Buy Timken India; target of Rs 675: JM Financial

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JM Financial's research report on Timken India

We resume coverage on Timken India (Timken) and publish our revised numbers to factor in the consolidation of ABC Bearings (ABC). In our view, the amalgamation of ABC Bearings would be EPS accretive from FY19 as net profit of the consolidated entity should increase 17% (factoring in 11-month consolidation in FY19) vs. 11% stake dilution through a share swap. Over FY18-21, we forecast sales and earnings CAGR of 16% and 25%, respectively, for the consolidated entity, led by a) strong growth in the domestic CV market (entry in wheel bearings segment), b) bounce-back in exports on easing of capacity constraints and favourable USD/INR movement and c) a production ramp-up at ABC as it is operating at sub-optimal capacity utilisation levels.

Outlook

We maintain BUY with a Mar’20 TP of INR 675, as we lower our target multiple to 25x (30x) FY21E EPS due to increased competition in the railways segment, a sharp reduction in net exports in the past 3 years and amalgamation of a single-digit RoE business (ABC has low RoEs due to muted capacity utilisation).

For all recommendations report, click here

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