Buy Timken India; target of Rs 640: ICICI Direct

ICICI Direct's research report on Timken India

Timken India (TIL) reported strong Q3FY19 numbers. TIL is now reporting merged entity numbers, i.e. Timken + (erstwhile) ABC Bearings For Q3FY19, revenues came in at Rs 384.9 crore, up 38.1% YoY. We expected revenues of Rs 349.2 crore (25% growth) Gross margins were at 45.6% vs. 36.9% YoY. EBITDA margins were at 14.4% vs. 7.4 YoY. Gross margins, EBITDA margins were lower in Q3FY18 due to a change in product mix and high input prices during the quarter. We believe the same has now corrected in Q3FY19 Accordingly, absolute EBITDA and PAT grew 168.1% and 188.2% to Rs 55.6 crore and Rs 26.4 crore, respectively.

Outlook

We expect strong EBITDA growth as we estimate utilisation of 75% and 80% in FY20E and FY21E, respectively. We value the company at 29x FY21E EPS to arrive at target price of Rs 640. We maintain BUY rating on the company.