Hi Is anyone tracking ABC bearings. They have reduced their dependence on commercial vehicles by also catering to other machineries. Their Inventory days, cash conversion cycle, , cash receivables, payment days, debt equity ratio are all improving but their ROCE & ROE is stagnant. Must be due to regular equity dilution and almost muted growth. From long term view it looks good and well positioned to do well with turn around of manufacturing cycle. Do share your feedback on this stock ?
20% up yesterday, Timken acquiring ABC at 77% pc premium
Key conference call takeaways (source - Kotak Securities)
Strong performance across segments in FY2019.
Revenues grew by 35% yoy mainly due to
(1) integration of ABC with Timken India in May 2018 (9% of revenues),
(2) 35% yoy growth in process industries mainly led by revival in the wind energy segment (8% of revenues),
(3) strong growth in the mobility segment due to 30% yoy increase in production in the domestic MHCV industry,
(4) 14-16% yoy growth in the railway segment led by a strong order book and (5) strong growth in the industrial distribution business (visible in results of SKF and Schaeffler India as well) due to increase in capacity utilization across segments such as cement, steel, paper processing, etc.
Improvement in capacity utilization in ABCās Bharuch plant.
Timkenās engineers have been working in ABCās Bharuch plant over the past 6-9 months to bring
product design and quality up to Timkenās standards. The company has largely achieved its targets and capacity utilization has improved over the past two months (70% in May 2019). We note that Timken was also targeting to start exports of cylindrical and spherical roller bearings (CRBs and SRBs) from this plantāthis has not started yet and will aid growth over the next few years.
Outlook for FY2020.
The company highlighted that the railway segment will grow by 8-10% yoy in FY2020 and the company expects growth to pick up in the mobility segment in 2HFY20. The company also highlighted that next year will be soft for the exports segment due to slowdown in global growth and also possibly due to softness in demand for Class 8 trucks in North America (accounts for around 50% of exports). However, the company expects growth to pick up in South African markets mostly led by the mining
segment.
Details on railway segment.
The company won orders worth `400-500 mn from CONCOR for Class K bearings in FY2019. As per the management, Indian Railways have taken certain initiatives, which should drive strong growth for Timken over the medium term. Key initiatives are (1) a shift towards high-end passenger coaches (LHB coaches), which will have significantly higher content of tapered roller bearings compared to
normal coaches and (2) decision to outsource railway workshops, which could drive higher replacement demand for wheel bearings. Apart from this, the technology-driven increase in bearing content (move towards next-generation bearings) in railways also augurs well for the industry. The company has also put in a state-of-the-art facility in Jamshedpur for repairs and refurbishment. The company highlighted that it is qualified to supply bearings to GE locomotive but waiting for their approval to start supplying.
Capex plan.
The company will incur capex of 80-1,00 cr in the Jamshedpur plant to focus on in-house manufacturing of complex parts and localization of parts. Also, the company will invest 35-40 cr for process improvement in the Bharuch plant.
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@basumallick Abhishek Dada,
Are you still tracking Timken? Eventhough Q1 results are inline with Covid-19 affected companies, Timken crossed 52 week high few days ago. What is driving this stock to 52 week high as Q2 is also not expected to be great for such companies. Your views please
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There is the expectation that once industry / railways start operating, the sales will pickup.
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Indian Railways (HBL Timken).pptx (2.7 MB)
PPT on Indian Railways Sector covering TIMKEN and HBL Power
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