Dec 01, 2016 05:59 PM IST | Source:

Hold Timken India; target of Rs 614: ICICI Direct

ICICI Direct recommended hold rating on Timken India with a target price of Rs 614 in its research report dated November 30, 2016.

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ICICI Direct's research report on Timken India

In domestic markets, TIL has witnessed a good pick-up from the renewable (wind) and off-highway segment. The management continues to remain optimistic on these segments, going forward. In Q2FY17, the company received its first order for its bearings from DFC. With incremental demand for new wagons (bearings opportunity from DFC pegged at Rs 120 crore per annum), the management is eyeing significant business from this segment. Railways is also seeing traction and is likely to see good order inflows from Q3FY17 onwards. Other segments like auto, after-markets are likely to see moderate growth on account of good monsoon and pick-up in agricultural activities coupled with renewed push in the infrastructure sector. Thus, we believe domestic business revenues will exhibit growth of 12% CAGR in FY16-19E.

The company is executing two capital expansion programmes, for the railway bearings segment (Rs 124.7 crore) and for the tapered roller bearing segment (Rs 64.3 crore). As per the management, both expansion programmes are moving as per the schedule. We now roll the valuations of the company to FY19E. Timken has historically traded at premium valuations of over 25x forward earnings due its niche expertise and strong parentage. With moderate capex and strong balance sheet, we believe TIL is well placed to capture the upcoming opportunity in the railways, DFC, renewable and auto segment in addition to export led growth. Thus, we value the company at 29x FY19E EPS of Rs 21.2 and retain our target price of Rs 614. We have a HOLD rating on the stock.

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