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SKP Bearing Industries

• SKP Bearing Industries is coming out with an initial public offering (IPO) of 44,00,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 70 per equity share.

• The issue will open on June 30, 2022 and will close on July 05, 2022.

• The shares will be listed on NSE Emerge Platform.

• The share is priced 7 times higher to its face value of Rs 10.

• Book running lead manager to the issue is Shreni Shares.

• Compliance Officer for the issue is Pooja Kamleshkumar Sharma.

Profile of the company

The company is manufacturer of needle rollers, cylindrical rollers, pins and steel balls (Rolling Elements) and is one of the players in the list of finished roller manufacturers in India. Over the years it has developed expertise and upgraded its technology by adding several automatic and imported machineries and equipment to the plant, which has helped it boost its production capacity and the quality of its products. It supplies these rolling elements across India to reputed bearing manufactures and OEMs in domestic market in diverse industries such as textile, automobile, etc. It has the potential to supply the best products at most competitive prices in the market. It is also exporter of rolling elements which cater the requirements of international customers in Brazil, Argentina, UAE, etc. Over the years, it has also ventured into power generation business by installing wind mill in year 2012-2013 at Survey No. 646, vill: Seth Vadala, Taluka: Jamjodhpur, Jamnagar Forest Division, Gujarat with a commissioned capacity of 0.80 MW and is currently used for its captive consumption. 

Proceed is being used for:

• Funding working capital requirements.

• General corporate purposes.

Industry Overview

Manufacturing has emerged as one of the high growth sectors in India. Prime Minister of India, Mr Narendra Modi, launched the ‘Make in India' program to place India on the world map as a manufacturing hub and give global recognition to the Indian economy. Government aims to create 100 million new jobs in the sector by 2022. India’s gross domestic product (GDP) at current prices stood at Rs. 51.23 lakh crore ($ 694.93 billion) in the first quarter of FY22, as per the provisional estimates of gross domestic product for the first quarter of 2021-22. The manufacturing GVA at current prices was estimated at $ 97.41 billion in the first quarter of FY22. India has potential to become a global manufacturing hub and by 2030, it can add more than $ 500 billion annually to the global economy. The IHS Markit India Manufacturing Purchasing Managers' Index (PMI) stood at 55.9 in October 2021. As per the survey conducted by the Federation of Indian Chambers of Commerce and Industry (FICCI), capacity utilisation in India’s manufacturing sector stood at 72.0% in the second quarter of FY22, indicating significant recovery in the sector. The overall index stood at 134.0, as of July 2021. This rise in the index was supported by growth in production of natural gas, steel, cement, fertilisers, coal, refinery products and electricity.

India is a leading country in both manufacturing and exporting bearing products. Bearing production in India has been increasing steadily over the years due to the increasing need for bearings in industries - such as automotive, water pumps, fans, etc. India has always been the largest importer of bearings and has a huge import of ball bearings, roller bearings, etc. Every year, a large number of bearing products are imported by India, and many of these are exported to other countries. The bearings are important parts of a machine as they allow them to function without friction. Bearings can also make the machine more efficient by reducing energy loss and are vital in the production process. And are also used in a wide range of applications such as devices, machines, and engines. With all the different types of bearings, there’s no wonder that bearing manufacturers in India are in high demand. The ball bearing market is estimated to witness a considerable growth in the forthcoming years, ascribed to the aim to achieve energy efficiency. Energy saving and bearings go hand-in-hand. The primary aim of this element is saving energy by reducing friction, be it during the rotation of shafts of a transmission or the wheel of a vehicle. Additionally, rising demand for commercial vehicles is expected to catapult the demand from automotive sector across the world. 

Pros and strengths

Manufacturer of multiple rolling elements under single roof: The company is manufacturers of needle rollers and various types of cylindrical rollers and components in India wherein it offer an extensive line of rolling elements under single roof. Its rollers are uniquely designed with customized geometries and engineered surfaces to provide engineering solutions for harsh and critical applications. Its products portfolio is tailor made for its customers so as to meet their specific requirements. Its manufacturing process provides it with flexibility of manufacturing smaller volumes of products at short notice.

Diversifying the product mix and increasing penetration in markets: The company’s products are sold in the domestic market as well in international market. The domestic market also offers opportunities in term of sub-geographic penetration and product/ market diversification. The company seeks to grow its marketing reach domestically and internationally to explore hitherto untapped markets and segments as part of its strategy in order to widen growth prospects. It intends to continue its focus on the current product mix and aim to expand and diversify its product portfolio which provides further growth opportunities through the retention of existing clients and acquisition of new clients. It has a good track record in the manufacturing of balls and bearings.

