Timken India – Consistent compounder of Auto Ancillary Industry

A Subsidiary of world’s leading Bearing Manufacturer – The Timken Company, USA

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About The Company
About the Group
Journey Since Inception
Shareholding Pattern of The Company
Executive Management of the company
Business of the Company
Products Categorization of Timken
Revenue Breakup of the company
Manufacturing Facilities
Distribution Network of the company
Market Structure
Cost Structure
Financial Parameters
Management Discussion and Concall Highlights
Strength and Weakness

(A) About The Company

Timken India Ltd

Timken India Ltd is a subsidiary of the “The Timken Company”, USA incorporated in 1987 as Tata Timken Limited (TTL), with a JV between Tata Iron and Steel Company (TISCO) and The Timken Company. The Timken Company is one of the world’s leaders in manufacturing of engineering based Bearings.

Timken India is engaged in the manufacturing, distribution and sale of antifriction bearings, primarily tapered roller bearings, cylindrical roller bearing and in some other components and accessories.

Generally, The company serves its Products and services to various industries such as Defence, Mining, Aerospace, Agriculture, Rail, Energy and Automotive.

(B) About the Group

In 1898, Henry Timken obtained a patent for an improved tapered roller bearing, and in 1899 incorporated as The Timken Roller Bearing Axle Company in St. Louis. The Timken Company is a global manufacturer of bearings and power transmission products which operates from 42 countries.

Timken entered international markets in the early 1900s, establishing a presence initially in Great Britain, France and Germany. The performance of Timken tapered roller bearings in World War I military equipment made an impression on the European bearing market. After the war, Great Britain rose to the position of #2 in the global automotive manufacturing market, creating opportunities for Timken to expand its European manufacturing presence.

The Timken Company brands include: Timken bearings, Fafnir bearings, EDT bearing housed units, Lovejoy couplings and universal joints, Carlisle belts, Cone Drive worm gear drives, Drives chain, Diamond chain, Groeneveld-BEKA lubrication, Interlube lubrication systems, PT Tech industrial clutches and brakes, R+L Hydraulics hydraulic components, Rollon linear motion products and Torsion Control Products spring couplings.

Moreover, The company also operates Timken Power Systems, which supplies and services industrial drivetrain customers with repair, upgrade and service for bearings, gearboxes and electric motors.

(C) Journey Since Inception

(D) Shareholding Pattern of The Company

Timken India Ltd - Shareholding Pattern
Timken India Ltd - Shareholding Shareholder Public

(E) Executive Management of the company

(i) Mr Sanjay Koul – Chairman and Managing Director

Mr Sanjay Koul is the present Chairman and Managing Director of the company. Mr Koul is 56 years old.

He holds a Bachelor’s Degree in Mechanical Engineering from the Birla Institute of Technology and Science in Pilani and a Master’s Degree in Business from Xavier Labour Relations Institute in Jamshedpur.

Before joining Timken, Mr. Koul served Union Carbide India Ltd as a production supervisor and
also as an engineer with an urban environmental agency in India.

Moreover, He has vast experience of more than 30 years of experience in the bearing market.

Mr Sanjay Koul received Rs 2.26 cr as remuneration for FY21 i.e. 0.10% of Net Sales and 0.69% of Net Profit.

(ii) Mr Douglas Smith – Non-executive director

Mr. Douglas Smith Joined the Timken India Ltd on 7 Feb 2020 where he held the position of Non Executive director. He is 51 Years old. Further, He serves as Vice President, Technology at The Timken Company.

He holds the Bachelor’s and Master’s Degree in Mechanical Engineering.

Further, Mr Smith is responsible for leading Timken’s technology strategy, including product and digital technologies to advance customer experience and create enterprise value. However, This includes oversight of Timken’s bearing research and development as well as information technology and digital transformation initiatives.

(iii) Avishrant Keshava – Business Controller-India, CFO & WTO

Mr Avishrant Keshava currently holding a position of CFO and WTO, but he joined as Assistant Manager in 2000. During, Timken Journey he held various position like Plant Controller in 2009, Deputy Controller of Accounts – Bangalore and Controller of Accounts – India in 2014.

Moreover, Mr Keshava has an experience of about 26 years including 3 years of article ship in Gupta, Choudhary & Ghosh (Deloitte).

Prior to Joining, he started his career with Modi Cement in May 1993 and moved to Hyderabad in Pharma Industry.

Mr Avishrant Keshava received Rs 66.41 Lacs as remuneration for FY21 i.e. 0.03% of Net Sales and 0.20% of Net Profit.

(F) Business of the Company

Timken India is primarily engaged in manufacturing, selling and exporting for sale of antifriction bearings, components and related items. Moreover, The company is also engaged in import and purchase for resale and acts as a sales agent for the products manufactured by The Timken Company.

(G) Products Categorization of Timken

Timken India Ltd mainly operates two business segments (i) Mobile Industries and (ii) Process Industries which includes different products and services in it.

Under “Mobile industries”, company serves products such as Taper Roller Bearings, Spherical Roller Bearings, Lubricants, Seals and many more to Automotive, Rail, Heavy trucks, and Aerospace Market.

