ICICIdirect.com's report on Timken India
Technical Outlook
The stock has registered a breakout from the bullish Flag pattern in Wednesday’s session signalling the end of the secondary consolidation and resumption of the next up leg, thereby offering a fresh entry opportunity to ride the ongoing uptrend from a medium-term perspective.
The stock hit an all-time high of Rs 543 in the first week of January 2015 and, thereafter, entered a secondary corrective phase over the last four weeks. Pictorially, the sideways consolidation since January 1, 2015 till date appears to have taken the shape of a bullish Flag pattern on the weekly chart. A Flag formation is a bullish continuation pattern, which marks a temporary pause in an ongoing uptrend as bulls take a breather to gather steam for further northward journey.
We believe the stock is set for its next up leg within the broader bull phase and is likely to head towards Rs 676 levels being the price parity with the previous rally (543-371=172 points) from recent trough of Rs 504. Projects upside towards 676 (504+172=676).
Fundamental Outlook
Timken India (Timken) is the fourth largest organised bearings player in India with ~8% market share (in terms of revenues). It is known for tapered roller bearings wherein it commands a staggering ~45% market share. Segment wise, Timken derives 25% of its revenues from Railways, 25-30% from exports, 25% from industrial and aftermarket and balance from CVs, UVs and tractors.
While the stock is currently trading at 82.6x FY14 P/E, it seems to reflect the growth momentum of H1FY15 wherein earnings grew 84.5% YoY aided by handsome topline growth of 32.3% YoY with ~600 bps expansion in margins to 16%. With an expected industrial revival and the auto segment showing signs of a recovery, Timken is well poised to capture the opportunity given its robust balance sheet with cash flow generation, strong parentage and scalability bandwidth.
Strategy: "Buy Timken India in the range of Rs 510.00–525.00 for a target price of Rs 675.00 with a stop loss below Rs 445.00 on a closing basis", says ICICIdirect.com research report.
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