Kennametal india - strong MNC parentage investing heavily in india

Kennametal india:

Kennametal India is a 75% subsidiary of the US company Kennametal Inc.
Kennametal india is a part of cutting tool industry where it manufacturers machines and tools used for metal cutting. Metal cutting tools is used in wide variety of industries including automobile manufacturing, infrastructure mining etc.


As per india machine tool manufacturing association machine tools is roughly around 3000cr industry.
As per reports, it is dominated by Sandvik, Kennametal and Iscar. With sandvik and Kennametal having higher share. There has been recent entry of some Korean/Japanese players which is putting some pricing pressure.
One can go through the IMMTA site to understand the industry size and structure information.

The main raw material used in cutting tools is Tungsten carbide which is not available in india. Hence the industry is dependent on imports of cutting tools and raw materials.


FY15 FY16 FY17 FY18
Sales 570 580 695 793
Operating profit 60 46 58 101
OPM 11% 8% 9% 13%
PAT 34 21 24 52
EPS 15 9 11 23

The sales consist of both machines and machine cutting tools made of tungsten carbide.

Dual brand strategy:

Most of the players include Sandvik, Kennametal and Iscar are going to market with Multibrand strategy. Most of the end-customers go for multiple brands in their shop floor and each brand finds some space. Similarly, Kennametal is going to indian market with two brands Kennametal and widia. Kennametal brand provides more customized solutions where as widia is more a B2C play with own distribution distribution.

Kennametal india has been introducing newer products continuously in indian markets.

Widia strategy:

To continue focus for widia in india, company is forming a new subsidiary. It can apply seperately from kennametal brand in many of the tendors floated by govt or by MNCs.

Widia is a old brand in india and had a leadership in position in india in the past. Widia is historically a german brand. After acquistion by kennametal in 2003, this brand got bit sidelined. Now again, there are efforts to revive the brand. Widia is the fast growing segment under kennametal india.

Widia has strong solutions for aerospace. The manufacturing for widia was underinvested in previous years. This is being corrected now. The company is also planning to increase sales and distribution for widia and increase the reach. There is lot of focus on channel partner development and availability of products through increasing distribution reach.

Kennametal Inc the parent company has total widia sales of 200m$ globally. This is manufactured in multiple facilities around the world. In future, Kennametal Inc wants to make Kennametal india a manufacturing hub for widia worldwide sales . This is evident in the world wide head of Widia Mr Alexandar sitting on the board of Kennametal india.

As per Kennmetal Inc presentation widia india sales have grown at north of 30% in last two quarters.

Kennametal Inc strategy:

Kennametal inc is cost rationalization mode and is projected margins to go from 16-18% ebidta to 22-24% ebdita in next two three years.

The strategy includes strategic sourcing, modernization of plants and factory rationalization. Some of these benefits will flow to indian subisidiary.


Kennametal india india has been in capex mode last 3 years and investing a lot in plant automation and increasing manufacturing capability/capacity. Lot of investment has been done in EHS.

FY16 FY17 FY18
Fixed assets purchased 44 50 60

This capex mode may continue in next few years as per the management in the AGM.


The exports are growing at a fast pace though it is still a small part of the sales.

FY15 FY16 FY17 FY18
Exports 46 56 86 130

Kennametal india being a net importer. The currency risk is getting less due to exports growing at a fast pace.


Kennametal india had peak operating margins of 20+% in the previous cycle.

Last quarter Kennametal reported 18% OPM but there may be some one offs in the machines division leading to higher margins.

There may be scope for improvement of margins although company has started seeing increased competition from some Korean players.

Working capital:

There is very little debt on balance sheet of Kennametal india.

Debtor days are continuously reducing.

FY16 FY17 FY18
Receivable days 76 61 57
inventory days 72 60 71
Payables days 45 46 48


  1. Higher valuations
  2. Tungsten carbide cutting tools are imported.– risk of raw material price fluctuation as well as currency fluctuation
  3. Any change in royalty policy
  4. Significant part of sales come to auto industry which can be highly cyclical in nature.


AGM presentations:

Tungsten carbide

Disclosure: invested. No transaction in last 30 days.