Whereas, Under “Process Industries”, products serves to General and Heavy Spaces like Metals, Oil n Gases, Renewable energy like wind and Solar. Moreover, This segment also includes distribution and services business.

Furthermore, Timken India has an expertise in the domains of Metallurgy, Tribology, Mechanical system which enables collaboration with OEMs to Designs and Develop solution as per applications.

Infact, Company has 50+ Industrial and 100+ Automobile channel Partners reach out to end market for its Products & services.

Timken India Ltd - Products categorization
Timken India Ltd - Products

The Company manufactures Tapered roller bearings India. However, products like seal sourced local market.

Moreover, Products like Spherical bearings, Cylindrical Bearings, Lubricants, Ball Bearings, and maintenance tools are being imported from the group – The Timken Company.

(H) Revenue Breakup of the company

(i) Segment Wise Revenue

Timken India Ltd - revenue breakup

(ii) Geographical Revenue segments

Timken India Ltd - geographical Revenue

The Larger section of sales is coming from Indian Geography with ~75% and remaining sales is coming from USA and others.

In FY22, 30% sales revenue contributed from the export.

The Major Demand traction seen because of the ongoing war of Russia and Ukraine and lockdown in China’s economy.

(I) Manufacturing Facilities

The Company’s manufacturing plants are located at Jamshedpur in Jharkhand & Bharuch in Gujarat and distribution centers are located in various parts of the country.

Timken India Ltd - manufacturing Facilities

The company can reach up to 85% of Capacity Utilization level, but at present its utilizing ~75% of level. However, Bharuch Plants is more focused towards manufacturing products for the purpose of exports.

Recently, Company has added little more capacity in order to begin producing smaller size of Bearings.

At present, Special Roller is not producing in india, But management is working on the possibilities to invest in it.

(J) Distribution Network of the company

Timken India Ltd - Distribution Network

The company has a satisfactory Number of channel Partners to reach out to end market for its Products & services. Over the years distribution networking is getting stronger. In FY16 there were only 40 channel partners under the Process industry, and only 86 in Mobile industry.

(K) Market Structure

(ii) Market Share

Indian market is dominated by international majors as well as indigenous players like NBC, NRB, ABC and others.

In terms of demand dynamics, OEMs constitute 60% of demand whereas rest is driven by aftermarket and exports. Industrial segment constitute ~52 % of domestic bearing demand which is largely driven by general machines/motors, electrical equipment (fans/appliances) as well as heavy industries.

Timken India Ltd - Market Share of The Bearing Players in India

(ii) Market Size

The India bearings market held a market value of ₹14,011 Cr in 2021 and is forecasted to reach ₹26657 Cr by the year 2027. The market is expected to register a CAGR of 10.9% during the forecast period.

Classification of Bearings industry/Market

Under the “By Products segmentation” The roller bearing segment accounted for the largest market share of more than 40% in 2021 owing to their ability to rotate at high speed and with great precision.

Further, Under “By Size Segmentation” The 30 to 40 mm segment held the largest market share of about 11% owing to its increasing demand for various industrial applications. The 41 to 50 mm segment estimated to hold a market opportunity of more than USD 370 million during 2021 and 2027 owing to their use in automotive sector.

In addition, under “Application segment” The automotive segment holds more than 45% of the market share in 2021 owing to the growing automotive industry as well as increasing usage of a variety of bearings in the sector. Within the industrial segment, the agriculture sector witnesses the fastest growth rate of around 12.9% during the forecast period owing to the growing use of machines in the agriculture sector in India. The machine tools segment accounted for the largest market share of around 28% owing to their growing demand in the aerospace industry and high adoption of precision bearings.

(L) Cost Structure

Timken India Ltd - Cost Structure

In FY21, Company’s Major expense that has incurred on raw material comprising proportion of ~60%. Whereas, Employee Cost comprised 8.46% and Power & Fuel cost reported 2.06%.

Raw Material Expense

Timken India Ltd - Raw Material Consumed

Steel is the major Raw Material which used in the Manufacturing of Bearings.

In general, raw material accounts for about 2/3 of company’s cost structure or ~58% of bearing manufacturer’s revenue.

Employee Expense

Timken India Ltd - Employee Cost

Company’s Employee Expense is quite moderate in the range of 7-8%, But in 2022 it improved by >2%.

(M) Financial Parameters

Timken India Ltd - Financial Parameters
  • The Net Sale has shown robust Growth of 56% YoY and 14% CAGR over the Past 10 Years. The sales were reported mainly due to increase in Metal prices and 40% growth in Volumes.
  • Further, The Major Buys is Coming across the Railways category because of a Tender was announced by Rail Ministry.
  • Additionally, Company reported highest PAT of Rs 327 Cr Since 2013.
  • EBITDA and PATM reported highest over the 10 years due to improved efficiency in employee expenses.
  • Above all, over the 10 Years as well as for the Years 2022 Timken’s Financial ratio has also improved significantly.

