Kennametal india - strong MNC parentage investing heavily in india

Manufacturing 2022: Making Machine Tools futurist… UAZU7.pdf (2.4 MB)

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A Technical viewpoint ::

Would appreciate views of TAs here: @hitesh2710

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Investor conference call for Kennametal :

Summary of what I understood from the discussion

Kennametal is in the business of

  1. Tungsten carbide tools ( hard metals )
  2. CNC machines ( machine tools )
  • Automotive is approximately 40-50% of the total sales, the emerging businesses are aerospace, mining, defence, infrastructure equipment, energy, oil and gas and general engineering. Automotive sales are in a decline

  • The dependence on auto space is as follows CV > PV-Hybrid > PV-ICE > PV-EV > 2W.

  • Kennametal’s revenues are split in 80:20 ratio between consumables and machine tools. Consumables (tool bits, inserts) market size would be 4000 Cr, Machine tools market size would be 10000-15000 Cr.

  • Kennametal is currently in a sweet spot due to

    1. Domestic green field CAPEX going around. Machine tools imported are at a decadal peak
    2. CAPEX Replacement cycle in MSMEs, old machines are getting replaced by newer machines which will improve quality and productivity
  • India is seeing a good demand mainly from Auto and the domestic consumption theme. Railways, Defence and PLI etc… Unfortunately they do not have any product to cater to the semiconductor industry which could be a very big space as the need for precision equipment is very high there.

  • They expect to grow at 1.4-1.6 times the IIP growth rate. The business has enough headroom for catering to the demand.

  • Competitors are Sandvik group, IMC group. However, Kennametal has more feet on the ground, manufacturing in India and distribution in all industrial sectors.

  • The demand can be extrapolated from the order book size. Their operate in the precision tooling space and hence margin pressure is low.

  • Generally the capex cycle plays out in 12-18 months from the date of receiving the order

Reason for impact on Margin:

  1. Tungsten Carbide price fluctuation which they import
  2. Modernization of equipment leading to high fixed cost ( almost all their machines are imported and IOT4.0 enabled )
  3. Inventory build up was done as they are setting up a new building to consolidate the insert business, so they wanted to make sure that customer demand was not impacted
  4. The CWIP is getting rolled over as during covid company was not sure if they should go ahead with the investment, which might impact the cash flow


High volume on 26th September.