Thanks @Ananth_2016 for initiating a thread on Kennametal. I had also worked on the company and prepared a brief note on Kennametal Inc few months back. Sharing it here:

About the company
Kennametal India Limited (KIL) is a subsidiary of Kennametal Inc which holds 75% stake in the company. KIL is engaged in manufacturing of tools and engineered products for metal working, mining, construction and other engineering applications. The products include cemented tungsten carbide, high – strength steel (HSS) and wear resistant carbide products.
The company has two major segments – hard metal and hard metal products and machining solutions which contributed 85% and 15% to company’s sales during FY18 respectively.

Brief history of KIL
KIL, formerly Widia India Limited, was founded in 1964 by Krupp Widia AG, Germany (Krupp Widia), and an Indian promoter, Sak Industries (Sak), to manufacture tungsten carbide metal cutting tools. In 1995, Cincinnati Milacron (CM) acquired Krupp Widia. Sak Industries retained its 25.7% stake in Widia India. In May 2002, Kennametal Inc acquired CM’s global operations, and gained 51% stake in Widia India which was renamed as KIL. Subsequently, Kennametal Inc acquired Sak’s stake in the company and post open offer held 88.16% stake in the company. Currently, Kennametal Inc, hold 75% stake in the company, following dilution to the public post the new SEBI rules of promoter not holding more than 75% stake in the listed company.

Business segments
Hard metal and hard metal products
In the hard metal and hard metal product segment, the company has industrial, infrastructure and Widia segment. Industrial segments mainly caters to industries like steel, automobiles etc while infrastructure caters to segments like mining, construction etc while Widia also caters to the industrial segment. A snapshot of the tools in the segment is given below:


Machining solutions
The machining solution segment is only catered by KI and not by other companies of Kennametal group. In the machining solution group, the company manufactures customised machines, primarily catering to automobile original equipment manufacturers (OEMs). This division follows an in-house designing and outsourced manufacturing model.

Key segments served by the company

The key industries served by the company includes automobiles including 2 – wheelers, cars, CVs (LCV, MHCV) and tractors, steel, aerospace, defence and railways, for green field manufacturing set up, oil & gas and mining. Although, the company doesn’t give the breakup of sales within the segments, the company seems to be largely dependent on automobiles with most of the other segments not growing well. However, it seems that some of the segments like aerospace, oil & gas, mining, defence and railways and even private capex are reviving which should help in growth of the business.

The major competitors of the company including Sandvik and Iscar (owned by Berkshire Hathaway). Sandvik and Kennametal both claim to be the market leaders in the machine tools segment with 25 – 27% market share each (as per CRISIL) with Iscar holding around 15 – 20% market share. The rest of the market share is held by imports from Europe and other Asian players.

What makes KIL interesting?
Revival in capex cycle: There are green shoots that capital investment in manufacturing including Greenfield facilities, oil & gas, energy and mining are also reviving which should help the company in higher growth.
Operating leverage and other cost cutting measures leading to improvement in profitability margins: Let us first look at the key financials of the company over the past 10 years:

During FY11, the company had PBILDT of 27.28% which has reduced over the years and has now shown some improvement during FY18 with margins improving to 11.52%.

The parent company, Kennametal Inc, has taken various initiatives to improve the profitability margins which should also trickled down to the Indian subsidiary.

Some of the initiatives include – focus on reducing the number of products and phase out the ones which have low margins, improved sales execution and focussed initiatives driving growth, have different sales force for Kennametal and Widia brand, modernization and automation of facilities to reduce employee costs, strategic sourcing of key raw materials .

Some of the automation initiatives are given below (taken from Kennametal Inc Investor day Presentation):





Some of these initiatives are also visible in the steps taken by the Indian subsidiary which are expected to improve its profitability margins including:

Giving VRS to employees : KIL has initiated VRS scheme for its employees and has incurred exceptional losses of Rs.5.50 crore and Rs.7.70 crore during FY17 and FY18 respectively. Although, these initiatives might hamper the short term results but would result in reduction in employee cost in the medium to long term.
Incurring capex for expansion and modernisation . During FY16 – FY18 the company has incurred capex of Rs.148 crore including capex of Rs.54 crore during FY18. As per the presentation given during last AGM, the company had used capex during FY17 for capacity enhancement, modernization and capability upgrades.
Operating leverage to play out with increasing sales: From September, 2016, the sales of KIL has increased every quarter on a yoy and qoq basis. With lot of companies in the capital goods sector talking about demand revival, the company is expected to benefit from the same. Most of the industry segment, the company serves including automobile, steel, oil and gas and even new capex seems to be reviving. Furthermore, IIP nos are also showing some turn around in the capital goods sector. Increase in sales can lead to operating leverage playing out in the company and thus increasing the PBILDT margins.

