They also expect a recovery during the last quarter of 2009-10, following the late revival of the monsoon.
The economic downturn of the past 12 months has taught Indian industry many lessons in its quest to become competitive, cut costs and stay alive in the market. Some sectors have had to change the very way they do business. The machine tool sector, considered the mother of all industries, has learned a lesson in how to de-risk itself.
The biggest lesson the industry learnt was the danger of over-dependence on any single market segment. Until a year ago the machine tool industry was heavily dependent on automobile and auto components manufacturers for orders. Today, because of the downturn, which badly hit the automobile sector, machine tool manufacturers have reduced their dependence on this sector and turned to other customer segments.
Says Shailesh Sheth, former president of the Indian Machine Tool Manufacturers’ Association (IMTMA) and an industry expert: “In the last one year, machine tool makers have started reducing their excessive dependence on the automobile and components sector and have turned towards the power sector, large government contracts and public sector enterprises for orders. There is a huge demand from PSEs like BHEL, BEML, BEL and Indian Railways, among others. There is no drop in spending by these PSEs.”
Other key trends resulting from the downturn, Sheth points out, are cost cutting and right-sizing of manpower levels. This has helped companies reduce product prices and increase competitiveness, even though margins are under pressure. However, machine tool units, mostly run by technocrat-entrepreneurs, are not bleeding heavily yet, and Sheth believes that there is no scope yet for consolidation in the industry.
After chalking up a compounded annual growth rate (CAGR) of about 25 per cent over the last few years, the Indian machine tool sector’s total production (CNC and non-CNC machines put together) declined by 35 per cent to Rs 1,235 crore in 2008-09, compared to the previous year. This was mainly due to the decline in the automobile industry, which contributes around 70 per cent of the sector’s orders. The production of CNC machines fell by 44 per cent to Rs 713 crore in 2008-09, while the output of non-CNC machines dropped by 18 per cent to Rs 521.4 crore.
The slowdown was at its worst in the fourth quarter of 2008-09, during which the output of CNC and non-CNC machines dropped by 49 per cent to Rs 365 crore. The consumption of machine tools in 2008-09 declined by 24 per cent to Rs 6,542.8 crore compared to the preceding year. Indian industry, which is still largely dependent on imports for bigger and more sophisticated machines, also witnessed a fall in imports of machine tools to Rs 5,478.4 crore, a decline of 20 per cent over 2007-08.
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During the first quarter of the current fiscal year (April-June 2009), the industry registered a near 50 per cent drop in output to Rs 201 crore, compared to the corresponding year-ago quarter. “Normally, business is always dull in the first quarter of every year. This year, due to the prevailing sentiment, there were even fewer orders than usual. But we hope to arrest the trend of falling orders towards the end of the year,” says Srinivas Shirgurkar, managing director of Ace Designers, a Bangalore-based machine tool manufacturer.
The industry is deliberately making an effort to develop alternative avenues for growth. “It is starting to look at other areas like government contracts, aerospace and general engineering sectors in a big way. This will not only help them survive the downturn, but also secure contracts for the future,” says Mohanram, director of the technology division of IMTMA.
The sector, having begun adopting newer technologies and having also become cost effective, is now able to compete with imported machines, Mohanram notes. The industry is developing more multi-function, more accurate and more productive machines with high-end features. Companies like BFW, HMT, Jyoti CNC, Lokesh Machines, Lakshmi Machine Works, TAL and Premier have introduced machines based on new technology in recent months.
Shirgurkar says, “The first half of 2008-09 was very good, but subsequently the output dropped by 60 per cent in the second half of the year. From July this year, we have seen signs of improvement. Going by current indications, we may end 2009-10 with a drop of just 25 per cent over the last fiscal.”
But Shigurkar notes that the industry has seen some positive factors as well. Apart from trying to reduce its dependence on the automobile sector and widening the search for customers, machine tool makers, who were until now focusing on small machines, have started work on producing large machines.
Moreover, most companies have exhausted their piled-up inventories and are set to book new orders. The industry hopes for a revival during the last quarter of the current fiscal, following the late revival of the monsoon and the quicker growth in the automobile industry over the last two months. It reckons that sales will stop declining towards the end of the year and thereafter move into positive territory.