ABC Bearings Reports Quarterly Results

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Oct 13,2006

ABC Bearings Ltd. (India; BSE Smallcap: 505665) has reported financial results for the quarter ended June 30, 2006. Sales were up sharply, to Rs 480.72 million (USD $10.5 million), from Rs 363.89 million ($8.0 million) in 2005. Net profit was also up, reaching Rs 53.84 million ($1.2 million) from 2005's Rs 35.0 million ($767,000). Two reasons credited for ABC's improved profitability are its newfound ability to pass along raw materials cost increases to its OEM customers, and aggressive pursuit of internal cost-cutting and productivity improvement initiatives. All of those initiatives are assisted by its strategic partner NSK (Japan). As raw materials costs ease, ABC pointed out profitability will only improve. Today, ABC's primary markets are bearings for commercial vehicles (65% of sales ) and tractors (35% of sales), 80% OEM and 20% aftermarket. Founded in 1960 as a joint venture with Steyr of Germany, ABC initially had only a single ball bearing plant in Lonavla. Tapered roller and cylindrical roller bearings were added later. Today, ABC is India's largest producer of tapered roller and cylindrical roller bearings. Manufacturing facilities are in Gujarat and Maharahtra, with a combined capacity of more than 9 million bearings per year. Even that capacity is not enough, as ABC will be spending more than Rs 300 million to expand production capacity by more than 40%. Ball bearings had been in the product line for more than 40 years. But by 2001, continued losses in the highly competitive and increasingly commoditized ball bearing line convinced ABC to shift its focus to roller bearings. The Lonavla plant, dedicated to ball bearing production, was closed in 2001. Exports have never been a major focus of ABC's operations, as it remained capacity constrained selling 98% of its production to Indian manufacturers and distributors. However, with the additional capacity in place, ABC said it plans to tackle export markets with the help of NSK. The first markets it will try to work into are Southeast Asia and North America. In terms of developing target markets, Mr. Vidholia told us that in the OEM sector, while ABC still focuses largely on commercial vehicles and tractors, it is making inroads into passenger car markets. At this point, ABC does not do business in the very active 2-wheeler and 3-wheeler motorcycle and scooter market because it is almost entirely for ball bearings. Regarding the Lonavla plant closing, Mr. Vidholia confirmed the plant's workers were offered VRS due to, "not so friendly work force experienced for quite a long period of time." He dispelled rumors it had been divested to Tata Motors. Instead, Lonavla's capacity was shifted to the Bharuch plant and the structures themselves were sold. Mr. Vidholia said that the estimates for ABC's export targets are too low. In fact, he said, the company's exporting plans are far more aggressive -- growing it to the range of 20% to 25% of total sales within 3 to 5 years. About the quarter's strong performance, Mr. Vidholia confirmed ABC, "is doing extremely well."

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