Timken India in Position to Tap Promise Of Tomorrow

Timken India's revenue grew by 12.3% annually in the past four years compared with the 2.8% industry growth.

Timken India BSE 3.08 %, a bearings maker and subsidiary of US-based Timken, has shown better revenue growth than peers over the past four years fuelled by higher exports and strong parental support. Considering the opportunity arising from the expansion plan of Indian Railways and Hindustan Aeronautics (HAL), the company is expected to retain the growth momentum in the coming quarters.

Timken India’s revenue grew by 12.3% annually in the past four years compared with the 2.8% industry growth. The size of the bearings industry in India is around Rs 10,000 crore, out of which 65% is used in industrial application and the rest in transport.

The company increased the share of exports in revenue to 35% in 2015 from 25% three years ago. The sourcing from its parent treated as trading has also improved significantly . These factors helped in 250 bps operating margin expansion in the past four years.

The growth momentum is expected to continue considering future opportunities. Indian Railways, for instance, plans to add higher axle freight wagons, high-speed passenger coaches, and several metros in different cities; all this will require tapered roller bearings, a segment where Timken India is a market leader.

The company enjoys more than 50% market share in railway freight application. It is also a technical partner for Indian Railways for dedicated freight corridor (DFC) project. The wagon building for DFC is likely to start from 2017.

Besides, 18 metro projects are approved or under implementation in different cities which could provide incremental revenue potential of Rs 5001,000 crore for bearings companies. Apart from railways, Timken is also likely to supply bearings to Hindustan Aeronautics (HAL) for light combat helicopters and advanced light helicopters. The production ramp up for helicopters is likely to start from FY19.

In addition, the company will supply wheel packs for heavy commercial vehicles (more than 25 tonnes), a potential business worth Rs 100 crore. The realisation from wheel pack supply is likely to be 50-60% higher than current bearings supply.At Thursday’s closing of Rs 6,445.9, the stock was traded at 30 times its 2018 projected earnings. The premium valuation is justified given the visibility of orders and improving profitability.

Stand-out stocks and stand-out companies seldom get noticed in troubled times. ET delves into financial performance of India Inc every week to identify stocks and companies that have bucked the trend to emerge stronger. This week, we present Timken India.