The Indian machine tools industry is likely to pick up tempo in the near future. If it does, demand from the industrial sector for intermediate inputs may also pick up.
The Rs 1200-crore machine tool industry, which is currently ranked 11th in production and 18th in global consumption, has a good chance to play a catalytic role in the process of industrialisation.
Yet, per capita consumption of machine tools in India is a mere Rs 18, as against Rs 1800 plus in smaller countries like Taiwan and Korea.
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The industry, basically divided into two broad categories - main machine manufacturers and tool manufacturers - is dominated by Hindustan Machine Tools (HMT), the public sector enterprise.
HMT, with its subsidiary Praga Tools, contributes about half of the total machine tools output in the organised sector. In the private sector, Sandvik Asia and Widia (India) are the major players. Mysore Kirloskar, Dagger-Forst Tools, Electrex (India), Electronica Machine tools are other notable players in this sector.
Worldwide, the $35.5 billion machine tool market is mainly dominated by companies from Germany, Japan and the US. Western Europe accounts for 44 per cent of the total global output in which Germany has a 21 per cent share.
Asian countries account for 38 per cent of the global market, of which Japan with a 25 per cent share is the dominant player.
The North Atlantic Free Trade Areas (NAFTA) account for 15 per cent of the world production, while the East European countries including Bulgaria, Croatia, Czech Republic, Finland and Hungary account for a meagre 2 per cent share. India, with a measly market share of less than 1 per cent, is a small speck on the global map.
The international market has been affected by the reduction in defence expenditures owing to the end of the cold war. But the signing of the GATT and opening up of the world market has provided new avenues for the industry.
India is at the bottom of the heap in the comity of nations that turn out machine tools. Neither technology nor price is the problem of the machine tools industry in India.
The industry has a slew of problems such as poor quality of machines, lack of performance reliability (high breakdown), inconsistency in accuracy, poor process capabilities, leakage of hydraulics, poor aesthetics, lack of safety features, failure of electric and electronic parts and poor after-sales service.
These problems call for serious solution as the international competition in the machine tools sector is becoming acute. However, since 1991, the Indian industry has become more concerned about these issues.
It is a matter of some satisfaction that the indigenous producers have made efforts in the direction of solving a few problems.
The rising demand from user sectors such as automobile, auto components, white goods and capital goods industries, has helped the Indian machine tool industry to hold on to its performance - albeit with a fall in profit margins. This is reflected in the first half of 1996-97. Sales income of 20 machine tool companies rose by 19 per cent to Rs 313.6 crore (Rs 263.3 crore). Widia (India) showed an excellent growth of 43.5 per cent in its sales income. Operating profit (OP) firmed up to Rs 72.1 crore (Rs 65.6 crore) - up 10 per cent.
While Widia (India) improved its OP to Rs 30.1 crore (Rs 21.1 crore), Sandvik Asias operating profit declined to Rs 18 crore (Rs 23.2 crore) owing to high operational costs.
Gross profit of the 20 companies increased to Rs 56 crore from Rs 53.2 crore. Net profit after tax showed a meagre growth of 0.3 per cent to Rs 31.8 crore (Rs 31.7 crore).
Operating profit margin(OPM) fell to 23 per cent from 24.9 per cent, gross profit margin to 17.9 per cent (20.2 per cent) and net profit margin to 10.1 per cent from 12.1 per cent.
For the full year to December 1996, Sandvik Asia has reported a sales income of Rs 156.6 crore (Rs 138 crore) - up 13.5 per cent.
Lower return on the imported tooling systems and components nullified any benefit that would accrue by way of a rise in sales income. As a result, the company had to be content with a fall of 17 per cent in gross profit to Rs 30.4 crore (Rs 36.5 crore). Net profit also declined by 12.6 per cent to Rs 15.3 crore (Rs 17.5 crore).
Hindustan Machine Tools has not been included in the sample as it is highly diversified. It turns out watches and tractors besides machine tools.
The share of machine tools in sales income is about 26 per cent and no separate productwise data on profits is available. In the first half of 1996-97, its sales income went up by 6.7 per cent to Rs 407.8 crore (Rs 382.3 crore).
Gross loss was Rs 37.6 crore, while net loss stood at Rs 46.6 crore. In the year to March 1996, HMT was in the red to the tune of Rs 55.9 crore - down from Rs 79.2 crore in the previous year.
Overall production of machine tools has not kept pace with the rising demand. Therefore, the share of domestic production to consumption fell from a peak of 86 per cent in 1990 to about 48 per cent in 1995.
At present, the indigenous industry caters to about 65 per cent of the countrys machine tool consumption. Currently, there are about 160 units in the organised sector and another 300 in the small-scale sector, producing machine tools and related products.
During 1996, the industry produced 6824 nos (7300 nos) of metal-cutting and metal-forming machine tools worth Rs 8064.6 million (Rs 7173.9 million) - a growth of 12.4 per cent in value terms.
While the number of numerically controlled (NC) machines produced was 1050 (956 nos) worth Rs 3178.9 million (Rs 2710.9 million), the quantity of non-NC machines produced was 5774 nos (6344 nos) at a value Rs 4885.7 million (Rs 4463 million).
During 1996, imports of 16 machine tools companies showed a hefty growth of 72.4 per cent to Rs 104.7 crore (Rs 60.8 crore), while their exports rose only by 37.7 per cent to Rs 39.5 crore (Rs 28.7 crore).