Timken India Ltd. share price target

Growth to Unfold on Account of Improving Demand Environment: Stable revenue growth along with healthy margins - Timken has registered turnover growth of 8.8% sequentially & 8.6% YoY growth for Q1FY17 owing to improved volumes. EBITDA margin has contracted by 150 bps QoQ mainly on account of 15.5% rise in raw material costs & 9.5% rise in employee expenses. EBIT margin & Net profit margin have also contracted by 120 bps & 130 bps sequentially to 14.0% & 9.4% in Q1FY17.

Valuation and Outlook : While introducing FY18E, we have also re-visited the financials for FY17E. While global growth outlook remains gloomy, India is one of the few economies expected to deliver growth. Being a market leader in tapered roller bearings, which largely cater to Medium and Heavy Commercial Vehicle (M&HCV), off-highway equipments and railways markets, Timken is well positioned to benefit from the much anticipated economic revival. At CMP of Rs. 547, Timken is trading at 32.5x to its FY18E EPS. Timken, in view of auto industry revival, positive industry sentiments coupled with healthy zero debt balance sheet, is well positioned to grow in times ahead. We ascribe a multiple of 38.5x FY18E EPS, which is trailing twelve months PE and recommend a “BUY” rating for an upwardly revised target price of Rs. 648 representing an upside potential of 19%.

Timken India Ltd (TIL) reported its Q1FY17 numbers that were lower than our estimates on the topline front. This was primarily due to a decline in export revenues • Revenues came in at | 282.2 crore, up 6.3% YoY but below our expectation of | 312.7 crore. Export revenues declined 1% YoY. Domestic revenues also grew slower-than-expected. The same grew 14% YoY against our expectation of 17% YoY • EBITDA margins for Q1FY17 improved 50 bps YoY to 17.4% vs. 16.9% in Q1FY16 due to an improvement in gross margins. Gross margins for the quarter jumped to 42.3% vs. 40.6% in Q1FY16 • PAT increased 21.5% YoY to | 28.4 crore (our estimate | 29.1 crore for the quarter).

Valuation : Timken has traded at a premium valuation given its leadership position in the segment, strong parentage and healthy balance sheet. Given the anticipated growth opportunity in majority its segments like railways, CVs, off-highway vehicles, repairs & services and exports, we the company will continue to command its premium valuations. Accordingly, we value the company at 31x FY18E EPS of | 19.8 to arrive at a target price of | 614. We retain our BUY recommendation on the company.

Revenues came in at | 275.8 crore, up 15.8% YoY but below our expectation of | 283 crore. This was primarily on account of strong volume growth albeit with lower-than-expected realisations...

ICICI Securities Ltd | Retail Equity Research Timken reported a 12.5% YoY increase in topline to | 257.8 crore driven by strong performance across rail and heavy truck segment....

Surge in commercial & passenger auto sales & pick-up in industrial activity to up revenue by 14.7%: Auto industry is estimated to grow at 7.4% for FY16E & 12.9% for FY17E with CVs, tractors & PVs expected to grow at a CAGR of 14.5%, 9.0% & 11.7% respectively. Furthermore, IIP & core sector growth are exhibiting signs of recovery on the back of strong macro-economic factors and Timken, having a near perfect correlation with auto sales & IIP growth, is well poised to grow at a CAGR of 14.7% for FY15-FY17E.

Timken India Ltd (TIL), a subsidiary of Timken Singapore PTE Ltd, is the fourth largest organized bearings player in India with overall revenue market share of ~8%. The company is a leading...

On June 4, 2010, the Union Finance Ministry came out with "Minimum Public Shareholding Guidelines", later (on August 9, 2010) revised. PSUs are expected to maintain a minimum public shareholding of 10 per cent within three years. For the private sector, this is 25 per cent. That means that promoters of listed entities bring down their stake to below 75% by June 3, 2013. Companies can do so either by diluting or de-listing. The most prominent candidates for the delisting will be MNC companies where...