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.