Key Risks

Depreciating rupee to impact gross margins: KIL imports tungsten and carbide as the same are not mined in India. Furthermore, the company also imports some of the finished goods not manufactured by KI from other companies of Kennametal group like Kennametal Europe and Kennametal Inc. Although, the company also exports its products to other group companies and to other countries in south east Asia, the same was much less than the imports.

Expected revival in capital goods industry doesn’t happen

(Disclosure: Invested. This is not a recommendation or an advice to purchase the stock)

Some other readings on the company KMT FY18 Investor Day .pdf (3.1 MB)
KMT Q1 FY19 slides Nov 5 FINAL.pdf (1.1 MB)

A detailed report on Sadvik which gives some details on the tungsten carbide tooling industry.


I had also attended the AGM of the company along with @ananth. Sharing my notes here:

Kennametal India – AGM Notes – November 9, 2018
• All the major sectors that we are catering to have picked up including auto, private sectors, steel, railways, defence have picked up. Autos contribute 60% of our sales. In autos commercial vehicles and tractors are the major contributors. GST has given strong thrust to our business. Investments in roads and ports has picked up. All sectors are doing well now.
• Cost front we have no control as raw materials like tungsten and carbide have to be imported. We try to pass on as much cost to our customer as possible.
• We will continue to do capex for the next few years. This year we plan to do capex of Rs.60 crore. The capex will be to add capacities, modernize existing capacities and for capability upgradation.
• Last year, we have achieved growth which is more than what market has grown.
• Cost cutting initiatives will continue in FY19 as well. Furthermore, we will try to localize some of the components that we currently import.
• We continue to remain focussed on our core business and focus on channel partner development.
• In exports we want sell Ecogrind Machines (machining segment) primarily in South East Asia, China, Brazil and group companies. It is used for reconditioning of tools. We are focusing on exports of hard metal tools too. WIDMA our other brand for machines is used in automobile industry.
• All the cost cutting initiatives implemented at the parent level have also been implemented in the Indian subsidiary like productivity increase, improvement in efficiencies, modernization and automation, and efficient procurement of raw materials.
• Plant modernization strategy - There are lead facilities for each of the equipment/tool that Kennametal manufactures. For some of the equipment like widia, solid carbide mills India is the fore front in terms of capacity and utilisations. Solid carbide mills was built around 3 years back. Inserts and presses have lot of capex for robotics/automation. The benefit of India is that it has all the functions available in the company including – HR, Admin, Finance etc. Other manufacturing entities for Kennametal Inc are purely manufacturing. Hence approvals etc takes time. Since all groups engineering, HR etc there in india. Kennametal India can move faster.
• We have land to increase our current capacities as our plant is spread across 29 acres. Currently our capacity utilisation is 80 – 85% in some products while it is 90 – 95% in some products.
• Widia is a focus brand for us. It has a strong brand recall in India and had leadership position in India. Widia is historically a German brand. Earlier we didn’t focus to growth the brand but now we have increased our focus on it as we think it has got potential. Widia is the faster growing brand compared to Kennametal. We are incorporating a subsidiary and transferring the Widia business as we want to bid for projects separately using Widia and Kennametal brand. Earlier only one entry was allowed as we shared same GST No and other details. The company is also planning to increase sales and distribution for Widia and increase the reach. There is lot of focus on channel partner development and availability of products through increasing distribution reach. Globally Widia has 4 facilities – In USA, isreal-hitec solid carbide end mills, Bangalore and one JV in Asia. Huge scope for Widia sales in India as well Widia becoming global manufacturing hub for kennametal inc. Alexander who is the board of Kennametal India is responsible for Widia at global level wants to make India the global hub for Kennametal Inc for Widia manufacturing. Widia sales is roughly USD 210 million for kennametal Inc where as run rate for India is much lower. As per Kennmetal Inc presentation Widia India sales have grown at north of 20% in last three quarters. It appears company is betting a lot on widia in india - both on direct sales as well as widia exports to kennametal inc.
• We import tools from our group companies as volume in local markets are not enough to manufacture them locally. We are looking to manufacture some of them here which have decent market size.
• We have to import tungsten and carbide as its not present locally. We along with other players in the industry will remain dependent on imports. Forex has been putting pressure on margins for the whole industry.
• One should link our growth rates to IIP growth.
• Competition is quite intense as most of the large MNCs are there. Competition from Koreans is intense.
• We are working on localization of the machine components.
• Railways, Aerospace and Defence are small areas for us currently but are growing well. In Aerospace, lot of companies are looking to develop it. For Railways and Defence, although lot of announcements have been made by the Government, at ground level not much development is there. All these sectors will take time to grow.
• Recent tie up of Kennametal Inc with Amazon and Caterpillar. How will it impact us? Amazon tie up is for selling products through their channel. Currently very small proportion and might take time to growth. Caterpillar tie up is for using our components in mining and road equipment. These tools are currently being imported. This can be a good opportunity for us.
• Around 40% of our products are customized and remaining are standard tools.
• Q1FY19 (September quarter) nos were positively impacted due to favourable product mix and might not continue. However, efforts are on to increase margins overall. Also, forex impact might come in now. We have been trying to pass on that but due to competition we might have to absorb it.
• We pay product support charges to group companies as these are warranties for products imported from them. We give warranty of 12 – 18 months.
• Globally, all the companies under Kennametal use the IT infrastructure of the parent and thus we pay IT charges to them as we don’t have our own IT infrastructure.
• High legal and professional fees is on account of some of the outsourcing of some functions like HR – we have outsourced it to IBM, we hire some designers on contract basis and even use Kennamatel Inc’s resources as well.


