Investment Idea

INDIA l Institutional Research l Bearings l 7th December 2022

Timken India Ltd l BUY l TP:4,180

Keeping the World Moving

We initiate coverage on Timken India (TMKN), a market leader in tapered roller Target price 4180 Key Data
bearings (>15% overall market share), as our preferred pick in the bearing industry, Bloomberg Code TMKN:IN
with a BUY rating and TP of INR4,180. We expect 21%/23%/26%
CMP* 3497 Curr Shares O/S (mn) 75.2
revenue/EBITDA/PAT CAGR between FY22-25E led by multiple growth drivers
Diluted Shares O/S(mn) 75.2
across railways, commercial vehicles, and exports. Our conviction is further
Upside 20% Mkt Cap (Rsbn/USDmn) 263.04/3188.40
bolstered by our multiple channel checks and TMKN’s robust financials i.e., best-in-
Price Performance (%) 52 Wk H / L (Rs) 3761/1715
industry operating margins, debt-free status, strong cash flows, high return ratios,
upcoming expansion plans and hence robust revenue growth visibility over the long 1M 6M 1Yr 3M Average Vol. 205,400

term, coupled with a domineering presence in a rapidly consolidating industry. Our Timken India 29.4 44.4 79.4

estimates and TP are well above consensus. Nifty 2.4 13.6 8.5

▪ Multiple domestic growth drivers and robust export potential– Timken India is Source: Bloomberg, ACE Equity, BSE, MNCL Research

set to benefit from strong tailwinds across segments – 1) 25% CAGR in Railways
led by replacement of 3L+ existing wagons with DFC wagons (~15,000+ Shareholding pattern (%)
Sep-22 Jun-22 Mar-22 Dec-21
wagons/year), 90,000 standard wagons (>50% market share), 60,000 LHB
Promoter 67.80 67.80 67.80 67.80
passenger cars and infrastructure projects like 25+ metros, high-speed trains,
DIIs 12.13 12.63 13.01 13.86
etc. leading to a 1.5x expansion of the addressable market by FY25. 2) 16% CAGR
FIIs 3.9 3.64 2.9 2.66
in heavy mobility (ex-railways) through an uptick in commercial vehicles (new
Others 16.16 15.93 16.29 15.68
and scrappage driven) leading to a 2x+ market opportunity by FY27, 3) strong
Source: BSE
export order book led by Parentco’s increasing focus on outsourcing bearings
procurement, increasingly favourable product mix and a huge opportunity in Why should you read this report?
gaining export market share, currently just ~2.1% of Parentco’s total sales. • Investment idea to benefit from a cyclical uptick in railway,
▪ Best in industry financials and margins to command premium valuations: TMKN M&HCVs, and huge opportunities from exports

has delivered industry-leading margin performance in varying operating • Addressing key concerns on premium valuations

environments, attractive margin profile, consistently better performance, product • Opportunities arising beyond bearings
price/mix, acquisition and operational excellence, resulting in outstanding
•

performance during FY18-22. TMKN is likely to improve margins to 25% (+150bps) Exhibit: Rising exports are a key positive (INR in mn), yet
by FY25 due to improvement in product mix, increasing localization, focus on cost merely 2.1% of global sales
optimization and higher operating leverage. 15,000.00 4.0%

▪ Opportunities beyond bearings – Over the years, Timken Company (Parentco) 10,000.00
3.0%

has actively diversified by acquiring companies and expanded its product 2.0%
5,000.00
portfolio from engineered bearings to Industrial motion products and services. It 1.0%

includes couplings, belts, gear drives, automatic lubricant systems, industrial 0.00 0.0%

CY22E/FY23E

CY23E/FY24E
CY18/FY19

CY19/FY20

CY20/FY21

CY21/FY22

clutches, brakes, and powertrain rebuild & repair services (~$800mn

opportunity). Access to these products for local production, targeted to
achieving critical mass in India, is an important strategy for TMKN. We believe
Timken India exports Exports as a % of ParentCo sales
TMKN would upgrade from being a component manufacturer to a complete
system-based offerings player and thus potentially an export hub for Parentco. Source: Company, Timken Company, MNCL research estimates

▪ Valuation: TMKN will continue to show strong industry-leading growth led by Exhibit: MNCL vs Consensus (FY24E)
tailwinds in railway, heavy mobility, and exports. Thus, we expect 21%/23%/26%
Particulars (INR
revenue/EBITDA/PAT CAGR between FY22-25E, the fastest amongst the organized MNCL Cons Vs. cons (%)
mn)
sectors. At CMP, the stock is trading at 40x FY25E PER. We arrive at a price target Revenue 32,702 31,156 5.0
of ~INR4,180 valuing the stock at 50x FY25E, 25% premium over the 10-year PAT 5,473 5,073 8.0
average is justified due to best-in-industry financials, strong revenue growth TP (INR) 4,180 3,655* 14.0
visibility over the long term and robust balance sheet. Furthermore, our bull case Source: Bloomberg, MNCL research, *4 analysts
upside (+36%) is more than our bear case downside (-26%).
Angad Katdare
[email protected]
NISM-202100070722

Y/E Mar (Rs mn) Revenue YoY (%) EBITDA EBITDA (%) Adj PAT YoY (%) Adj EPS RoE (%) RoCE (%) P/E (x) EV/EBITDA (x)
FY21 14,105 -12.8% 2,600 18.43% 1,432 -41.8% 19.04 9.8% 12.4% 68.0 36.9
FY22 22,032 56.2% 5,168 23.46% 3,271 128.5% 43.49 21.8% 28.2% 80.9 51.1
FY23E 28,546 29.6% 6,792 23.79% 4,595 40.5% 61.09 24.5% 31.7% 57.6 38.6
FY24E 32,702 14.6% 8,004 24.47% 5,473 19.1% 72.76 23.2% 30.3% 48.4 32.4
FY25E 38,567 17.9% 9,634 24.98% 6,568 20.0% 87.31 22.3% 29.1% 40.3 26.7
Source: Company, MNCL research estimates, standalone financials

MNCL Research is also available on Bloomberg

Investment Idea In the interest of timeliness, this document has not been edited
 Index
Investment Thesis in Charts ................................................................................................................. 3
Indian bearing industry – long consolidation led to a gain in market share for the top three players .. 4
Railways – large capex plans, Timken to be the biggest beneficiary .................................................... 6
Shifting focus to CTRB class ‘K’ bearing unit, ~1.8x realization potential than class ‘E’ bearing unit .. 11
Heavy mobility – keeping the ball rolling ........................................................................................... 12
Exports – long-term growth driver..................................................................................................... 14
Optionality – opportunities beyond bearings, can result in an additional ~INR800mn opportunity over
the long term..................................................................................................................................... 15
Process industry – cyclical uptick will trickle growth.......................................................................... 16
Expansion plans – exploring opportunities beyond TRBs, foraying into CRBs and SRBs ..................... 17
Financial Analysis .............................................................................................................................. 18
Valuation – Premium valuations are justified with a TP of ~INR4180 ................................................ 20
About the Company .......................................................................................................................... 22

Timken India Ltd 2

Investment Idea
 Investment Thesis in Charts
Exhibit 1: Strong sales growth trend to continue, with an
Exhibit 2: Consolidation in the Indian bearing industry
uptick in margins
70 100.0%
45000 30%
60
40000 80.0%
25% 50
35000 60.0%
40
30000
20% 30 40.0%
25000
20
20000 20.0%
15% 10
15000 0 0.0%
10000

FY14/CY13
FY13/CY12

FY15/CY14

FY16/CY15

FY17/CY16

FY18/CY17

FY19/CY18

FY20/CY19

FY21/CY20

FY22/CY21
10%
5000
0 5%

FY24E
FY23E

FY25E
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22

No Of Companies in Indian Bearing industry

Net Sales OP Margin Top 3 players market share

Source: Company, MNCL research, INR in mn Source: Ace Equity, MNCL research

Exhibit 3: Rising exports are a key positive, yet merely 2.1% of

Exhibit 4: Indian commercial vehicles volume growth
global sales
14,00,000 60%
12,000 3.5%
10,000 3.0% 12,00,000
40%
8,000 2.5% 10,00,000
2.0% 20%
6,000 8,00,000
1.5%
4,000 1.0% 6,00,000 0%
2,000 0.5% 4,00,000
0 0.0% -20%
2,00,000
CY20/FY21
CY18/FY19

