Slowdown hampers import of high-precision machines.
The slowdown in the Indian economy has had its impact on the performance of the Indian machine tools manufacturing industry. After growing at a compounded annual growth rate of about 25 per cent over the last few years, its output is estimated to have dropped by 20 per cent in 2008-09.
The machine tool industry’s output grew from Rs 549 crore in 2002-03 to Rs 1,902 crore in 2007-08. However, growth remained flat at Rs 1,768 crore in the first nine months of 2008-09, compared to Rs 1,752.5 crore in the same period of 2007-08. Much of this was due to the decline in the automobile industry, which contributes around 70 per cent of the sector’s orders.
While figures for the full year ended March 2009 are yet to be compiled, initial indications are a drop in output of around 20 per cent on the 2007-08 figure of
Rs 1,902 crore. The slowdown was at its worst in the fourth quarter.
The machine tools industry is divided into metal cutting and metal forming sectors. The metal cutting sector can be further classified into conventional and computer numerically controlled (CNC) machines, while the metal forming sector can be segregated into conventional and numerically controlled (NC) machines.
Almost 73 per cent of the total machine tools production in India is contributed by 10 major companies. About 72 per cent of the companies have a sales turnover of below Rs 50 crore and hence the majority of players in this sector are in the small and medium category.
The main reason for the poor performance of the industry in FY 2009 is the slump in the automobile industry and the drop in exports of auto components. The machine tools industry is heavily focused on producing machines for the automobile and auto parts industries. From September 2008 on, due to the global crisis, the auto sector carried out no capital expenditure, cancelling large numbers of orders. Lathes, machining centres, special purpose machines and grinding machines are categories of machine tools that have been affected.
The situation worsened in the second half of FY2009. The order book position of almost all companies was just 40 per cent of what it was in the corresponding quarters of the previous fiscal.
Sectors other than automobiles, such as aeronautics, defence, railways, power and healthcare (where the requirements were huge), still held out hope for the industry. However, the Indian machine tool industry is not equipped to deliver high-precision machines in quick time, though it is capable of producing such machines.
Another alarming trend during the year was the fall in imports. The country is largely dependent on imports for high-precision machines used by sectors such as aerospace, healthcare and infrastructure, among others. The first half of 2008-09 showed a rise in imports, but the third quarter showed a decline. Imports in the third quarter were Rs 1,488 crore, a drop of 16.1 per cent compared to the corresponding period of 2007-08. However, for the period April-December 2008-09, imports were Rs 5,087 crore — a growth of 10 per cent over the same period of 2007-08.
While the reduction in domestic production was lower in the case of conventional metal-working machine tools, CNC machine tools manufacturers too suffered, although marginally. The output of CNC machine tools dropped by around 4.5 per cent to Rs 1,158.7 crore in April-December 2008-09, compared to the corresponding period of the previous year.
Shailesh Sheth, former president of the Indian Machine Tool Manufacturers’ Association (IMTMA), says that the industry needs to introduce improved products and develop new markets to weather the current crisis. “The situation in FY2010 will be much worse as Tier-II and Tier-III companies will not be in a position to face the crisis for long. The turnaround will be slower than expected,” he said.
Major manufacturing hubs are Bangalore, Belgaum in Karnataka, Pune in Maharashtra, Coimbatore in Tamil Nadu, Rajkot in Gujarat, Ghaziabad in Uttar Pradesh and Delhi.
Fifty per cent of companies in the industry feel that smaller companies will not be able to survive the onslaught of second-hand machines being imported into India and the technological changes taking place (ie from conventional to CNC) and hence the market will witness consolidation in the future, with the smaller ones unlikely to survive.
