Timken India reported subdued Q2FY21 numbers that were broadly in line with our estimates. Revenue for the quarter came in at Rs. 392.23 crore, down 2.2% YoY (vs. I-direct estimate of Rs. 400 crore). Slower recovery in CV & other industrial sectors impacted Timken's performance compared to peers. Gross margins contracted ~190 bps YoY. EBIDTA margin was at 21.1% vs. 22.4% YoY. However, it is important to note that Timken posted one of its highest margins in Q2FY20. Absolute EBIDTA came in at Rs. 82.7 crore, down 7.8% YoY (I-direct estimate of Rs. 89.5 crore). Employee cost declined 2.9% YoY to Rs. 30.3 crore. Other expenses declined 5.6% to Rs. 64.2 crore. Tracking its operating performance, Timken ended the quarter with a PAT of Rs. 49.9 crore. Other income came in at Rs. 2.2 crore, diving 65% YoY. Other income declined on account of reduced cash balance, which was used to pay out dividend in June at Rs. 50 per share. Timken generated CFO of Rs. 101.3 crore during H1FY21 vs. Rs. 168.3 crore in H1FY20.
Valuation & Outlook
Amid a challenging environment, Timken has managed to sustain its operating margins albeit on a lower topline. MNC status, debt free balance sheet & high return ratios bode well for the company amid uncertain times. However, the recent run up in Timken's stock price has made valuations too expensive for our comfort. Thus, taking into consideration all the above factors, we roll over and introduce FY23E. We pencil in revenue, EBIDTA and PAT CAGR of 5%, 5% & 2.6%, respectively, in FY20E-23E. We value Timken at 35x FY23EPS to arrive at a target price of Rs. 1235/share. We revise our rating on the stock from BUY to HOLD.
For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_TimkenInd_CoUpdate_Nov20.pdf
Shares of TIMKEN INDIA LTD. was last trading in BSE at Rs.1207.75 as compared to the previous close of Rs. 1174.7. The total number of shares traded during the day was 1779 in over 455 trades.
The stock hit an intraday high of Rs. 1213.85 and intraday low of 1160.35. The net turnover during the day was Rs. 2132187.