Timken India Limited — Q2 FY25 earnings call

Call held 6 Nov 2024

Management summary

Timken India delivered a record September quarter revenue driven by domestic demand, despite a slight contraction in margins due to a shift in product mix and weak exports. The company is aggressively pursuing localization through its ₹600 crore Bharuch project, which aims to replace imports of SRB and CRB products. While the automotive segment faces pricing resistance, the railway segment remains a steady growth pillar with strong expectations for the final fiscal quarter.

Highlights

  • Revenue reached ₹753 crores, representing a 10% YoY growth and the company's best September quarter performance.

  • PBT margin stood at 16.4%, a contraction from 18% in the prior year period due to unfavorable product mix and lower rail volumes.

  • Revenue mix for the quarter: Rail 22%, Mobile 18%, Distribution 19%, Process 21%, and Exports 19%.

  • Domestic demand remained the primary growth driver, while export markets (US, China, Mining) remained subdued.

  • Bharuch expansion project for Spherical Roller Bearings (SRB) and Cylindrical Roller Bearings (CRB) is in full swing with ₹600 crores approved capex.

  • Company remains debt-free with robust cash flows; CWIP stands at ₹290 crores as of the reporting date.

  • Management expects the Bharuch facility to be commissioned by Q1 FY26, targeting 80% utilization within 18 months of production.

Concerns

  • Global Export Market Weakness

Key financials

  1. Revenue ₹753 Cr +10%YoY
  2. PBT Margin 16.4%
  3. Approved Capex ₹600 Cr
  4. CWIP ₹290 Cr

What they filed

Q1 FY27: revenue up 14.8%, net profit up 10.6% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue753 671 940 809 773 +3%764 +14%1,073 +14%929 +15%
EBITDA133 107 210 142 138 +4%96 −10%235 +12%172 +21%
Net profit90 74 187 104 89 −1%50 −32%155 −17%115 +11%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Rail
    22% Revenue Mix
  • Mobile
    18% Revenue Mix
  • Distribution
    19% Revenue Mix
  • Process
    21% Revenue Mix
  • Exports
    19% Revenue Mix

Guidance & targets

Capacity

  • Bharuch Plant Commissioning Capacity · Q1 FY26 · Medium confidence Q1 FY26
    So we are working towards as fast as possible, some months here and there, but endeavour is first quarter-ish, somewhere like that.

    — Sanjay Koul, Chairman and Managing Director

Volume

  • Capacity Utilization Ramp-up Volume · within 18 months of production · High confidence 80%
    I would say that in order to reach 80%, in 18 months, every asset, every machine has to be ramped up and all that should take me 18 months.

    — Sanjay Koul, Chairman and Managing Director

  • Long-term Capacity Utilization Volume · within 3 years · Medium confidence 80-85%
    I would say, it will take us at least 3 years to reach the mark of use at least 80%, 85%, which is our intent.

    — Sanjay Koul, Chairman and Managing Director

Market Share

  • Construction Equipment Market Size Market Share · by 2030 · Medium confidence $10 billion
    That by 2030, the construction equipment market is going to be easily USD10 billion market.

    — Sanjay Koul, Chairman and Managing Director

Risks & concerns

  • Global Export Market Weakness

    high

    Subdued demand in US, China, and mining sectors in Australia is impacting export revenues.

    Management acknowledged

  • Pricing Resistance in Automotive

    medium

    Intense competition and customer resistance make it difficult to pass on raw material and inflation costs in the mobile segment.

    Both acknowledged

  • Project Execution Delays

    low

    Heavy rains and flooding in Bharuch/Baroda caused minor construction delays, though the project remains largely on track.

    Management acknowledged

Areas of evasion (1)

  • Specific margin guidance for the second half of the year was avoided.

Q&A highlights

2 direct
Gross Margin Compression Partial
But on the passing the price in automotive stuff, I don't see that, though the endeavour is continuous, but it is huge resistance. And obviously, the industry is competitive.

Reveals significant pricing pressure in the automotive segment and the difficulty in passing on cost escalations to customers.

Asked by Ankur Sharma

Bharuch Project Capex and Timeline Direct
We have INR600 crores approved, and we have obviously paid the advances... we are not delaying as such the project. But there would be natural delays because this time Bharuch was lot of rains, etcetera.

Clarifies the gap between approved capex and CWIP, confirming the project is on track despite weather-related challenges.

Asked by Deepesh Agarwal

Export Market Outlook Direct
China is down, mining is down, Australia is down, we export to these markets -- America... US market has been subdued.

Highlights the broad-based weakness in global end-markets which is currently a drag on the company's export performance.

Asked by Abhishek Jain

2 min read 5 chapters

Detailed narrative

Bharuch Expansion: A Strategic Pivot to Localization

The Bharuch project is central to Timken India's strategy to localize Spherical Roller Bearings (SRB) and Cylindrical Roller Bearings (CRB), which are currently imported. The company has approved ₹600 crores for this project, with ₹290 crores already in CWIP. Management expects commissioning by Q1 FY26, with a target to reach 80% capacity utilization within 18 months. This move is expected to be 'positive-positive' for both top-line growth and bottom-line margins by reducing import costs and serving a growing domestic market for stationary equipment.

Railway Segment: Steady Growth and Seasonal Strength

The railway segment contributed 22% to the Q2 revenue mix. Management highlighted that the fourth quarter is historically the strongest for rail as wagon manufacturers push to complete annual contracts. While growth is described as 'steady' rather than 'hockey stick' style, the company is well-positioned in both freight and passenger (Vande Bharat, Metros) segments. They are also working with RDSO on newer technologies like Class K bearings for the Dedicated Freight Corridor (DFC).

Export Headwinds and Global Market Dynamics

Exports were a drag this quarter, contributing only 19% to the mix compared to higher historical levels. Management cited subdued demand in the US, China, and Australian mining markets. However, they expressed cautious optimism for a recovery in the US market following the elections, noting that October retail data showed early signs of positiveness. The export mix has also shifted, becoming more skewed toward rail (70-30 or 68-32) as the heavy truck segment in the Americas remains weak.

Margin Pressures and Pricing Challenges

PBT margins contracted to 16.4% from 18% YoY, primarily due to an unfavorable product mix and lower rail volumes in Q2. Management admitted to facing 'huge resistance' in passing on cost escalations to automotive customers due to the competitive nature of the industry. To mitigate this, the company is focusing on improving its product mix, optimizing supply chains, and investing in solar power to reduce electricity costs.

New Global Leadership and India's Role

The appointment of Tarak Mehta as the new global CEO of Timken Company is seen as a positive for India. Mehta, who has extensive experience with ABB and has served on the ABB India Board, is expected to leverage India's 'super strength' in cost, quality, and delivery. Management believes India is well-positioned to become a global manufacturing workshop as the economy grows toward $7-8 trillion and manufacturing's share of GDP increases.

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