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The eBearing News
November 6, 2006
HMT Bearings Faces Restructuring Deadline
copyright © 2006 eBearing Inc.
Hindustan Machine Tools Group Ltd. (HMT, India), undergoing a long-term, government-funded
turnaround effort, has cleared HMT Bearings (Hyderabad).
Seven companies make up HMT Group, but only two -- HMT Bearings and Praga Tools -- are believed
to show any real potential for long term survival, absent government-funded support.
HMT Group includes HMT Chinar Watches, HMT Watches, HMT Machine Tools, Praga Tools, HMT Tractors,
HMT International, and HMT Bearings.
Overseen by the Board for Reconstruction of Public Sector Enterprises, HMT Bearings' revitalization
plan has just recently been approved by the Indian Cabinet Committee on Economic Affairs and funded
with Rs 520 million (USD $11.5 million) -- Rs 170 million for CapEx and Rs 100 million for working capital.
HMT Bearings manufactures ball bearings, tapered roller bearings, and cylindrical roller bearings in
sizes from 20mm to 260mm OD. The division expects to record fiscal 2006 sales in the neighborhood
of Rs 400 million to Rs 450 million, ($9 million to $10 million) but says it still lacks sufficient
operating capital to continue without guaranteed government funding.
From the most recent reliable financial period, 2003-2004, HMT Bearings sales were 75% to the Indian
OEM tractor and commercial vehicle market, and the remainder to aftermarket replacement sales and
government-guaranteed Indian rail bearing contracts.
Notably, HMT's situation puts it in contrast to other Indian bearing manufacturers, whose sales
are up across the board in a strong national market, and to all sectors of the economy.
All told, the entire turnaround package proposed for HMT Group exceeds Rs 12 billion ($266 million), an
amount unlikely to be approved; HMT Group has been losing Rs 2 billion each year for several years.
The government has been put in a difficult position with several of the troubled operations. HMT
Machine Tools, for example, is a crucial supplier of machine tools and equipment to India's military
equipment and defense infrastructure.
HMT was established in 1953 as a government-backed consortium of capital-intensive businesses
producing machine tools, printing equipment, special-purpose machines, presses, shipbuilding
and national defense industries. The operations initially performed well, while they dominated
capital-intensive sectors. As the years went by, however, they became bloated, bureaucratic, slow
to respond to outside developments and failed to invest properly in maintaining the massive
infrastructure. Other Indian manufacturing resources gradually privatized, became more flexible
and competitive, eventually leaving HMT's operations far behind.
HMT Bearings was incorporated in 1964 as Indo Nippon Precision Bearings Ltd., set up in technical
collaboration with Japan's Koyo Seiko Co. Ltd. It began actually manufacturing bearings in 1970.
In 1981, The Indo-Nippon operation was acquired by government-owned HMT Ltd. in 1980.
The entire HMT group began to unravel by 1999-2000, when it suffered extensive losses and was forced
into a massive restructuring effort. It was split into separate operating divisions at that point,
so the various watchmaking, machine tool, bearings, exporting and other operations could be
accounted for and assessed separately. Until then, HMT was a single entity, a massive manufacturing
conglomerate with few controls, little synergy and no product line accountability.
HMT Bearings began suffering a liquidity crisis in 1999-2000. It worsened 2002 and 2003,
primarily due to a massive inventory buildup and accumulation of uncollected receivables.
In mid-2002, the government and HMT Group explored shutting down HMT Bearings,
taking the losses and pensioning off the employees. But that plan was rejected, out of concern
for the impact on employment and high pension costs, and in the face of intense pressure by
the Center of India Trade Union in Hyderabad.
Rather than shut down HMT Bearings, government-funded bailouts were instituted, debt was converted
to equity in order to eliminate the overwhelming interest expense.
The key development in 2002 was the decision to seek a strategic investor to buy out the government's
by-then 97% ownership after equity conversion. Seeking an Expression of Interest from qualified buyers,
an operating background for HMT was developed, along with bid guidelines (expired in August 2002):
Government of India - Ministry of Disinvestment
Preliminary Information Memorandum for HMT Bearings Ltd.
No buyers were found, losses continued and Bearings' equity went negative by April 2003.
There are currently 48 Public Sector Enterprises (PSEs) under government control in India; 14 have
been shut down as nonviable and only 13 of the remaining 35 are profitable.
In the overall government-funded bailout programs for eight Public Sector Units (PSUs), it has
already invested more than Rs 18 billion and forgiven Rs 13 billion in unpaid interest.
The latest plan for HMT Bearings was approved in November 2005; the Indian Cabinet's Committee on
Economic Affairs set a deadline for HMT Bearings' restructuring
to be solidly under way. And with strict instructions that a non-governmental strategic partner be
in place, by the end of December 2006.
Government holdings in HMT Bearings
currently stand at 97.25%. Koyo (JTEKT; Japan) owns the other 2.75%
The November 2005 package also included Rs 180+ million in loan guarantees, another cash loan
of Rs 193 million converted to more equity, and waiving Rs 75 million in unpaid interest.
Early in 2006, HMT Bearings announced it was in the market to establish a joint venture or strategic
partnership with another bearing manufacturer. Koyo was reportedly approached, but reportedly
said it wanted out of its HMT position, not a larger piece.
HMT Bearings Managing Director, Neeraj Mishra, said at the time: "We are looking for a joint venture
partner as there is a thinking in the government that it should dilute its stake in HMT Bearings since
the company does not operate in strategic areas."
Mr. Mishra made the comments during the annual Hannover Technology Fair (Germany), where HMT Bearings
set up shop primarily to attract foreign investment interest.
Mr. Mishra went on to admit the company is in dire straits because it competes against
agile, more efficient private sector bearing manufacturers in the automotive and industrial
markets. Also he pointed out it is at a significant cost and competitive disadvantage.
From its plant in Hyderabad, HMT has tried to shift production away from commoditized ball bearings
toward more profitable tapered roller bearings, but largely failed to gain traction against competitors
such as SKF, INA/FAG, Timken and domestic competitors.
Even as the bearing market in India is growing at least 8% per year, HMT sales fell 40% in
2003-2004 and fell by 17% the previous period.
All of this reform action comes as a result of 2004's government turnover in India. The
Congress-led government came to power, and among other reforms, divestiture and privatization efforts
were given renewed focus, particularly in banking and retail but also in manufacturing.
HMT Bearings' recent performance has been the best of the HMT Group -- losing only
Rs 160 million over 2003-2004. HMT Watches, for example, lost Rs 4.15 billion
over the same period. However, the continued losses meant cash flow problems and
in recent periods, HMT Bearings has only been able to pay its workers when given government funds.
If the looming December deadline for finding a joint venture partner passes without action, the
Indian government is likely to extend the deadline again, if only for lack of alternatives.
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- by Bruce A. Carr
from individual research,
tips and commercial sources.
Bruce Carr edited this content.
Copyrighted material; unauthorized reproduction prohibited.
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eBearing.com ... for everything that moves™
Entire contents Copyright © 1999-2011, eBearing Inc. All rights reserved.
eBearing.com and "... for everything that moves" are registered trademarks of eBearing Inc.
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