The first-quarter losses have also been a fallout of an extraordinary provision of Rs 12.5 crore for the company's ongoing voluntary retirement scheme.

The company's profit (before extraordinary items and tax) stood at Rs 2.1 crore, while gross profit (after interest but before depreciation and taxation) amounted to Rs 9.4 crore.

The company, owing to a severe demand recession in the automotive industry, was forced to scale down production. "Production at the factories was reduced to match the lower demand and also to reduce inventories. This has resulted in unabsorbed fixed costs thereby adversely affecting profitability," stated a company release.

SKF Bearings, which posted a net profit of Rs 5.9 crore in the last fiscal, has not furnished the comparative break-up of its first-quarter performance in1997-98. The company, during the first quarter, recorded a net sales turnover of Rs 83.8 crore. Total expenditure stood at Rs 71.3 crore, and the company's net interest aggregated to Rs 5.7 crore. SKF Bearings' other income, during the period, stood at Rs 2.6 crore.

The company has pegged the cost of voluntary retirement scheme at Rs 50 crore in 1998-99 and accordingly it has decided to provide for a proportinate sum of Rs 12.5 crore in each quarter in order to write off the entire liability in the current fiscal. A total of 664 employees have so far opted for the retirement scheme, the company has said.

INSIGHT

The SKF Bearings scrip mirrors the depressed state of the auto-ancillary units, which are reeling under dwindling offtakes from the OEM segment in the automotive sector. The scrip has plummeted from around Rs 1,500 level in April to a recent 52-week low of Rs 700 in July and going by the first quarter results declared by the bearings manufacturer the decline seems quite in order.

Thecompany has posted an uninspiring bottomline of Rs 2.1 crore before extraordinary items and tax. A charge of Rs 12.5 crore for the company's on-going VRS has, however, resulted in a net loss of Rs 10.4 crore.

Operating margins for the quarter dipped to 14.92 per cent when compared to the margins of 15.5 per cent for the year ended March 1998. Analysts say this is a reflection of the company's forced move to cut prices to counter the import threat from Japanese bearing manufacturers.

A fact which might restore some investor confidence in the scrip is the declaration by the management, that it intends to offset the VRS cost against the proposed sale of real estate, which income will be booked in 1998-99.