CY19/FY20

CY21/FY22

CY22E/FY23E

CY23E/FY24E

- -40%
FY08

FY10

FY12

FY14

FY16

FY18

FY20

FY22

FY24E
Timken India exports Exports as a % of ParentCo sales Total Sales (inc exports) Forecast growth % yoy

Source: Bloomberg, Company, MNCL research Source: SIAM, Fitch Ratings, MNCL research

Exhibit 5: Railway capital expenditure Exhibit 6: Strong capacity addition in the gross block
300000 16000
250000 14000

200000 12000

150000 10000

100000 8000

50000 6000
4000
0
2015-16

2022-23BE
2012-13

2013-14

2014-15

2016-17

2017-18

2018-19

2019-20

2020-21

2021-22RE

2000
0
FY18A FY19A FY20A FY21A FY22A FY23E FY24E FY25E

Source: Government of India, MNCL research, INR in Crs Source: Company, MNCL research, INR in mn

Timken India Ltd 3

Investment Idea
 Indian bearing industry – long consolidation led to a
gain in market share for the top three players
Indian bearing industry is expected to grow at ~11% CAGR between FY21-27 to over ~US$3.4 billion
(Source: Astute Analytica report). Yet, it constitutes only ~2% of the global bearing industry (vs China
constitutes over ~20% of the bearing market as per industry reports). Over the past 20 years, the Indian
bearing industry has gone through a high growth phase from FY03-13, followed by a consolidation phase
from FY14-22.

Exhibit 7: Indian bearing industry revenue trend, INR in mn

Indian bearing industry
constitutes only 2% of 25000
global bearing industry vs
China which constitutes
over 20% market share. 20000

15000

10000

5000

0
2003

2013

2022
2004

2005

2006

2007

2008

2009

2010

2011

2012

2014

2015

2016

2017

2018

2019

2020

2021
Source: Ace Equity, MNCL research

Exhibit 8: Exhibit: Top 3 players reported 10% CAGR vs 2% by the industry, INR in Mn
1,40,000

1,20,000

1,00,000

80,000

60,000

40,000

20,000

0
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22

Timken India Schaeffler India* SKF India

Source: Ace Equity, MNCL research;

*Schaeffler sales normalized to Apr-Mar.

Between FY03-13, the Indian bearing industry was going through a growth stage where the combined
gross revenues grew at ~24% CAGR to over INR11.90 bn and the number of bearing companies grew
Market share of top three
Indian bearing players
from 15 to 58. This was primarily due to a strong capex cycle and a boost in automobiles and industrials.
increased from ~39% in In the same period, the top 3 players’ market share de-grew from 68% to 39%. The number of companies
FY13 to 80%+ in FY22 peaked in 2013 and from 2013-2022 saw a period of consolidation where the number of companies fell
from 58 to 15 companies and at the same time, the top 3 players (SKF India, Schaeffler India and Timken
India) grew their revenue market share to over 80% of Indian bearing industry.

Timken India Ltd 4

Investment Idea
 Exhibit 9: Consolidation in the Indian bearing industry Exhibit 10: Indian bearing industry – number of companies
80 100.0%
70
60 80.0% 60
60.0% 50
40
40.0% 40
20 20.0% 30
0 0.0% 20
FY18/CY17
FY13/CY12

FY14/CY13

FY15/CY14

FY16/CY15

FY17/CY16

FY19/CY18

FY20/CY19

FY21/CY20

FY22/CY21
10
0

2003

2014

2022
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013

2015
2016
2017
2018
2019
2020
2021
No Of Companies in Indian Bearing industry
Top 3 players market share No Of Companies

Source: Ace Equity, MNCL research Source: Ace Equity, MNCL research

The industry peaked in 2019 following the peak sales in the automotive sector and economic slowdown
due to the pandemic and de-grew by -10% CAGR from FY19 to FY22. During the same period, the top
three players (Schaeffler India, SKF India and Timken India) gained market share and consolidated to
over 80% in revenue market share in FY22. From FY13-22, the top three players reported 10% sales CAGR
vs 2% CAGR by the Indian bearing industry.

Timken India Ltd 5

Investment Idea
 Railways – large capex plans, Timken to be the biggest
beneficiary
The total opportunity size in railway bearings was ~INR16-18bn in FY21 (~13% of the overall Indian
TMKN holds over 50%
bearings market) and as per our estimate, it may increase to over ~INR27bn in FY25. In FY22, the railway
market share in freight segment contributed over 19% of overall sales. TMKN’s railway segment is set to grow at a 2X+ growth
wagon bearings rate more than the whole Indian bearing industry led by railway expansion, a shift to higher load bearing
(1.8x more realization than standard bearing), multiple metro projects, niche train projects (high-speed
trains, semi-fast trains, etc.) and the railway bearing replenishment market. Timken India will be the
largest beneficiary of this uptick in railways and metro expansion as it commands over ~50% market
share in freight wagon bearings (60% of the railway bearings market) and a high market share in metro
projects.

Exhibit 11: Revenues from railway segment, INR in mn Exhibit 12: Railway capital expenditure
9000 300000 Railway capital expenditure
8000 250000
7000 200000
6000 150000
5000 100000
4000 50000
3000 0 2012-13

2013-14

2014-15

2015-16

2016-17

2017-18

2018-19

2019-20

2020-21

2021-22RE

2022-23BE
FY22A FY23E FY24E FY25E

Railway bearings market size

Source: Company, MNCL research Source: Indian Railways, MNCL research, INR in Crs

Multiple growth drivers to boost growth over medium to long term: 1) Commencement of DFC wagon
The total opportunity size procurement (25T axle load wagons) resulting in over CTRB bearings Class K set (300,000 wagons to be
in railway bearings will replaced over 20 years assumed and each wagon requires 8 bearings) resulting in over ~INR59bn market
increase to over INR26bn
by FY25.
opportunity and INR4.80bn replenishment market size per year, 2) Demand for 90,000 wagons by Indian
railways throwing another opportunity of over ~INR9.70bn over the next three years; 3) 60,000
passenger coaches to be replaced with LHB coaches giving rise for the demand of ~INR9.70bn and over
INR1.60bn opportunity in replenishment market per year, 4) Announcement of ~25 additional metro
projects giving rise to over ~INR2.60bn per year. Furthermore, ~12 high-speed train projects of over
~7884 km in length is being announced/proposed and an additional ~19 metro lite/metro neo projects
are being proposed. Overall, we expect railways bearing demand will help TMKN to increase at 25%
CAGR from FY22 to FY25.

Railways are a major part of the National Infrastructure Pipeline (NIP) project pipeline with an allocation
of 13% of the total allocated funds worth. Out of which, over 54 projects are ongoing under the railway
rolling stock sub-sector worth around ~US$45bn. Major projects in rolling stocks include “manufacturing
of passenger coach project” for which over $15.30 billion has been announced on 1st April 20 and the
project deadline is set to 1st March 2024.

