1
Feb 22, 2018
Timken India Ltd
Recommendation (Rs.)
CMP (as on Feb 21, 2018) 805
Target Price 880
Previous Target Price 656
Upside (%) 9
Stock Information
Mkt Cap (Rs.mn/US$ mn) 54573 / 842
52-wk High/Low (Rs.) 1007 / 594
3M Avg. daily volume 45336
Beta (x) 0.7
Sensex/Nifty 33845 / 10397
O/S Shares(mn) 68.0
Face Value (Rs.) 10.0
Shareholding Pattern (%)
Promoters 75.0
FIIs 2.3
DIIs 9.6
Others 13.1
Stock Performance (%)
1M 3M 6M 12M
Absolute (13) (7) 11 31
Relative to Sensex (9) (8) 3 11
Source: Bloomberg
Relative Performance*
Source: Bloomberg; *Index 100
Analyst Contact
Arvind Vinjamoori
040 - 3321 6275
arvind.vinjamoori@karvy.com
Mediocre Performance, Future Outlook Stable
Top line to grow owing to improved volumes:
Despite a YoY revenue growth
of 13.9%, EPS de-grew by 31.9% along with an EBITDA contraction of 229 bps
due to higher material expenses and employee expenses. We see the margin
contraction phenomenon as temporary. In view of the synergies from ABC Bearings
Ltd’s acquisition coupled with growing railways business, we expect the revenue
to grow at ~12% CAGR during FY17- FY20E with an improved EBITDA margin of
16.3% by FY20E. We also expect higher revenue from the railways segment as
the government’s budget allocation towards it increased signicantly. In view of the
improved revenue from both organic & inorganic growth along with higher protability
margins, Timken looks attractive; however, considering the challenges in wind energy
& higher valuations, we retain our “HOLD” rating for a target price of Rs.880.
Revenue to grow at 12% CAGR:
Timken has invested around Rs. 1.2 Bn to boost
production at its Jamshedpur plant. With ~25% revenue contribution from railways,
Timken is the largest supplier to Indian Railways freight sector. Increased capacities
for rail bearings at Jamshedpur plant along with the governemnt’s budget allocation
of Rs. 1.5 Tn for railways may fare well for TIMKEN going ahead. Also, the recent
acquisition of ABC Bearings Ltd is expected to provide synergies in realizing higher
revenue with operational eciencies.
Robust balance sheet with healthy profitability & Return Ratios:
Timken is
nearly debt free and enjoys access to technological knowhow of its parent company.
Historically, it also enjoyed a healthy protability & return ratios, with a strong revenue
growth owing to capacity expansions and cost rationalizations. We expect the
EBITDA margin to reach 16.3% & Net prot margin to reach 10.6% by FY20E. We
also expect RoE & RoCE to reach 19.5% & 27.0% by FY20E.
Valuation and Risks
In view of Timken’s focus on growing both organically & inorganically, higher
budgetary allocation to railways, auto industry revival, positive industry sentiment,
we believe Timken is well positioned to grow in the near future. While introducing
FY20E, we have revised FY18E & FY19E nancials. While maintaining our positive
view on the company’s operational performance, we retain a “HOLD” rating with a
target price of Rs. 880 owing to challenges in wind segment & higher valuations. We
value the company at 36x (5 year average forward PE) to FY20E EPS of Rs. 24.4.
Slowdown in industrial activity & automotive segment along with delay in synergy
realizations may be a threat to the call.
For private circulation only. For important information about Karvy’s rating system and other disclosures refer
to the end of this material. Karvy Stock Broking Research is also available on Bloomberg, KRVY<GO>,
Thomson Publishers & Reuters
Exhibit 1: Valuation Summary (Rs. Mn)
YE Mar (Rs. Mn) FY16 FY17 FY18E FY19E FY20E
