New Delhi: Jaipur-headquartered National Engineering Industries (NEI) Ltd is looking to de-risk its business model and focus more on areas such as industrial and railway, according to a top company official. NEI which clocked sales of INR 2,750 crore in FY21 plans to double its turnover in four years through its planned organic and inorganic expansion, he added.
The shift in strategy has come when the automotive sector, which accounts for 60% of its revenue, is going through a rough patch due to the double jolts of COVID-19. About 25% of the business for the company comes from industrial and the remaining from railways.
“As a strategy to de-risk the automotive industry, we have started identifying new business opportunities in industrial and rail segments and focusing on improving our own efficiencies. We are aiming that in the next four years our business split should be 50:50 from automotive and non-automotive segments,” Rohit Saboo, president & CEO told ETAuto. This will help the company to strike a balance during the cyclical trend of the automotive industry and in the days of sudden turmoil like lockdowns.
With an objective to reduce its concentration risk in the domestic automotive market, NEI is also targeting to improve its exports share to 30% from the current 20% in the next three years. Elaborating on the export strategy, Saboo said that the company is planning to expand its overseas business in North America, Germany, South Africa and Japan regions and also investing in development of new bearings for electric vehicle, commercial vehicle, and IC engine vehicles.
“Fortunately the export market for us has come back much more sharply than the domestic market. In particular, exports to the US and Germany rebounded very quickly and that’s the reason we want to further expand our footprints. With the current inquiries that we have, I think we will be able to achieve 30% of our target in another 2-3 years,” he added.
When asked about the input cost inflation, Saboo said that raw material forms 50% of the bearing cost and in the last 5 months the input cost shot up by over 30% which is actually creating havoc for the company’s profitability.
We are aiming that in the next four years our business split should be 50:50 from automotive and non-automotive segments.Rohit Saboo, president & CEO, NEI Ltd
He highlighted that the domestic bearing makers are facing twin challenges of high cost and supply chain disruption due to scarcity of raw materials. “Nowadays many of the local suppliers who were making bearing steel are now busy with export of steel as they are getting higher returns. So they are making a less amount of bearing steel that creates a problem for supply,” he pointed out, adding that importing raw material has also become an issue as containers are not available and shipment charges have gone up six times.
In a bid to keep plants running the company then got in touch with local vendors that improved its localisation levels by manifold. “Earlier we used to be 60% localised and 40% imported raw material. Now I would say that we are 90% localised and dependent on imports only for some special grade steels that are not available in India,” he added.
Investment Plans
Saboo said the company has lined up a Capex plan of about INR 160 crore for the current fiscal which will largely be spent in construction of the new plant near Jaipur and machinery. Located approximately 35 km from the city, this will be the company’s sixth plant in the country and second plant in Jaipur with an area of about 250,000 square feet in the first phase. The other plants are in Jaipur, Newai (Rajasthan), Manesar (Haryana) and Vadodara (Gujarat).
“This new plant will have about 20 production lines in the first phase which will be completed by mid of 2023. Though we have started the construction, the pandemic has delayed the work by six months. The entire plant will be fully operational in the next five years,” the company’s CEO said.
Saboo further mentioned that the production lines will be a mix of all three business verticals and it will manufacture roller components as well.
Plans to double revenue in 4 years
In January 2020, NEI acquired Kinex bearings through its wholly- owned European subsidiary, with capability to produce bearings for railways, aerospace, textile and automotive industry. Following this it also formed a joint venture last month with Amsted Seals, a global leader in sealing solutions and cutting-edge metal fabrication to manufacture railway bearing seals in the country.
On the product front, the company has added high RPM and low noise bearings for electric vehicles to its portfolio and has already started supplying to Indian and European EV customers. It has also developed a hybrid bearing where balls of different material are used rather than steel.
“The industry will see pent-up demand coming in the second half of the year. Plus, we have invested heavily in expanding our product portfolio. We target to grow 10% this year and 15-20% in the coming years. We are expecting to double our turnover by FY 2024-25,” Saboo said.
With an annual production of 200 million bearings, NEI currently serves customers in 30 other countries. At present, it holds an estimated market share of 29% in domestically produced bearings. In India, the company, which is a part of the USD 2.4 billion CK Birla Group, supplies parts to leading auto OEMs including Maruti Suzuki, Honda, Royal Enfield and VE Commercial Vehicles.