Timken India Ltd 6

Investment Idea
 Exhibit 13: Type of bearings used in railway units; Timken India is a market leader in TBU

TBU - tapered CBU - cylindrical

Cylindrical roller Spherical roller
Vehicle Unit Max Speed Km/h roller bearing roller bearing
bearings bearings
units units

Very high-speed trains 301 to 400 ✓ ✓

High-speed trains and locomotives 201 to 300 ✓ ✓
121 to 200 ✓ ✓
Diesel and Electrical locomotives
up to 120 ✓ ✓ ✓
161 to 120 ✓ ✓
Multiple units (EMU and DMU), passenger coaches
up to 160 ✓ ✓
Metro cars, light rail, and tramways up to 120 ✓ ✓ ✓
Freight cars with closed axle box up to 120 ✓ ✓ ✓ ✓
Freight cars with adaptor designs up to 120 ✓
Source: Company, SKF India, MNCL research

DFC project: Timken India is a market leader in freight segment with over 50% market share. There are
As per our channel over 1 lakh kms of railway routes in India where both passenger trains and wagon trains run
checks, the bearing
simultaneously. The long-term goal of the government is to create a parallel route to the existing line
content per vehicle is
over INR100,000 per exclusively for freight trains. With DFC (east and west corridor), the government is setting up over 2500+
wagon. kms of the rail route. Over the long term, all the ~3 lakh wagons will need to be upgraded to 25T-axle
load wagons. We believe railways will periodically upgrade to new wagons over the next 20 years
resulting in an overall opportunity of ~INR59bn (3L wagons x 8 bearings x 24,500 per Class K bearing).
This gives a sustainable growth projection for Timken India (technical partner of Indian Railways).

As per our channel checks, the bearing set used in the wheelset of the wagon amounts to a large part of
the bearing content per wagon. As per the estimates and cross-checking with official sources, the
bearing content is INR100,000-110,000 per wagon and it has grown at a 3% CAGR over the past 10 years.
With the introduction of 25T axle load wagons, the bearing content per wagon will increase by ~80% to
INR190,000 – 200,000 per wagon due to the requirement of higher load bearing (CTRB Class K units).

DFC (east and west corridor) are set to start its operations in 2024. We expect a surge in demand from
the railways from 2023 to cater to the demand to replace the legacy 300,000 wagons (22.9T axle load
wagons). As per our estimates, the Indian railway will replace over ~15,000 wagons each year. This will
create a yearly demand of over ~INR3bn and replenishment market demand for bearings of around
INR4.80bn per year resulting in overall demand for bearings from freights segment of over INR7.80bn
per year. Timken India will gain most of the market share from this segment as it’s a technical partner
to Indian Railways and holds over 50% market share in freight segments.

Timken India Ltd 7

Investment Idea
 Exhibit 14: Direct freight corridor projects
Section Commissioned Under construction Target date

Eastern Corridor (Ludhiana to Kolkata) 799 538 Jun-23

Western Corridor (Navi Mumbai to Dadri) 811 704 Dec-24
East-West Corridor (Kolkata-Mumbai) 0 2330 Preliminary stage
North-South Corridor (Delhi-Chennai) 0 2343 Preliminary stage
East Coast Corridor (Kharagpur-Vijaywada) 0 1100 Preliminary stage
Southern Corridor (Chennai-Goa) 0 899 Preliminary stage
Total kms 1610 7914
Source: Indian Railways, MNCL research

TMKN is also a technical partner for Indian Railways for the dedicated freight corridor (DFC) project. The
WDFC and EDFC have completed over 83% and 87% of the project as of October 2022. Both projects are
set to start between June 2023 and March 2024 depending on the various stages of completion of the
sub-projects. We expect a higher demand for the high load bearing (CTRB Class K), which will be used in
the higher axle freight wagons (25T axle load wagons) to be used on the DFC route, to start in late FY23
and early FY24. These high-load bearings (Class K) command 80% more realization than the standard
CTRB Class E wheel bearing set.

Additional to the east and west direct freight corridor, the Direct Freight Corridor Corporation of India
(DFCCIL) has also undertaken preliminary due diligence for four additional corridors namely:

▪ East-West Corridor (Kolkata-Mumbai) – 2330 kms

▪ North-South Corridor (Delhi-Chennai) – 2,343 kms
▪ East Coast Corridor (Kharagpur-Vijaywada) – 1,100 kms
▪ Southern Corridor (Chennai-Goa) – 899 kms
Indian railways have also announced tenders for additional 90,000 wagons (traditional wagons) which
will create an additional opportunity of over ~INR9.70bn over the next three years. (90,000 wagons x 8
bearings x INR13,500 per Class E bearing)

Timken India Ltd 8

Investment Idea
 Metro projects:
India currently has an operational metro network of ~782 km in 15 cities, which is expected to increase
to ~2,000 Km in the upcoming decade. At present, around ~953 kms of the metro rail project is under-
construction/approval stage and around 1,040 Km is in the proposal stage. We expect an overall market
opportunity of ~INR40bn over the next 15 years. Given the strong order/proposal pipeline, Timken India
with its presence in the metro rail segment will likely witness strong growth.
Exhibit 15: Metro Projects
Region Operational Network Under construction new routes Approved new routes Proposed new routes
East India 41.35 60.33 53.00 15.70
North India 422.43 86.70 125.48 561.61
South India 203.50 200.86 47.36 178.85
West India 114.77 276.65 103.14 284.52
Total kms 782.05 624.54 328.98 1,040.68
Source: Government of India, MNCL research

High-speed train project:

The government has proposed a high-speed rail network of 7,884 kms along 12 routes across India. It
currently has no operational network while the Mumbai-Ahmedabad route has commenced
construction with a current deadline of 1st December 2023. The other 11 routes are still under
planning/proposed state. Given the strong order/proposal pipeline, Timken India with its presence in
the high-speed rail segment will likely witness strong growth. We expect this will create a total demand
for bearings worth ~INR47bn for over 20 years.
Exhibit 16: High-speed trains
Mumbai – Ahmedabad (Maharashtra & Gujarat) 508 324
Delhi – Varanasi (Uttar Pradesh) 865 0
Delhi – Ahmedabad (Haryana, Rajasthan, Gujarat) 886 0
Mumbai – Nagpur (Maharashtra) 741 0
Delhi – Amritsar (Haryana, Punjab) 465 0
Mumbai – Hyderabad (Maharashtra, Telangana) 711 0
Chennai – Mysore (Tamil Nadu, Karnataka) 435 0
Varanasi – Howrah (Kolkata) (Uttar Pradesh, Bihar, West Bengal) 760 0
Hyderabad – Bangalore (Telangana, Karnataka) 618 0
Nagpur – Varanasi (Maharashtra, Madhya Pradesh, Uttar Pradesh) 855 0
Patna – Guwahati (Bihar, West Bengal, Assam) 850 0
Amritsar – Pathankot – Jammu (Punjab, Jammu UT) 190 0
Total kms 7,884
Source: Government of India, MNCL research

Timken India Ltd 9

Investment Idea
 Passenger coaches:
Indian railway is undergoing the replacement of its legacy 60,000 passenger coaches with modern LHB
coaches (Linke-Hofmann Bosch). This will help the Indian Railways to increase the speed of trains and
improve their safety. This project has already started during the last decade. We believe there is still an
opportunity for bearings worth ~INR2.27bn every year (including replenishment demand).

Overall opportunities in railway bearing segment

Exhibit 17: Overall opportunities in railway bearing segment

Particulars INR in mn/year
Revenues from railway
segment is expected to 90,000 railway wagons 3240
grow at 25% CAGR 3 lakh DFC freight wagons (including replenishment market demand) 7800
between FY22-25.
60,000 passenger wagons (including replenishment market demand) 2270
25 new Metro projects 2660
Others (High-speed trains, semi-fast trains, etc.) 2370
Total railway bearings segment opportunity per year 18,330
Source: MNCL research

Overall, we expect an overall market opportunity to increase to over ~INR27bn by FY25 led by DFC
wagons, passenger coach, metro projects and other infra projects, and we expect Timken to report
~INR8.20bn from railway segment in FY25 at ~25% CAGR with a railway bearing market share of ~30%
in revenue terms.