Kennametal foreign promoter stake was around 85 %. It did attempt a meak delisting, but suddenly backed out, & offered OFSS to public around ₹600 per share to bring promoter holding to 75 %, around 4 years ago. Since then profits & revenue have been lacklustre & green shoots of growth are showing up, recently.

Parent did try to delist ,but couldn’t get resolution passed for that ,as many shareholders had objected to same,hence they had to compulsorily bring down the holding to 75%.

@ananth - May i ask where you got th YOY export numbers ?

@hamed from the annual report.
Even the geographical split is given

1 Like

Thanks. Got it. Exports still around 15% of sales, so high dependency on local markets and with iip nos and auto numbers going down, appears to have cause of concern as it seems richly valued.

Kennametal Q3 19 result.

New expansion plan announced which will spread over 4 years.

Q3 19.pdf (1.6 MB)


Kennametal Annual Report 2018 Notes(June FY):

1 Like

blogpost on kennametal

If anyone is attending the AGM for this year on 13th Nov, please consider the following questions from my side:

  1. Industry size: As per India Machine Tool Manufacturing Association website, machine tools market is roughly around 15000 crore market in 2018 Is this the correct market size for Kennametal?? If not, what would be the addressable market for carbide tools that Kennametal manufactures? What would be the market share of top 3 players?
  2. Revenue Growth: Company has been seeing strong revenue growth in last 3 years. Even last year when auto market was declining sharply, company reported 17% revenue growth. What has led to this growth? Is there market share gain? Can you give any sense on breakup of auto exposure to PV, CV, 2W?
  3. Raw Material: How has been the pricing trend of key RM been for last 3 years? Tungsten Ore, Scrap Carbide and Cobalt? What we understand is Tungsten price has been constantly declining for last 6 years and current tungsten prices are below cost of production for miners. Is our understanding correct? Has it benefitted the margins in any way?
  4. Traded Goods: Share of traded goods in total sales is constant at 35-38% in last 4 years. Does the company intend to increase the localisation? Gross margin on traded goods have increased from 33% to 37% in FY19. Any reason for this?
  5. Export: After strong 50% growth in FY17 and FY18, export growth has slowed down in FY19. What is the reason for this?
  6. Gross Margin: Our RM cost used to be around 40% of sales from 2003 to 2012 period which then suddenly went to 52-53%. It has since remained stable at 52-53% for last 7 years. What led to this change in RM cost? Any product mix change? How is it that RM cost has remained so steady?
  7. Operating margin: Operating margin improvement over last 3 years have come largely from cost control. Is there further scope for reducing the costs? Is the process of plant automation and related capex over?

I am still evaluating the company and need help to understand the company better.

Discl: Not invested.



The AGM was yesterday. Did anyone attend? If yes, please share your notes from the Q&A.

The PPT doesn’t have much information.