Trade of Terms (ToT)

Timken India Ltd - Trade of Terms

DU Pont Analysis

Timken India Ltd - DU Pont

(N) Management Discussion and Concall Highlights

Performance and Outlook

  • The company is expecting strong demand from the railways sector, because of Wagon’s tender announced by the railway’s ministry. Ministry is looking to source 90000 wagons over the next 3 years which means 30000 wagons for a year.
  • ABC bearings, that acquired in year 2017, is started contributing now in the revenue share.
  • Additionally, some demand has shifted in India due to the ongoing war between Ukraine and Russia which helped the Indian companies to export.
  • Furthermore, Management is believing that Defence is going to certainly strong segment in times to come because India wants to encourage its campaign of “Vocal for local” and do more exports.
  • For Commercial Vehicle Axles, The company has developed power-dense efficient bearings designs that are smaller and lighter than others in the market.
  • Moreover, For the wind market, Timken has developed special turbine-specific bearings to reduce wear and tear on the components that help to keep the blades turning.

Focus of the company

  • Under Mobility Segment, in Differential and Pinions component, Timken India is a leader and majority supplier. Thus its focus is more on differential and pinion components by offering newer technologies.
  • The Company’s Management has stated that it is more Focused toward improving operational efficiency rather than expanding or developing manufacturing facilities.
  • Furthermore, TIL is receiving time to time innovative and newer technologies starting from 1991-92 mainly in the areas of machining, heat treatment, and furnishes and Designs for the products.
  • Locomotive is very small subset of railways, so major demand will be remain (freight followed by the Passengers) which is subset of metro.
  • In 2020, alloy prices were seen going up but not Softened because of Duties (put on export).
  • At present, Special roller is not produced in india. So Timken management is working on the possibilities to invest in manufacturing units.
  • During the year, Capacity is added in Bharuch plant for the manufacturing of very smaller size of bearings.

Concall Highlights -Q4FY22

  • Timken reported 30.08% of Sales growth in comparison to previous quarter. In Q4Fy22 The Sales reported at Rs 667.4 Cr vs Rs 510 Cr in Q3FY22.
  • Gross margin and EBITDA Margins expanded by 3.5% and 4.57%. In Q4FY22, Gross Margins reported at 47.70% and EBITDA Margins reported at 26.90%.
  • In Q4FY22, Timken recorded robust performance in PAT by 73.8%. PAT in Q4 stood at Rs 121.3 cr vs Rs 69.8 Cr in Q3.
  • In Q4FY22, the most contributed segment in sales driven by Mobility and Distribution with 20% each, followed by railways with 17% and ~14% by Process.
  • However, in the same quarter, Exports contributed approximately 30% in the topline.
  • In addition, 56% of growth in topline for FY22 has been reported because of 40% growth in volumes.

(O) Strength and Weakness

Strength

(i) Strong parentage, broad product offering and diverse application of products

Timken India is Subsidiary of The Timken Company which is a global industrial leader with a growing portfolio of engineered bearings and power transmission product brands.

The Timken Company is having more than a century of knowledge and innovation. Timken India is entitled to receive high-end R&D from the Timken company.

which improves the products designs and help to enhance the quality of the products.

In addition, Timken india continuously improving the reliability and efficiency of global industries to move the world forward.

(ii) Acquisition of ABC Bearing

In 2017, Timken entered into a definitive agreement to acquire ABC Bearings Ltd, a manufacturer of tapered, cylindrical and spherical roller bearings, and slewing rings in India.

Earlier ABC Bearings was running at a capacity utilization of ~40% but after post merger in 2018, it expanded the capacity utilization by Maximum level with the help of accessing newer technology and new markets through the Timken.

Additionally, Now ABC Bearings started contributing in revenue which will eventually bolster Timken Position.

Weakness

(i) Changes in demand Scenario

Any Adverse changes in the industrial environment due to economic slowdown or Government policy making could lead to reduction in demand of customers’ finished products, which in turn could have a direct impact on demand for TIL’s products.

Timken’s performance largely depends on the demand & growth of manufacturing and core infrastructure sectors in India.

(ii) Tough competition from peer companies

The bearing industry is highly competitive, and this competition results in significant pricing pressure for products that could affect revenues and profitability. Moreover, Timken is Getting neck to neck Competition from the other players like SKF, Schaeffer, And NBC.

(iii) Transactions with Related companies

The Timken has two companies operating in India and these have transactions among them. Further, Company imports a lot of bearings (not manufactured in India) from its group companies abroad for sale in India.

Due To Lack of Indigenous Manufacturing, Timken Has to procure the products at higher prices even if the prices were increase in global market only.

(iv) Raw material prices & availability and Sudden currency volatility

Metal components are one of the key raw materials for TIL’s products prices of which are dependent on global demand supply.

Inability of the company to pass on any adverse price changes due to challenging and competitive environment could hurt its profitability.

Furthermore, since exports account for a significant chunk of revenues, appreciation in exchange rate of rupee could impact Company’s financials.

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References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry’s Publications.

Disclaimer: The report only represents personal opinions and views of the author. No part of the report should be considered as recommendation for buying/selling any stock. Thus, the report & references mentioned are only for the information of the readers about the industry stated.

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