Timken India Ltd 10

Investment Idea
 Shifting focus to CTRB class ‘K’ bearing unit, ~1.8x
realization potential than class ‘E’ bearing unit
The existing cartridge taper roller bearing (CTRB) class ‘E’ unit is used in railway wagons (22.9T axle
load/25T axle load). Though it can be used in the higher load DFC wagon (25T axle load), it will wear out
Class K bearings are
higher load bearings faster and substantially cost will increase. So, a higher load-bearing unit CTRB Class K was approved by
which will be used in the the Indian Railways to be used in the 25T axle load wagons. It gives an overall opportunity of INR7.80 bn
new DFC wagons (25T to replace over ~300,000 standard wagons with the new 25T axle load wagons which will require the
axle load).
heavy load CTRB Class K bearing unit.

Exhibit 18: Cartridge Tapered Roller Bearing unit types used in railway wagons
Particulars Class E Class K

Size 6” X 11” 6 1 /2” X 9”

Price per unit (INR estimate) 13,500 24,500

Timken India, Brenco/NBC, Schaeffler and

Suppliers to railway Timken India, Brenco/NBC
SKF
Fretting index (lower the better) 1 0.3

L10 life 1,000,000 kms 1,600,000 kms

Higher torque requirement, lower seal Lower torque requirement, higher seal
Other benefits
protection, high fuel cost protection, lower fuel cost
Source: Indian Railways, MNCL research estimates

Based on past estimates from official sources, CTRB Class K bearing unit will cost ~80% more than the
CTRB Class E bearing. Compared to Class E bearing, Class K bearings has a smaller journal size (6.5”x9”
vs 6”x11”), lower fretting index (0.3 vs 1) which lowers the chance of failure due to fretting wear, longer
life of 1.60 million kms (vs 1 million kms), better seal protection and a stronger built quality resulting in
an excellent performance.

Exhibit 19: Timken India CTRB class ‘E’ unit price trend Exhibit 20: CTRB bearing price per unit

14000 25,000
13500
13000 20,000

12500
15,000
12000
11500 10,000
11000
10500 5,000
10000
9500 0
9000 2016 2022
2012 2013 2015 2016 2017 2018 2019 2021 2022 CTRB Class E CTRB Class K

Source: Indian Railways, MNCL research, INR Source: Indian Railways, MNCL research, INR

Exhibit 21: Cartridge Tapered Roller Bearing unit price break-up

Description of FY20 price list INR
CTRB Class E bearing complete 10,672
Side frame key with nuts & bolts, washer, locking plate, axle end cap 282
Backing ring 338
Narrow jaw adapter 841
Labour charges for mounting 57
Total base rate 12,190
GST 18% 2194
Final price 14,384
Source: Indian Railways, MNCL research

Timken India Ltd 11

Investment Idea
 Heavy mobility – keeping the ball rolling
Timken India derives over 25% of its sales from the heavy mobility segment (CVs, off-highway vehicles,
tractors). We expect this segment will grow its sales by 16% CAGR over FY22-25E backed by strong
growth in the domestic CV segment.

Exhibit 22: Indian commercial vehicles sales volume growth

14,00,000 50%
Mobility segment (ex- 40%
12,00,000
railways) is expected to 30%
grow at 16% CAGR over 10,00,000
FY22-25E 20%
8,00,000 10%

6,00,000 0%
-10%
4,00,000
-20%
2,00,000
-30%
- -40%

FY23E
FY24E
FY25E
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
Total Sales (inc exports) Forecast growth % yoy

Source: SIAM, Fitch Ratings, MNCL research

Commercial vehicle sales are a proxy barometer of economic activities all over the world. In India,
commercial vehicle sales touched an all-time high of 1.01mn units in FY19. Since, there was a sharp
reversal and sales volume fell to a 10-year low of 0.57mn units in FY21 due to new regulatory norms,
the slowdown in the economy and chip shortage arising due to covid lockdown. In FY22, total
commercial vehicle sales recovered to 0.72mn units and it is expected to cross its previous all-time high
in FY24 (as per Fitch Ratings) backed by a rapid recovery in Indian economic activity, rise in replacement
demand primarily due to vehicle scrappage policy and multiple muted years.
Timken India will be a large beneficiary as it primarily caters to the heavy mobility segment and provides
wheel bearings, differential bearings, and pinion bearings. Timken India has a large market share in
pinion bearings (>80%) and differential bearings used in heavy trucks with not-so-significant penetration
in the wheel bearings. Following the acquisition of ABC Bearing in 2018, Timken India’s product portfolio
expanded in the CV segment with wheel bearing and differential bearings. Bearings used in differential
and pinions are relatively high-tech bearings compared to wheel bearings which are commoditized in
nature

Exhibit 23: Differential and pinion bearings

Source: JTEKT Corporation, MNCL Research

Source: JTEKT Corporation, MNCL research

Timken India Ltd 12

Investment Idea
 Timken India is a While a car has two axles as shown in exhibit 23, CVs have more than two axles depending on the type
leader in pinion of CVs (Heavy, Medium, or Light). On every axle, there are around six bearings on the differential and
bearings and four bearings on the wheels. This number varies depending on the type of vehicle and the total number
differential bearings
of axles. This helps to increase the consumption per vehicle as you go high on the number of axles per
used in M&HCV
segment. vehicle. Timken India benefits as it primarily caters to the Heavy CV segment.

Vehicle Scrappage Policy, 2021: The Government of India approved the vehicle scrappage policy in
August 2021. The policy was introduced to replace old and unfit vehicles with more efficient new
vehicles. The policy implementation will begin with heavy commercial vehicles, which will be subject to
mandatory fitness testing from 1st April 2023 (likely to be postponed) and all vehicles to be tested from
1st June 2024. According to the Ministry of Road Transports & Highways, there are over ~1.7 mn medium
and heavy commercial vehicles (M&HCVs) that are older than 15 years without any valid fitness
certificate, prone to be scrapped. Also, the average age of all commercial vehicles on an Indian road is
over 10 years. Therefore, the proposed policy is also likely to boost sales of heavy and medium
commercial vehicles.
Major headwinds such as high-interest rates, surging fuel prices, high commodity prices resulting in
increasing prices of vehicles and geo-political issues may create issues in the recovery of demand for
CVs.

Exhibit 24: Types of bearings used in a standard commercial vehicle

Bearing model Use Type Price (INR) Quantity Total (INR)
6379/ 6320 Front-wheel inside Tapered 3766 2 7532
535/532A Front-wheel outside Tapered 952 2 1904
580/572 Rear-wheel outside Tapered 1071 2 2142
683/672 Rear-wheel inside Tapered 1897 2 3794
47890/47820, 580/572 Differential Tapered 1401 4 5604
72212/72487 pinion F &R Tapered 1534 2 3068
Total 14 24,044
Source: Multiple online sources, MNCL research; Note: The price is for illustration purposes only

The above table constitutes the price of bearings for a standard MCV in India costing over INR2.50mn.
The wheel bearing, differential bearings and pinion bearings cost a total of over ~INR24,000 per standard
MCV costing over INR2.5mn or ~1% of the vehicle cost. Thus, as per our calculation, the total market
size in the domestic M&HCV segment (for wheel, differential and pinion bearing) for Timken India was
around ~INR11.80bn in FY21 and it holds a market share of ~31% in wheel, differential and pinion
bearings market for M&HCV segment. The overall CV market in India is expected to grow to ~$US330bn
by FY27 (Source: imarcgroup) and thus we expect the market opportunity for Timken India to increase
to ~INR25.40bn in FY27.

Timken India Ltd 13

Investment Idea
 Exports – long-term growth driver
TMKN exports taper roller bearings to cater to the Timken entities’ international customers in diverse
industries like railways, automotive and off-highway equipment. Over 30% of TMKN’s sales are derived
from the export segment. Yet, TMKN exports to total sales of Timken Company increased from ~0.07%
in FY13 (~INR1.8bn) to ~2.1% in FY22 (INR6.50bn). We expect this trend to continue, and it will increase
to 2.9% by FY24 (INR11.32bn) based on our projections for exports and Bloomberg estimates for Timken
Company’s sales. We estimate exports to grow at 28% CAGR from FY22-25 backed by a strong export
order book, expanding capacities at the Bharuch plant and further qualification of products (Timken R
product). This will increase exports as a % of Timken India’s sales from 30% in FY22 sales to 36% in FY5.

