Timken -Focused play on Railway, CV segment… ::ICICI Securities, report link

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Focused play on Railway, CV segment… We met the management of Timken India to understand its business model and its plan ahead. The company is one of the leading bearings manufacturers in India with a market share of ~8%. It specialises in tapered roller bearings and caters to mobile industries (rail, CVs and offhighways) and process industries such as metals, cement, mining, etc. As per the management, growth, going ahead, would be driven by wagon ordering momentum, DFC implementation and the increase in scope of its presence in services (gear box repairs & rolling shop maintenance). Leading bearings player with focus on railways, CVs & process industry Timken is the fourth largest bearing manufacturer in India with a revenue market share of ~8%. In India, it manufactures tapered bearings (which forms ~62% of the topline) catering to mobile industries (rail, CVs, offhighways). Furthermore, ~31% of sales are from traded goods, which essentially comprise imports of larger sized tapered, spherical and cylindrical roller bearings from its group companies. In terms of segmental bifurcation of revenues, Timken derives ~22% of its revenues from Railways, 30-32% from exports, 25% from industrial and aftermarket and balance from CVs, UVs and tractors. Eyes opportunities from wagon replacement in railways… Railways form ~22% of the topline of Timken. It specifically caters to the freight segment, high speed trains and locomotive segment of railway bearings demand and is a leader in the same. As per the management, 70% of existing wagons need to be replaced. Therefore, larger opportunities in this segment would flow through once the new wagon ordering gains momentum. Furthermore, it also expects an increase in railways bearing demand fuelled by the DFC completion, increase in freight volume and transition to heavy haul volumes. Gearbox repair business – huge potential… Backed by Philadelphia Gears’ (acquired by parent in 2011) know-how, Timken India also set up a gear box repair facility in Raipur to serve the heavy process industry segment covering metals (steel and aluminium), cement, power generation, and mining industries. While this segment is not served by any organised players, the management pegs the opportunity at ~| 2500 crore in India. Therefore, Timken has the vision to set up six such facility at various industrial zones in the long run with an aggregate sales opportunity of ~| 600 crore. Premium valuations led by huge opportunities… With strong earnings momentum in 9MFY15 (PAT growth of 112% YoY) and huge opportunity, the stock is currently trading at 51x TTM earnings.

LINK
 http://content.icicidirect.com/mailimages/IDirect_TimkenIndia_MgmtNote.pdf