Net Sales 11097 11172 12129 13766 15693
EBITDA 1622 1580 1701 2031 2556
EBITDA Margin (%) 14.6 14.1 14.0 14.8 16.3
Adj. Net Prot 918 972 1084 1314 1657
EPS (Rs.) 13.5 14.3 15.9 19.3 24.4
RoE (%) 19.6 16.9 16.5 17.8 19.5
PE (x) 31.3 45.1 50.5 41.6 33.0
Source: Company, Karvy Research, *Represents multiples for FY16 & FY17 are based on historic market price
Company Update
Industrials - Manufactured Goods
Timken India Ltd
India Research - Stock Broking
HOLD
Bloomberg Code: TMKN IN
Earnings Revision (%)
YE Mar FY18E FY19E
Sales (%) (8.9) (5.4)
EBITDA (%) (11.3) 0.2
PAT (%) (5.3) 4.5
Source: Karvy Research
L
L
L
L
L
L
90
105
120
135
150
165
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
TMKN
Sensex
2
Feb 22, 2018
Timken India Ltd
Exhibit 2: Q3FY18
YE Mar (Rs. Mn) Q3FY18 Q2FY18 QoQ % Q3FY17 YoY % 9MFY18 9MFY17 YoY %
Turnover 2786 3102 (10.2) 2445 13.9 9064 8414 7.7
Expenditure 2579 2564 0.6 2207 16.8 7895 7210 9.5
EBITDA 207 538 (61.5) 238 (12.9) 1169 1204 (2.9)
Depreciation 93 116.3 (19.7) 69 34.6 322 209 53.8
Interest 3 4 (5.7) 2 43.5 9 6 46.8
Other Income 26 148 (82.7) 22 16.3 194 56 247.5
PBT 136 566 (75.9) 188 (27.6) 1032 1044 (1.2)
Exceptional items 45 194 (77.0) 55 (19.7) 349 329 5.9
Ta x 92 373 (75.4) 133 (30.9) 683 715 (4.5)
PAT 7.4 17.3 (990) bps 9.7 (229) bps 12.9 14.3 (141) bps
Adjusted PAT 4.1 17.2 (1314) bps 6.9 (280) bps 9.3 11.8 (248) bps
EBITDA Margin (%) 3.3 12.0 (872) bps 5.4 (214) bps 7.5 8.5 (96) bps
EBIT Margin (%) 6.9 13.7 (678) bps 10.6 (368) bps 11.8 12.1 (24) bps
Net Prot Margin (%) 5.4 10.1 (463) bps 7.2 (181) bps 8.5 8.6 (6) bps
Source: Company, Karvy Research
Exhibit 3: Quarterly Revenue Trend
Source: Company, Karvy Research
Exhibit 5: Quarterly Net Profit Trend
Source: Company, Karvy Research
Exhibit 4: Quarterly EBITDA Margin Trend
Source: Company, Karvy Research
-30%
-15%
0%
15%
30%
45%
0
1000
2000
3000
Q1 FY15
Q2 FY15
Q3 FY15
Q4 FY15
Q1 FY16
Q2 FY16
Q3 FY16
Q4 FY16
Q1 FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Revenue (Rs. Mn)
QoQ Growth (%)
0%
5%
10%
15%
20%
0
100
200
300
400
500
Q1FY15
Q2FY15
Q3FY15
Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
EBITDA (Rs. Mn)
EBITDA Margin (%)
0%
3%
6%
9%
12%
15%
0
100
200
300
400
Q1FY15
Q2FY15
Q3FY15
Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
PAT (Rs. Mn)
PAT Margin (%)
3
Feb 22, 2018
Timken India Ltd
Exhibit 8: Timken 10 year PE Band
Source: BSE, Karvy Research
Exhibit 9: Timken 2 year PE Band
Source: Bloomberg, Karvy Research
0
200
400
600
800
1000
1200
Feb-16
Mar-16
Mar-16
Apr-16
May-16
May-16
Jun-16
Jul-16
Jul-16
Aug-16
Sep-16
Sep-16
Oct-16
Nov-16
Dec-16
Dec-16
Jan-17
Feb-17
Feb-17
Mar-17
Apr-17
Apr-17
May-17
Jun-17
Jun-17
Jul-17
Aug-17
Aug-17
Sep-17
Oct-17
Nov-17
Nov-17
Dec-17
Jan-18
Jan-18
Feb-18
Price (Rs.)
62.3x
54.7x
47.1x
39.5x
31.9x
0
20
40
60
80
May-08
Aug-08
Nov-08
Feb-09
May-09
Aug-09
Nov-09
Feb-10
May-10
Aug-10
Nov-10
Feb-11
May-11
Aug-11
Nov-11
Feb-12
May-12
Aug-12
Nov-12
Feb-13
May-13
Aug-13
Nov-13
Feb-14
May-14
Aug-14
Nov-14
Feb-15
May-15
Aug-15
Nov-15
Feb-16
May-16
Aug-16
Nov-16
Feb-17
May-17
Aug-17
Nov-17
Feb-18
1yr forward P/E
Average P/E
1 SD
2 SD
-1 SD
-2 SD
Exhibit 6: Margin Analysis
YE Mar Q3FY18 Q2FY18 QoQ % Q3FY17 YoY % YTD FY18 YTD FY17 YoY %
Material Expenses as % of Net Sales 45.7 43.8 184 bps 26.1 1955 bps 43.8 28.1 1562 bps
Employee Expenses as % of Net Sales 8.5 6.9 154 bps 7.0 145 bps 7.4 6.5 89 bps
Other Expenses as % of Net Sales 21.0 19.8 121 bps 17.8 315 bps 20.2 17.5 274 bps
EBITDA Margin (%) 7.4 17.3 (990) bps 9.7 (229) bps 12.9 14.3 (141) bps
Tax Rate (%) 32.7 34.2 (153) bps 29.4 324 bps 33.8 31.5 226 bps