Exhibit 25: TMKN India exports as % of Parentco's sales Exhibit 26: Export contributed over 30% of TMKN FY22 sales
5,00,000 3.5% 35%
4,00,000 3.0% 30%
2.5% 25%
3,00,000 2.0% 20%
2,00,000 1.5% 15%
1.0%
1,00,000 10%
0.5%
5%
0 0.0%
0%
CY19/FY20
CY18/FY19

CY20/FY21

CY21/FY22

CY22E/FY23E

CY23E/FY24E

CY16/FY17

CY17/FY18

CY18/FY19

CY19/FY20

CY20/FY21

CY21/FY22
Timken Company sales (INR in Mil) % of sales Timken India Schaeffler India SKF India

Source: Timken Company, Timken India, MNCL research, INR in mn Source: Ace Equity, MNCL research

Exhibit 27: TMKN Exports are growing

16,000 36%
14,000 34%
12,000 32%
10,000 30%
8,000 28%
6,000 26%
4,000 24%
2,000 22%
0 20%
FY18A FY19A FY20A FY21A FY22A FY23E FY24E FY25E

Exports % of TMKN sales

Source: Company, Timken Company, MNCL research, INR in mn

Though management acknowledges that there is a slowdown in European orders due to ongoing
geopolitical concerns, the US market is still showing decent growth in demand. Yet, Parentco continues
to focus on outsourcing its products from low-cost countries like India. Thus, 30% of TMKN’s sales cater
to the global demand of Parentco. TMKN will continue to benefit significantly in terms of new
products/opportunities considering the parent's cost rationalization drive and the declining cost
advantage of its sister units across the globe, especially in the US and Europe.
Further, the global wind renewable market is expected to grow at 9% CAGR till FY30 (Source: Timken
Company) and Parentco will continue to be a large beneficiary as its differentiated capabilities have
made it a “supplier of choice” and technical partner to major OEMs (Renewable is the fastest growing
sector for Parentco). This will also lead to a higher share in the aftermarket opportunities due to the
larger installed base. Currently, TMKN earned over ~INR1.0 bn in FY22 and is expected to see double-
digit growth in the next 3-5 years.

Going ahead, TMKN is expected to be a key hub for export to Parentco. We expect exports to increase
from ~INR6.50bn to ~INR13.50bn by FY25, resulting in a 28% CAGR.

Timken India Ltd 14

Investment Idea
 Optionality – opportunities beyond bearings, can result
in an additional ~INR800mn opportunity over the long
term
Since 2011, Timken Company (Parentco) has acquired over 17 standalone companies and expanded its
product offerings from bearings to gear products, drive chains, linear products, precision drives, torque
dampening products, lubricant systems, industrial clutches, brakes, hydraulic power take-off units,
couplings, bearing housed units and universal joints, etc. with a combined sales potential of over
Management has ~US$1,000mn (~US$800mn opportunity in products excluding bearings).
mentioned products
like lubrications, It may provide new avenues for growth, beyond bearings. Management has mentioned that products
couplings and chains like lubricant systems, industrial belts and couplings are on the table for discussion over indigenous
are on the strategy
table for indigenous
production, based on achieving critical mass in India. These opportunities have a higher probability of
production, subject to indigenous manufacturing and give an additional market of over ~USD400mn.
achieving critical mass
in India Parentco has shifted the manufacturing footprint in favour of low-cost countries like China (2nd largest
gross block) and India (3rd largest gross block). Over the years, we believe Parentco will shift
manufacturing of some of these products to India as it acknowledges India as an export hub. We believe
the recent announcement of manufacturing CRBs and SRBs in India is a smaller step towards this larger
picture, and this creates a huge optionality over and above the current valuations. Though we haven’t
taken this optionality factor in our financial estimates, we reflect it with a higher P/E multiple of 50x
FY25E PER.
Exhibit 28: Probability of indigenous manufacturing for the list of Timken Company’s product list
Market size (revenue, $ Probability of indigenous
Products (ex-bearings) Company
in mn) * manufacturing
Gear drive 125 Philadelphia gears, Spinea Medium
Chains 260 DrivesLLC, Diamond Chain High
Linear motion 140 Rollon Low
Lubrication systems 105 Groeneveld, BEKA High
Clutches and brakes 20 PT Tech Low
Couplings & Universal joints 76 Torsion control, Lovejoy High
AeroTorque, Wazee Electric,
Other Industrial motion products 66 Low
EDT Corp, iMS
Source: Timken Company, MNCL Research
*Revenue at the time of acquisition

Timken India Ltd 15

Investment Idea
 Process industry – cyclical uptick will trickle growth
Timken India derives over ~13% of its revenues from the Industrial segment (excluding industrial
distribution). We expect Timken India’s process segment to deliver 15% CAGR from FY22-25 backed by
growth in IIP, eight core industries and the Indian GDP growth forecast.

The industrial segment is a major growth driver for the Indian economy. The Government of India aims
to expand manufacturing and increase the sector’s contribution to GDP. The demand for the industrial
segment is largely driven by general machines/motors, electrical equipment (fans/appliances) as well as
heavy industries. Timken India is poised to benefit from macro tailwinds in the bearings industry such as
the shift of manufacturing facilities to India and can open new verticals like defence & aerospace, food
& beverages, and medical equipment exports in future.

Exhibit 29: Core industries growth rate Exhibit 30: India real GDP growth rate
15
10%
8%
10
6%
5 4%
2%
0 0%
-2%
-5
-4%
-10 -6%
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 -8%

2027
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
Overall Growth rate (%)

Source: Government of India, MNCL research Source: Ace Equity, MNCL research

Timken India Ltd 16

Investment Idea
 Expansion plans – exploring opportunities beyond TRBs,
foraying into CRBs and SRBs
In November 2022, TMKN announced a capital expenditure of INR6bn to set up a manufacturing facility
in the Bharuch plant to manufacture cylindrical roller bearings (CRBs) and spherical roller bearings
(SRBs). The facility will commence operations in January 2025 (a realistic timeline for a brownfield
project). TMKN will finance the entire capex through internal accruals.

It is planning to localize the production of CRBs and SRBs which were imported till now. Currently, over
Diversifying into CRBs ~25% of the total sales come from traded goods. Traded goods command a lower gross profit margin (6-
and SRBs will open an
8%). Even though CRBs and SRBs command a lower operating margin than TRBs, it will be in the mid-
additional domestic
market size opportunity teens. This will prove to be value accretive for TMKN and lead to margin expansion as it will substitute
of ~INR40bn. lower margin traded goods.
This will open doors for an additional market opportunity of ~INR40bn [CRBs (>INR20bn) and SRBs
(>17bn)] in domestic markets and a similar opportunity in exports. The management expects peak sales
of ~INR12bn and cater to both domestic and export markets simultaneously.

This expansion plan is highly positive as it will lead to growth visibility beyond FY25 and likely be margin
accretive as it will substitute lower margin traded goods (>25% of total sales). This announcement proves
Parentco’s strong support and the high possibility to expand its product portfolio for local production,
based on achieving critical mass in India.

Though we haven’t taken the expansion benefits in our valuation, we reflect this with a higher P/E
multiple of 50x FY25E PER led by robust revenue growth visibility.

Timken India Ltd 17

Investment Idea
 Financial analysis
Strong revenue growth trend to continue over FY22-FY25E
TMKN reported strong sales growth of 15% CAGR from FY18 to FY22 on account of an increase in
capacity utilization (gross block addition from ABC Bearings acquisition), the surge in exports, and an
uptick in domestic demand led by heavy mobility (including railways) and process industries. Higher
realization from better product mix and volume growth led by railways, commercial vehicles and exports
will lead to 21% CAGR growth in sales from FY22 to FY25E.

