The Hindu Business Line : Timken India: Buy

AN investment may be considered in Timken India at the current price of about Rs 150. Buoyant demand for its products, access to a substantially wider product pipeline following a key acquisition by the global parent, the emergence of the Indian unit as a favoured choice of sourcing for the global Timken network and softer trends in input prices, which could expand profitability, are factors that make the stock attractive.

Timken of US owns 80 per cent of the equity and a flotation to comply with minimum public shareholding level of 25 per cent is likely in the two-year window that is available to the company. We have buy recommendations outstanding on the stock at Rs 28 and Rs 36 made in 2003 when a turnaround was imminent on the back of the recovery in the industrial sector.

Despite the substantial rise in price, we remain bullish on Timken India; going forward, returns are, however, likely to be of a steady nature and spaced out in contrast to the manifold rise over the past three years. The stock trades at a price-earnings multiple of about 15 times its FY06 earnings; as it is in the process of scaling up its operations (earnings are also no longer dwarfed by the equity base) and expanded facilities and wider product portfolio are likely to be available over the next 18 months, it is more attractively valued from a one- to two-year perspective.

Timken offers friction management products and services that find application in a wide range of sectors such as automobiles, electrical and engineering, agriculture machinery and infrastructure equipment, to name a few. With a healthy trend in growth and robust order book levels in these sectors, Timken will be a prime beneficiary.

Support services, high quality products and entry of several global players give Timken a decisive edge over competition from the unorganised sector as well as other players in the organised space. We take a positive view of the company's decision to skip dividend and conserve resources, as it is in an investment mode and consolidating the recovery process. It is likely to move to the dividend payers list this year. A spike in metal prices beyond expected levels represents the principal risk to our recommendation.

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