Quality assurance and quality control of products: Quality assurance and quality control are integral part of the company’s manufacturing operations. Quality is an ongoing process of building and sustaining relationships. The company is accredited with IATF 16949 Certificate for its products such as needle rollers, cylindrical rollers, pins, balls. Its engineers inspect the entire process ensuring quality of its products is maintained. Its manufacturing facility has a fully equipped Quality Division with experienced and qualified staff to carry out quality checks and inspections at all the stages of its manufacturing process. They follow the protocol of incoming material control through physical and metallurgical parameters, process controls through product audit, process audit system audit and in-stage inspection and the final stage of pre dispatch control through PDI and quality packing.

Risks and concerns

Dependent on third party transportation providers: The company uses third party transportation providers for the delivery of its raw material and products. Transportation strikes could have an adverse effect on its receipt of raw materials and its ability to deliver its products to its customers. In addition, transportation costs in India have been steadily increasing over the past several years. Continuing increases in transportation costs or unavailability of transportation services for its products may have an adverse effect on business, financial condition, results of operations and prospects. In addition, India’s physical infrastructure is less developed than that of many developed nations, and problems with its road networks, electricity grid, communication systems or any other public facility could disrupt its normal business activity, including supply of raw materials and the delivery of its products to customers by third-party transportation providers. 

Rely on manufacturing facility in Surendranagar, Gujarat: The company currently operate only one Manufacturing Facility for manufacturing all of its Products, which is located in Wadhwan, Surendranagar, Gujarat, India. Its Manufacturing Facility is subject to operating risks, such as the breakdown or failure of equipment, power supply or processes, performance below expected levels of output, efficiency, labour disputes, strikes, environmental issues, lockouts, non-availability of services of its external contractors etc. Further, any significant malfunction or breakdown of its machinery or equipment at the Manufacturing Facility may entail significant repair and maintenance costs and cause delays in its operations. In the event that it is forced to shut down its Manufacturing Facility for a significant period of time, it would have a material adverse effect on its earnings, its results of operations and its financial condition as a whole.

Stiff competition: The company face increasing competition from its existing and potential competitors in India and in overseas markets that may have substantially greater brand recognition, longer operating histories, greater financial, product development, sales, marketing, more experienced management, access to a cheaper cost of capital and other resources than it does. Some of its competitors may have lower costs, or be able to offer lower prices and a larger variety of products in order to gain market share. Its competitors may also make acquisitions or establish cooperative or other strategic relationships, among themselves or with third parties, including dealers and distributors of its Products, thereby increasing their ability to address the needs of its targeted customers and offering lower cost products than it does which may have a negative effect on its sales. Further, new competitors may emerge at any time.

Outlook

SKP Bearing Industries manufactures needle rollers, cylindrical rollers, pins, and steel balls. The company supplies its products to diverse industries such as textiles, automobiles, etc. across India. The company also exports rolling elements to international customers in Brazil, Argentina, UAE, etc. It has also ventured into the power generation business by installing a windmill in the year 2012-2013 at Vadala, Taluka: Jamjodhpur, Jamnagar Forest Division, Gujarat with a commissioned capacity of 0.80 MW. The company is IATF certified organization, and it manufacture, export or supply rollers as per the need and demand of various companies. Its products are designed by the experts and are made as per the specific specifications offered by the clients. It supply corrosion-free rollers, and provide custom make pins as per customer drawing. On the concern side, the company’s business and assets could suffer damage from fire, natural calamities, misappropriation or other causes, resulting in losses, which may not be fully compensated by insurance. Besides, it requires working capital for its smooth day-to-day operations of business and any discontinuance or its inability to acquire adequate working capital timely and on favourable terms may have an adverse effect on its operations, profitability and growth prospects.   

The company is coming out with a maiden IPO of 44,00,000 equity shares of Rs 10 each at a fixed price of Rs 70 per share to mobilize around Rs 30.80 crore. On performance front, the total income from operations for the period ended on January 05, 2022 was Rs 3,147.50 lakh which is about 91.38% of the total revenue comprising of domestic sales of Rs 3,032.00 lakh and Export sales of Rs 115.50 lakh. Profit after tax for the period ended on January 05, 2022 amounted to Rs 940.41 lakh which is 27.30% of total revenue. Meanwhile, the company continue to further develop its technology systems to increase asset productivity, operating efficiencies and strengthen its competitive position. It plans to continue expanding its manufacturing capabilities in order to capture future growth trends. It intends to explore opportunities to expand its operations by developing new products and services within its existing lines of business. Further expanding its service offerings will help it to build on existing diversification of its business.