Buy Timken India Ltd For Target Rs. 3,408 By Geojit Financial Services Ltd
Key risks factored in, valuations turns attractive
Timken India Ltd. (TMKN) is a leading roller bearing manufacturer renowned for its production in taper roller bearings and its components. Its business caters to mobile industries and process industries, with the product applications spanning heavy industries, industrial processes, gear drives, energy, and industrial distribution.
* Strong growth in the rail, process, and mobility segments will enable Timken's revenues to grow at a 14.7% CAGR in FY24-27E.
* Although FY25E exports could be subdued, we expect its subsequent recovery in FY27E (18.1% of revenue mix) while the domestic market contributes 81.9% of the revenue mix.
* Incremental contributions from the new plant at Bharuch and recovery in key end markets are expected to drive asset turnover to 1.03X from the current 1.01X.
* We forecast Timken’s earnings to grow at 22% CAGR in FY25-27E period, enabled by 108bps EBITDA margin expansion due to better product mix and 103bps PAT margin expansion.
* Although Timken’s ROE could lower in FY25E, improvement in asset turnover and PAT margins and low leverage could enable ROE to improve to 17% by FY27E.
Investment Rationale
* The Indian bearings market is expected to outpace the world, growing at 7.4% CAGR in FY24-29E.
* Significant investments in high-speed rail and freight corridors, along with the government’s plan to increase rail modal share, are expected to boost passenger and freight traffic, benefiting Timken as a technical partner and increasing demand for railway bearings.
* In export markets, while rail buying is strong, early signs of recovery in trucks and Off-Highway segments have become visible, enabling us to build expectations for export recovery from FY26E onwards.
* Better product mix enabled by higher exports and incremental contributions from process segments to enable margin improvement. New CRB and SRB plants to cater to demand from process segments.
Outlook & Valuations
At the current valuation levels, the near-term business risks have been factored in. BY FY27E ROE is expected to recover to 17%. With the topline expected to grow at 17% CAGR in FY25E-27E and EPS to grow at 22% CAGR in the same period, we value the stock at 42X and assign a target of Rs.3,408 on FY27E EPS of 81.1.
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SEBI Registration Number: INH200000345