Exhibit 31: TMKN’s revenues to grow at a CAGR of 21% over Exhibit 32: Heavy mobility (including railways) and process
FY22-25E segment to fuel growth
50,000 50000

40,000 40000

30,000 30000

20,000 20000

10,000 10000

0 0
FY18A FY19A FY20A FY21A FY22A FY23E FY24E FY25E FY22 FY23E FY24E FY25E
Revenue from Operations Railways Mobile Exports Process Distribution
Source: Company, MNCL research, INR in mn Source: Company, MNCL research, INR in mn

Margin expansion led by improvement in product mix and operating

leverage to continue
This resulted in industry leading margin improvements from ~14% in FY18 to ~23.5% in FY22. This will
further improve by over 150bps to 25% by FY25 on the back of improved product mix and operating
leverage. Over the years, TMKN has also focused on cost measures and

Exhibit 33: TMKN EBITDA to grow at CAGR of 23% over FY22-25, margins to improve by 150bps.
10,000 26%
9,000 24%
8,000
22%
7,000
6,000 20%

5,000 18%
4,000 16%
3,000
14%
2,000
1,000 12%
0 10%
FY18A FY19A FY20A FY21A FY22A FY23E FY24E FY25E
Source: Company, MNCL research, INR in mn

Timken India Ltd 18

Investment Idea
 Return ratios to reach new highs
We expect TMKN’s return ratios to reach a new high in FY23. It will see a marginal correction from FY23
to FY25 due to the upcoming capex of INR6bn to diversify into CRBs and SRBs in the Bharuch plant, but
it will be mitigated by an improvement in margin profile led by better price realization and volume
growth.
Exhibit 34: Consistent margin profile
35%

30%

Return ratios are 25%

softening due to major
20%
capex between FY22 and
FY25 which will start
15%
giving fruits from FY26.
10%

5%

0%
FY18A FY19A FY20A FY21A FY22A FY23E FY24E FY25E
ROE ROCE
Source: Company, MNCL research

Exhibit 35: Exhibit 33: Historical FCF and forecast; FCF/PAT

3,500 120%
3,000 100%
2,500 80%
2,000
60%
1,500
40%
1,000
20%
500
0 0%

-500 -20%
-1,000 -40%
FY18A FY19A FY20A FY21A FY22A FY23E FY24E FY25E
Free cash flow FCF/PAT
Source: Company, MNCL research

Timken India Ltd 19

Investment Idea
 Valuation – premium valuations are justified with a TP
of ~INR4180
From FY18-22, TMKN reported 15%/32%/34% CAGR for Sales/EBITDA/EPS and outperformed the
industry by a huge margin. TMKN reported a 26% ROCE in FY22A vs 18% reported by the industry. This
trend will continue over the next three years on account of multiple tailwinds across railways, heavy
mobility (CVs and Off-highway vehicles) and export potential.

Exhibit 36: Exhibit 23: Timken India’s performance vs its Peers

Timken India vs Industry (FY18-22)
40%
34%
35% 32%
30% 26% 27%
25%
18%
20% 15%
12% 14%
15%
9%
10%
3%
5%
0%
-5% -1%
-10% -6%
Sales CAGR (FY18-22) EBITDA CAGR (FY18-22) EPS CAGR (FY18-22) FY22 ROCE

Timken India Top 3 players Industry

Source: Ace Equity, MNCL research

Over the past 10 years, the bearing industry has seen a strong consolidation phase with the number of
companies declining from over 58 in FY13 to over 15 in FY22. In the same period, the organized sector
market share has substantially increased from ~40% in FY13 to ~80% in FY22 with the top three bearing
players – Schaeffler India, SKF India and Timken India, gaining most of the market share. In the same
period, Schaeffler India merged its Indian operations under one subsidiary, Timken India acquired ABC
bearings. This consolidation trend will further sustain over the next decade with new opportunities in
terms of product offerings, backed by the technological know-how of Parentco (top 3 MNC players) and
the evolvement of these top players from being a mere component manufacturer to a system-based
offering player.

Exhibit 37: Reporting industry-leading operating margins over Exhibit 38: Emergence of an oligopoly industry, justifies
the past few years premium valuation for top players
25.0% 80 100.0%

60 80.0%
20.0%
60.0%
15.0% 40
40.0%
20 20.0%
10.0%
0 0.0%
5.0%
FY15/CY14
FY13/CY12

FY14/CY13

FY16/CY15

FY17/CY16

FY18/CY17

FY19/CY18

FY20/CY19

FY21/CY20

FY22/CY21
FY16/CY15
FY13/CY12

FY14/CY13

FY15/CY14

FY17/CY16

FY18/CY17

FY19/CY18

FY20/CY19

FY21/CY20

FY22/CY21

No Of Companies in Indian Bearing industry

Industry OP Margin Timken India OPM Top 3 players market share
Source: Ace Equity, MNCL Research Source: Ace Equity, MNCL Research

Timken India Ltd 20

Investment Idea
 Further, Timken India has announced the setting up of a manufacturing facility at the Bharuch plant for
INR6bn to manufacture SRBs and CRBs. It will fund the acquisition from internal accruals. This will further
accelerate the sales growth trend in FY26 with the commencement of the new manufacturing plant and
the open new market potential for TMKN (Over ~INR40bn of domestic opportunity and a similar export
opportunity). Though we haven’t taken the expansion benefits in our valuation, we reflect this with a
higher P/E multiple of 50x FY25E PER led by robust visibility.

Exhibit 39: Expansion in gross block (including CWIP), Source: Company, MNCL Research
16000

14000

12000

10000

8000

6000

4000

2000

0
FY18A FY19A FY20A FY21A FY22A FY23E FY24E FY25E
Source: Company, MNCL research

Therefore, we value TMKN at 50x FY25E PER, which is a 25% premium to its FY13-22 average historical
PER of 40x to arrive at the target price of INR4,180/share for Q3FY25 EPS of ~INR84 (75% FY25 EPS and
25% FY24 EPS). At a CMP of INR3,497, the stock trades at 40x FY25 PER. Though we haven’t taken the
expansion benefits in our valuation, we reflect this with a higher P/E multiple of 50x FY25E PER led by
robust sales growth visibility.

Bull and Bear case valuation

Bull case (TP: INR4760): Under this scenario, we assume 23%/27%/30% revenue/EBITDA/PAT CAGR
between FY22-25E, based on higher growth from railways, exports, and mobility segment, 250 bps
improvement in operating margins to 26% and valued at 52x FY25 PER, which is 30% premium over its
10 years historical PER of 40x. At TP of INR4760, we see an upside of 36% over CMP of 3497.

Bear Case (TP: INR2595): Under this scenario, we assume 13%/13%/15% revenue/EBITDA/PAT CAGR
between FY25-25E, based on a slowdown in railways, exports and mobility segment and no
improvement in margin profile in FY24E and FY25E (~23.5%). At a valuation of 40x FY25 PER, which is a
10-year historical PER, we arrive at a TP of INR2595, a downside of ~26% over CMP of INR3497.

