Broker's call: Timken India (Buy)

CMP: ₹698.45

Target: ₹835

Timken India reported a steady Q1FY20 operational performance. Revenues came in at ₹437.8 crore, down 2.3 per cent q-o-q. Gross margins remained stable in Q1 at 46.1 per cent (+7 bps q-o-q). EBITDA margins came in at 21.7 per cent versus 22.6 per cent q-o-q. This was due to slightly higher ‘other expenses’ that came in at 17.3 per cent of sales (versus 16.5 per cent q-o-q). Thus, absolute EBITDA de-grew 6 per cent q-o-q to ₹95.1 crore. Other income declined 38.6 per cent. Accordingly, PAT fell 11.8 per cent q-o-q to ₹50.5 crore. The company has managed to successfully complete and integrate its acquisition of ABC Bearings.

Valuation & outlook: To fully utilise ABC’s capacities, TIL is planning a capex of ₹35-40 crore at its Bharuch facility (utilisation at ABC is at about 70 per cent). This will help TIL produce ‘Timken brand’ bearings for its exports market. Access to new markets/geographies along with operational synergies from the merged entity is likely to be key monitorable from hereon. Going ahead, we expect both its segments, domestic and exports to grow at a CAGR of 10.5 per cent and 14.0 per cent, in FY19-21E, respectively. We expect revenue, EBITDA and PAT to grow at 11.3 per cent, 16.5 per cent and 21.0 per cent, respectively, in FY19-21E.

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