Net Prot Margin (%) 3.3 12.0 (872) bps 5.4 (214) bps 7.5 8.5 (96) bps
Source: Company, Karvy Research
Exhibit 7: Change in Earnings Estimates
YE Mar (Rs. Mn)
FY18E FY19E FY20E
Old New % Change Old New % Change Introducing
Net Sales 13313 12129 (8.9) 14555 13766 (5.4) 15693
EBITDA 1918 1701 (11.3) 2028 2031 0.2 2556
EBITDA Margin (%) 14.4 14.0 (39) bps 13.9 14.8 82 bps 16.3
Adj. PAT 1144 1084 (5.3) 1258 1314 4.5 1657
EPS (Rs.) 16.8 15.9 (5.3) 18.5 19.3 4.5 24.4
Source: Karvy Research
4
Feb 22, 2018
Timken India Ltd
Financials
Exhibit 10: Income Statement
YE Mar (Rs. Mn) FY16 FY17 FY18E FY19E FY20E
Revenue 11097 11172 12129 13766 15693
Growth (%) 19.5 0.7 8.6 13.5 14.0
Operating Expenses 9474 9592 10428 11735 13138
EBITDA 1622 1580 1701 2031 2556
Growth (%) 21.3 (2.6) 7.6 19.4 25.8
Depreciation & Amortization 225 289 341 227 240
EBIT 1398 1291 1359 1804 2315
Other Income 58 99 220 110 92
Interest Expenses 9 8 9 9 6
PBT 1447 1382 1570 1905 2402
Tax 498 410 487 590 744
Adjusted PAT 918 972 1084 1314 1657
Growth (%) 17.5 2.5 11.5 21.3 26.1
Source: Company, Karvy Research
Exhibit 11: Balance Sheet
YE Mar (Rs. Mn) FY16 FY17 FY18E FY19E FY20E
Cash & Equivalents 298 147 445 864 917
Sundry Debtors 1929 1921 2220 2602 3139
Inventory 1859 1880 2001 2203 2719
Loans & Advances 438 321 375 418 439
Investments 1859 906 906 906 1206
Gross Block 3532 2811 3411 3611 3811
Net Block 1372 2306 2565 2538 2498
CWIP 210 581 581 581 581
Miscellaneous 459 582 218 273 367
Total Assets 7023 8727 9311 10384 11866
Current Liabilities & Provisions 1539 2163 1997 2164 2410
Debt 43 84 75 62 55
Total Liabilities 1723 2548 2373 2527 2766
Shareholders Equity 680 680 680 680 680
Reserves & Surplus 4620 5499 6257 7177 8420
Total Networth 5300 6179 6937 7857 9100
Total Networth & Liabilities 7023 8727 9311 10384 11866
Source: Company, Karvy Research
5
Feb 22, 2018
Timken India Ltd
Exhibit 12: Cash Flow Statement
YE Mar (Rs. Mn) FY16 FY17 FY18E FY19E FY20E
PBT 1416 1382 1570 1905 2402
Depreciation 225 289 341 227 240
Interest 9 8 9 9 6
Tax Paid (509) (396) (487) (590) (744)
Inc/dec in Net WC (221) 422 (285) (528) (930)
Other non cash items 28 (50) 0 0 0
Cash ow from operating activities 1014 1642 1149 1023 973
Inc/dec in capital expenditure 3 4 (600) (200) (200)
Inc/dec in investments (50) 0 0 0 (300)
Others 2 8 0 0 0
Cash ow from investing activities (669) (1251) (600) (200) (500)
Inc/dec in borrowings 18 41 0 0 0
Dividend paid 0 (82) (325) (394) (414)
Interest paid (5) (6) (9) (9) (6)
Cash ow from nancing activities 13 (47) (334) (403) (420)
Net change in cash 359 344 215 420 53
Source: Company, Karvy Research
Exhibit 13: Key Ratios
YE Mar FY16 FY17 FY18E FY19E FY20E
EBITDA Margin (%) 14.6 14.1 14.0 14.8 16.3
EBIT Margin (%) 12.6 11.6 11.2 13.1 14.8
Net Prot Margin (%) 8.5 8.7 8.9 9.5 10.6
Dividend Payout Ratio (%) 0.0 30.0 30.0 30.0 25.0
Net Debt/Equity (x) (0.05) (0.01) (0.05) (0.10) (0.09)
RoE (%) 19.6 16.9 16.5 17.8 19.5
RoCE (%) 28.6 22.2 20.5 24.2 27.1
Source: Company, Karvy Research
Exhibit 14: Valuation Parameters
YE Mar FY16 FY17 FY18E FY19E FY20E
EPS (Rs.) 13.5 14.3 15.9 19.3 24.4
DPS (Rs.) 0.0 4.3 4.8 5.8 6.1
BVPS (Rs.) 78.0 90.9 102.0 115.6 133.8
PE (x) 31.3 45.1 50.5 41.6 33.0
P/BV (x) 5.6 7.1 7.9 7.0 6.0
EV/EBITDA (x) 18.2 27.7 32.0 26.5 21.1
EV/Sales (x) 2.7 3.9 4.5 3.9 3.4
Source: Company, Karvy Research, *Represents multiples for FY16 & FY17 are based on historic market price
6
Feb 22, 2018
Timken India Ltd
Stock Ratings
Absolute Returns
Buy : > 15%
Hold : 5-15%
Sell : < 5%
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