Exhibit 40: Peer comparison

Timken India SKF India Schaeffler India NRB Bearings
Susceptibility to counterfeits
Cyclicality impact
Focus on exports
Localisation trend
Upcoming capex plans
Source: MNCL research

Exhibit 41: Peer valuation

M Cap EPS (INR) P/E (x) EV/EBITDA (x) RoE (%)
Company
INR in Mn FY22 FY23E FY24E FY22 FY23E FY24E FY22 FY23E FY24E FY22 FY23E FY24E
Timken India 2,64,960 43 61 73 81 58 48 51 39 32 20% 22% 21%
SKF India 2,40,400 80 110 128 61 42 35 34 30 25 23% 26% 26%
Schaeffler India 4,31,570 40 55 69 69 50 40 36 33 26 19% 23% 23%
NRB Bearings 14,370 7 9 12 21 16 13 12 11 9 13% 14% 16%
Source: Company, Bloomberg

Timken India Ltd 21

Investment Idea
 About the Company
▪ Timken India (TMKN) was incorporated in 1987 as a joint venture with Tata Steel Limited and Timken
Company. Timken Company acquired the former’s stake in 1992 to end the joint venture.
▪ The business in India comprises
▪ Manufacturing and selling of tapered roller bearings, components, and accessories
▪ Repair of bearing
▪ Mill Tec services – Maintenance of rolling mills.
▪ Sale of Timken Company (Parentco) products manufactured at locations outside India.
▪ TMKN has a major presence in railways, and heavy mobility (Tractors, Off-highway Vehicles and CVs)
and it also caters to industrial segments like steel, cement, food and beverages, renewables, etc. It
doesn’t sell bearings to the two-wheelers, three-wheelers, and passenger vehicles segment (except
for some high-end SUVs).
▪ It has two manufacturing plants in India – Jamshedpur and Bharuch. The parent group has another
Timken Company manufacturing plant in Chennai, under another unlisted subsidiary (Timken Engineering and
invented the roller Research India) which manufactures bearings for the industrial segment.
bearing. Timken India
has ~15% market ▪ In November 2022, TMKN announced a brownfield capex of INR6bn in its Bharuch plant to
share in India. manufacture CRBs and SRBs. The manufacturing facility is expected to commence operations by
January 2025 and will help TMKN to reduce its imports and diversify into manufacturing CRBs and
SRBs.
Exhibit 42: TMKN product portfolio and market segment

Source: Company

Timken India Ltd 22

Investment Idea
 Exhibit 43: Strong board
Name of the director Designation Description

Mr Sanjay Koul has over 32 years of experience with Timken India and serving
Chairman and
Mr. Sanjay Koul as a Chairman and MD from 2012. He has a rich experience and expertise in
Managing Director
manufacturing, sales, marketing, supply chain and quality.
Timken Company is Mr George J Ollapally has rich experience in human resource management and
named as one of the Additional &
Mr George J Ollapally business management. He has extensive experience to different industries
world’s most ethical Independent Director
which has given him insights on building successful teams.
company by
Ethisphere for the Mr. P S Dasgupta is also an independent director of five
10th time in 2020. listed companies namely Cummins India Limited, Vindhya Telelinks Limited,
Mr. P S Dasgupta Independent Director
Maral Overseas Limited, RSWM Limited and Ester Industries
Limited.

Mr. Bushen Lal Raina Independent Director Mr. Bushen Lal Raina is an independent director in Timken India

Mrs. N S Rama Independent Director Mrs. N S Rama is also an independent director of Xchanging Solutions Limited

Mr. Veerappan V has rich experience of more than 33 years in the field of
Additional &
Mr. Veerappan V electronics and telecommunication. His expertise lies in business management
Independent Director
& strategy, technology, sales and marketing
Mr. Douglas Smith is a director in Timken India and serves as vice-president of
Mr. Douglas Smith Director
technology at Timken Company.
Mr. Hansal Patel currently an executive officer of The Timken
Mr. Hansal Patel Additional Director Company is serving as vice president, general counsel and secretary. His
expertise lies in legal & corporate secretarial, M&A, corporate governance.
Mr. Avishrant Keshava is serving as business controller, CFO & whole-time
Mr. Avishrant CFO & Whole-time
director of Timken India. He has rich experience of over 26 years in the field of
Keshava Director
finance.
Source: Company

Exhibit 44: SWOT analysis

Strength Opportunities:
Leader in tapered roller bearings Leveraging the capabilities of various acquisitions
Focus on localisation with a dedicated focus on localized finished goods Providing complete offering in mechanical drive train like
and indigenously sourced steel requirements belts, industrial chains, couplings, clutches, lubrication
Technologies and R&D capabilities of Timken Group with significant design systems and housed units.
and process innovation capabilities.
Custom application knowledge, and proactive service and Product portfolio expansion with electrification of Indian
engineering engagement with customer to provide energy Railways.
and cost-effective solutions. Channel footprint strengthening to penetrate General
De-risked revenue stream with cross industry presence MRO market and address regional gaps with value added
services.

SWOT Analysis

Threats: Outlook
Continued contraction created in the Indian Economy due Focus on localization and improvement in indigenous
to the world-wide pandemic. components sourcing in the on-coming years.
Unforeseen and sudden currency volatility and raw Value proposition of all Timken Associated Brands.
material prices & availability. Risk mitigation by educating customers on importance of
Safety and operational risks posed by low quality using genuine high-quality bearings procured from
counterfeit or spurious products. authorized channel partner.

Source: Company, MNCL research

Timken India Ltd 23

Investment Idea
 Exhibit 45: Detailed principal applications for the roller bearings and primary players involved in each of the subcategories
Type of bearings Tapered roller bearings Cylindrical roller bearing Spherical roller bearings Needle roller bearings Thrust roller bearings

Transmissions, transfer
Cement and coal
Vehicle front wheels, Gearboxes, casters, cases, engines and valve
pulverizers, pumps, Classifiers, extruders, oil
differential and pinion aggregates, heavy trains, steering and
compressors, gear well swivels, pumps,
Application configurations, conveyor stationary, industrial braking systems, axle
boxes, centrifuges, pulp refiners, machine
rolls, machine tools, conveyor systems, supports, outboard
mining equipments, tools
spindles, trailer wheels industrial fans engines, power tools,
transmissions
copiers

Timken India, SKF India, NEI, SKF India, Schaeffler SKF India, Schaeffler SKF India, Schaeffler
Major Players INA bearings, SKF, NRB
Schaeffler India, NEI India, NRB India, NEI India, Timken India
Source: Company, MNCL research

Exhibit 46: Exhibit 36: Process to manufacture Tapered roller bearings

Source: Company, MNCL research

The main raw materials for the products are alloy steel bars, tubes, and wire rods, which are sourced by
TMKN’s vendors from an approved list of global suppliers. Some of the key suppliers for Timken India
are namely, Sanyo Steel Company Limited, Mahindra Sanyo Special Steel Private Limited, Rolex Rings
Private Limited, Harsha Engineers Limited, and Omni Auto Limited. Over 70% of the components are
sourced locally by Timken India and it will continue to grow in the coming years.

Exhibit 47: DuPont analysis (FY18-25E)

DESCRIPTION Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 Mar-24 Mar-25
PATM (%) 7.3 9.0 15.2 10.2 14.8 16.1 16.7 17.0
Sales / Total Assets(x) 1.3 1.2 0.9 0.7 1.1 1.2 1.1 1.0
Assets to Equity (x) 1.4 1.3 1.3 1.3 1.4 1.3 1.3 1.3
ROE (%) 13.1 14.6 16.9 9.8 21.8 24.5 23.2 22.3
Source: Company, MNCL research

DuPont Analysis:
▪ Profit margin: Improvement in margin profile led by better product mix and higher operating
leverage. This trend is set to continue over FY22-FY25E
▪ Asset Turnover: Asset turnover is expected to moderate due to the heavy capitalization of assets
related to capacity expansion plans from FY22-FY25.
▪ Financial Leverage: This is expected to remain stable over FY22-FY25E as TMKN will continue to
fund its expansion plans through internal accruals.
Therefore, the ROE will remain stabilized at 22% between FY22-FY25E, though we expect it to improve
from FY26 once the new manufacturing facility starts contributing to the bottom line from FY26.

Timken India Ltd 24

Investment Idea
 MNCL Research’s AQCG Score
We analyze the company’s accounting quality and corporate governance based on MNCL’s proprietary
AQCG score, which accounts for 14 different attributes in the accounting and corporate governance
Quadrant 1: >=72%
domain for at least 5 years and backtested on BSE 500 companies.
Quadrant 2: 65% -71.9%
Quadrant 3: 60% - 64.9% AQCG Score: 82% and 1st quadrant
Quadrant 4: <60%
Interpretation of the score: A score of 82% signifies that TMKN’s financial reporting and governance
policies are well in compliance with the widely accepted regulations, raising no red flags. A 1st quadrant
score signifies its superior positioning and stock return track record.

