Demand revival may keep rally going for ball bearing industry majors

The ball bearing industry is a key part of the supply chain for multiple industries because ball bearings are used to reduce friction in many moving parts. As such, demand revival for ball bearings is a signal that downstream industries are witnessing increased demand. Most of the listed stocks in the industry have seen 10-15 per cent rise in the last week.

The domestic market has seen demand improving from the industrial segment, automobiles and railways. While exports remain muted for the European Union and the UK, there is better demand in other regions. There are new opportunities opening up due to capex by industrial metals, cement and steel industry as well as the electric vehicle (EV) industry.

The Q4FY24 period saw volume and revenue expansions for most domestic players and many also registered margin expansions. A few other trends seem to be playing out industry-wide and are worth mentioning.

Players like Schaeffler India, Timken India and SKF India have been focussed on capex and have also started shifting some production lines to India. The China+1 attempt of diversification of global value chains could be one reason for better global earnings and for more localisation of manufacture. Components like rings and cages will continue to be outsourced for the moment since these lines are low-margin and high-capex to set up.

Many, if not most branded bearings companies, could be looking at high teens (15-19 per cent) annual revenue growth between FY24 and FY26. Schaeffler India is benefiting from improved demand in the automotive segment coupled with new opportunities in EV and after-market, and stronger demand from railways, wind power, etc. It is also focussed on localisation and looking for revival in exports.

Timken India is also seeing demand from railways, steel, cement and general infrastructure, and other process industries. It is looking at capacity expansion with around Rs 400 crore investment in FY25. It holds close to 50 per cent market share in the railways segment and hopes to capture a larger share of the solar market since it has developed a technique for rotating panels. Timken saw margin expansion as well.

SKF India is focussed on demand from EVs and from the railways and the metals industry. The company saw strong margin expansion as well as volume expansion in Q4FY24. Schaeffler (which is increasing its localisation content) has seen export demand revival and margin expansion in Q4FY24, although net revenues were flat due to contraction in domestic revenues.

Harsha Engineers International is looking at export opportunities with better margins and new revenue streams from stamping components and bronze bushing. Rolex Rings is a similar story of better exports and sustained local demand, especially from EVs and hybrids. It is looking to expand the domestic geographical footprint. NRB Bearings has also seen margin expansion along with volume expansion.

The fact that so many companies are seeing healthy trends at the same time does indicate that downstream demand is strong. Investors would need to look at company specifics, but most of these companies have strong global brands and good parentage. There are “Buy” recommendations across the industry by most of the analysts, who track these stocks.