT technology plays a crucial role in workplace monitoring and managing technostress issues arising from the increase in digital presence. There has been significant digital adoption across organisations and industries. This makes it imperative to establish the necessary infrastructure to support a digitalised world and remain competitive.

In line with this, the Company has developed a digital transformation strategy that is pivotal in automating business processes and enhancing customer experiences across the full value chain. Enabled by IT, the implementation of Industry 4.0 solutions has led to significant improvements in manufacturing processes across the value chain. The Company is committed to accelerating technological advancements, digitalising the entire value chain, and establishing a regionalised supply chain to remain competitive. Improving sales through digitalisation and data-driven decision-making remains a top priority for the Company, which has also embarked on the journey of ERP implementation to SAP S/4 Hana across the region.

To enhance operational processes, customer experiences, and enable new business models, the global

IT team has established the Global Competency Centre (GCC) in India. This initiative has facilitated the in-house development of digital capabilities, leading to faster delivery of digital solutions.

Disclosure of accounting treatment

Where in the preparation of financial statements, a treatment different from that prescribed in an Accounting Standard has been followed, the fact shall be disclosed in the financial statements, together with the managements explanation as to why it believes such alternative treatment is more representative of the true and fair view of the underlying business transaction.- Not Applicable

Internal control systems and their adequacy

SKF Indias policies and procedures are commensurate with its nature of business and ensure reliable and efficient business conduct. The internal control systems are periodically reviewed to confirm their effectiveness and adequacy. Internal audit, an indispensable part of management control systems, is responsible for keeping the Management updated about the adequacy and efficacy of the control systems. The three-line defence monitoring and control approach comprising the Management, Internal Control Team and Internal Audits, enable effective control of the internal control system. The Company has adopted a risk prevention approach to strengthen its controls proactively.

The Company, during the year, reviewed its Internal Financial Control (IFC) systems and strived to establish a more robust and effective IFC framework. Being part of the SKF Group, the Company adheres to SKF Internal Control Standards (SICS), a customised control system required to be adhered to, across the globe, by all SKF companies. The standard operating procedures for the business functions comprise the standards specified by SICS. The key focus areas of SICS are compensating controls within the process and minimising deviations and exceptions. The adequacy of controls is tested and verified by the Internal Control team. The Internal Audit function conducts Process Audits with the help of specialised external professional firms. Risks/ improvement areas, identified out of the audits, are reviewed and mitigation plans are put in place. Every Audit Committee reviews the implementation status of the action plans for major observations.

The reports submitted by the Management and the audit reports submitted by Internal and statutory auditors are reviewed by the Audit Committee. To ascertain, inter alia, their views on the adequacy of internal control systems, the Audit Committee also meets statutory auditors.

Based on the Committees evaluation, it was concluded that as of 31^st March, 2024, the Internal Financial Controls were adequate and operating effectively. The Company complied with the specific requirements as laid out under Section 134(5)(e) of the Companies Act, 2013. It calls for the establishment and implementation of an Internal Financial Control framework that supports compliance with the requirements of the Act concerning the Directors Responsibility Statement. The Internal Controls function regularly reviews the adequacy of controls of the processes. Suggestions to further strengthen the processes are shared with the respective process owners. The Audit Committee periodically reviews any significant observations, along with the Managements response and status of action plans.

Cautionary statement

Statements in this report on Management Discussion and Analysis, describing the Companys objectives, projections, estimates, expectations, or predictions may be forward- looking statements within the meaning of applicable laws and regulations. These statements are based on certain assumptions and expectations of future events. Actual results could differ materially from those expressed or implied since the Companys operations are influenced by many external and internal factors beyond its control. The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statements, based on any subsequent developments, information, or events. Readers are cautioned that the risks outlined here are not exhaustive. Readers are requested to exercise their judgment in assessing the risks associated with the Company.