Key risks to our thesis

▪ Production key risk: As the company’s manufacturing facilities are capital intensive, a large
proportion of its costs are fixed in nature. So, a fall in the volume will result in negative operating
leverage and affect the margins.
▪ Increase in royalty – TMKN pays Timken Company around 4% of the net sales of products
manufactured in India as royalty (includes 1% trademark license royalty). Any increase in royalty
payments will affect its profitability.
▪ Cyclical in nature: Most of the demand comes from cyclical industries like M&HCV, off-highway
mobility, process industries etc. If the cycle turns, it can affect sales and margins (a large portion is
fixed cost).

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 Financials
Income Statement
Y/E March (INR in mn) FY19 FY20 FY21 FY22 FY23E FY24E FY25E

Revenues 16,644 16,169 14,105 22,032 28,546 32,702 38,567

Materials cost 9,286 8,595 7,858 11,941 15,693 17,823 20,903

% of revenues 56% 53% 56% 54% 55% 55% 54%

Employee cost 1,227 1,238 1,193 1,406 1,770 1,962 2,237

% of revenues 7% 8% 8% 6% 6% 6% 6%

Others 3,146 2,614 2,454 3,518 4,291 4,914 5,792

% of revenues 19% 16% 17% 16% 15% 15% 15%

EBITDA 2,985 3,722 2,600 5,168 6,792 8,004 9,634

EBITDA margin (%) 18% 23% 18% 23% 24% 24% 25%

Depreciation & Amortization 793 769 749 843 789 858 1,067

EBIT 2,192 2,953 1,851 4,324 6,002 7,146 8,568

Net interest cost 9 -3 -73 -3 -28 -28 -28

PBT from operations 2,182 2,956 1,924 4,328 6,030 7,174 8,596

Exceptional items 0 0 0 0 0 0 0

Net Income / (Expenses) from non-core ops 59 107 27 54 96 123 161

PBT 2,242 3,064 1,951 4,382 6,126 7,297 8,757

Taxes 752 603 519 1,111 1,532 1,824 2,189

Effective tax rate (%) 34% 20% 27% 25% 25% 25% 25%

Reported PAT 1,490 2,461 1,432 3,271 4,595 5,473 6,568

Adjusted PAT 1,490 2,461 1,432 3,271 4,595 5,473 6,568

Source: Company, MNCL research estimates

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 Key Ratios
Y/E March FY19 FY20 FY21 FY22 FY23E FY24E FY25E

Growth Ratio (%)

Revenue 33% -3% -13% 56% 30% 15% 18%

EBITDA 74% 25% -30% 99% 31% 18% 20%

Adjusted PAT 62% 65% -42% 128% 40% 19% 20%

Margin Ratios (%)

EBITDA 18% 23% 18% 23% 24% 24% 25%

PBT from operations 13% 18% 14% 20% 21% 22% 22%

Adjusted PAT 9% 15% 10% 15% 16% 17% 17%

Return Ratios (%)

ROE 15% 17% 10% 22% 25% 23% 22%

ROCE 21% 20% 12% 28% 32% 30% 29%

ROIC 16% 20% 11% 23% 26% 27% 28%

Turnover Ratios (days)

Debtors 66 66 96 89 85 82 80

Inventory 125 124 171 171 165 160 156

Creditors 92 92 156 100 102 108 112

Cash conversion cycle 99 98 112 160 148 134 125

Solvency Ratio (x)

Net debt-equity -0.1 -0.3 -0.1 -0.1 -0.1 -0.2 -0.2

Interest coverage ratio 125 107 128 177 NA NA NA

Gross debt/EBITDA 0.1 0.1 0.1 0.1 0.0 0.0 0.0

Current Ratio 2.8 3.6 2.2 2.9 3.3 3.4 3.6

Per share Ratios (Rs)

Adjusted EPS 20 33 19 43 61 73 87

BVPS 178 210 179 220 278 349 434

CEPS 30 43 29 55 72 84 101

Valuation (x)*

P/E (adjusted) 29.8 23.2 68.0 80.9 57.6 48.4 40.3

P/BV 3.3 3.6 7.2 16.0 12.7 10.1 8.1

EV/EBITDA 14.3 14.3 36.9 51.1 38.6 32.4 26.7

Dividend yield % 0.17% 0.13% 3.86% 0.04% 0.04% 0.04% 0.04%

Source: Company, MNCL research estimates

Timken India Ltd 27

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 Balance Sheet
Y/E March (Rs mn) FY19 FY20 FY21 FY22 FY23E FY24E FY25E

SOURCES OF FUNDS

Equity Share Capital 752 752 752 752 752 752 752

Reserves & surplus 12,655 15,015 12,683 15,817 20,166 25,496 31,921

Shareholders' fund 13,407 15,767 13,435 16,569 20,918 26,248 32,673

Minority Interest 0 0 0 0 0 0 0

Lease and Liability 0 37 27 20 20 20 20

Total Debt 231 200 327 298 0 0 0

Def tax liab. (net) 339 255 354 368 368 368 368

Other Liabilities 4,338 4,038 5,450 5,369 6,183 7,052 8,176

Total Liabilities 17,745 19,804 18,885 21,938 27,102 33,301 40,849

Gross Block 6,031 6,178 7,491 8,728 9,223 10,723 14,223

Less: Acc. Depreciation 1,649 2,231 2,886 3,633 4,422 5,280 6,347

Net Block 4,382 3,947 4,605 5,095 4,801 5,443 7,876

Right to use 0 1,092 1,066 1,041 1,041 1,041 1,041

Capital WIP 635 1,565 975 495 1,500 3,500 3,500

Net Fixed Assets 5,017 6,605 6,646 6,631 7,341 9,984 12,417

Investments 1,758 132 0 990 0 0 0

Inventories 3,171 2,914 3,687 5,585 7,103 7,798 8,936

Sundry debtors 3,019 2,915 3,713 5,388 6,667 7,368 8,477

Cash 219 4,147 1,704 148 2,896 5,057 7,924

Loans & Advances 1 2 1 31 31 31 31

Other assets 2,340 464 344 1,448 459 459 459

Total Current Asset 8,750 10,441 9,450 12,600 17,156 20,713 25,827

Trade payables 2,335 2,157 3,355 3,285 4,398 5,267 6,391

Other current Liab. 707 658 961 995 697 697 697

Provisions 49 71 57 77 77 77 77

Net Current Assets 5,658 7,555 5,077 8,242 11,983 14,671 18,662

Total Assets 17,745 19,804 18,885 21,938 27,102 33,301 40,849

Source: Company, MNCL research estimates

Timken India Ltd 28

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 Cash Flow
Y/E March (INR in mn) FY19 FY20 FY21 FY22 FY23E FY24E FY25E

Operating profit bef working capital changes 2,985 3,682 2,583 5,150 6,877 8,116 9,785

Trade and other receivables -586 266 -815 -1,689 -1,279 -701 -1,109

Inventories -401 257 -773 -1,898 -1,518 -695 -1,138

Trade payables 192 -135 1,157 -63 1,113 869 1,123

Changes in working capital 257 638 -245 -3,681 -1,983 -527 -1,124

Direct taxes -754 -838 -451 -1,140 -1,532 -1,824 -2,189

Cash flow from operations 2,488 3,482 1,887 329 3,363 5,765 6,472

Net Capex -1,174 -1,147 -775 -799 -1,496 -3,496 -3,496

Others 77 129 88 38 38 38 38

Cash flow from investments -1,097 -1,019 -687 -761 -1,458 -3,458 -3,458

FCF 1,314 2,334 1,112 -470 1,867 2,269 2,976

Issue of share capital

Increase/(decrease) in debt -125 0 0 0 0 0 0

dividend -75 -75 -3,760 -113 -113 -113 -113

Cash flow from financing -233 -135 -3,787 -147 -147 -147 -147

Net change in cash 1,157 2,328 -2,588 -579 1,759 2,161 2,868
Source: MNCL Research Estimates

Timken India Ltd 29

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Timken India Ltd 30

Investment Idea
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Timken India Ltd 31

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