I had attended the AGM of Kennametal India and please fine below my notes:

• 98 patent registration by the parent company in last year
• Signs of recovery in the Indian economy
• Solid FY21 for company despite severe challenges
• Strengthening of Brand – WIDMA brand – tagline machineering tomorrow – understanding customers and exceeding their expectations. Expanding geographical presence
• Lot of innovative parent’s products launched in India for consumables
• Machine group – very busy in last year – launched lot of new products
• Auto and non auto segment break up – 50% of revenue was attributable to transportation – Two Wheelers, Farm Equipments, Railways, Heavy Vehicles, Four wheelers etc. Aerospace, general engineering etc are seen as growth areas.
• Competitive intensity irrespective of the segment remains high. No overlap of brands in any of the segments. Kennametal – full solution segment, Widia – performance segment. Value segment also there in few brands.
• Higher RM price impact? Takes watch of these and wherever required takes measure including productivity improvement and price revision. Work on lot of matters to improve GM and even improve it.
• Initiatives taken to grow machining segment? Improve geographical presence in Asia Pac, new introduction of products.
• Outlook on exports? Opportunities within Asia Pac and selective inter company exports for hard metals.
• View on development of Indian entity as outsourcing hub? Frankly, Kennametal believes in speed and delivery and works on global manufacturing framework. Also, work on selective inter company exports
• Import of products? Constantly reviewed – cost of domestic manufacturing vs imports – measure on return on investment including capex
• Capacity Utilisation – not shared
• Capex plans? In last 5 years, we have invested 300 crore for Bangalore site out of 120 crore went into modernization. Continue to invest based on market demand.
• Growth driver and margin improvement? Greenshoots emerging in the markets. Remain optimistic and well positioned to capitalize on the opportunity.
• Market growth rate? No market reports available for this. Each company does its own analysis. Growth rate? Our growth rate is largely dependent on end markets – transportation, aerospace, defence etc. gradually reducing dependence on transportation segment with growth in infra and machining segment.
• New sales vs replacement demand break up? Growth is always driven partly project orders – pursuit for growth.
• Imported product %age in sales? Widma completely manufactured in India however some imported components. Hard metal segments – some segments where we don’t have capability are imported.
• Planning to supply to PSU segment? Presently, our presence in PSU is limited. Demand is largely governed by government expenditure and priority areas
• Large export opportunity? Can you elaborate? Asia Pacific major focus for export.
• 70% RM imported. Plans to indiginiase? Tungsten Carbide, cobalt not available in India and have to be imported.
• Demand scenario in domestic and export? Innovation engine leveraged for growth, end user growth driving growth for us.
• Dividend policy? Need cash for future needs – capex and working capital requirement. Based on that dividend is paid. Interim dividend was finalized as final dividend this year.
• Q1 results were good with EBITDA margin of 19%. Is it sustainable? EBITDA margin in Q1 was on account of strong topline, helped us to deliver strong margins in Q1. In an inflationary economy, cost headwinds, want to see how we can protect our margins. Continue to strive performance by protecting GM.
• IC derived sales? 50% sales is from transportation segment. From 2 wheelers to Railways. To some extent this is the range where we operate. IC impact lower as lot of other ancillary supplies done.
• Opportunity in aerospace, auto, GE etc? Aerospace emerging segment. Lot of suppliers there in the industry. Good segment. Auto – OEMs to tier 3 suppliers. Whether its IC or EV, good opportunity for us. GE – MSME – large and growing segment. Lot of support from Government.
• EV impact? Definitely play a part along with hybrid engine. Need to see how the transition happen. Two wheelers easily chargeable. Pave the way on how mix between IC and EV segment plays out in the future. Parts may come down from IC to EV engine. We still have new opportunities in EV segment – sustainable opportunities.
• EV – frist growth will come from 2 wheelers like what happened in China. Passenger vehicles and Heavy commercial vehicles where penetration will come later. Our dependence is more on passenger and heavy commercial vehicles. Some impact will come but not in near term. We will be prepared for EVs as well.

(PS: These are running notes taken during the AGM and might contain an error from my side)


A Technical Analysis viewpoint of Kenna Metal:

10 year Cup & Handle pattern broken, 10 year Ascending Triangle pattern broken.



Onset of EV is a long term negative for the co.
Will need to reduce dependence on Auto and find new growth areas.

Machine Tool/ Adapting to the new environment

Machine Tool: Adapting to the new environment .pdf (7.6 MB)

1 Like

Strike notice recieved by company

HDFC securities report

Kennametal_HSL.pdf (6.0 MB)

1 Like