Why Timken India Share Price is Falling

Share price of Timken India, one of the top manufacturers of bearings and power transmission products, witnessed a sudden decline of 11% today on an intraday basis.

Until yesterday, Timken India shares were on a roll, rallying around 50% in the past one year and 9% on a YTD basis.

The sudden decline has raised eyebrows and investors are now wondering whether it's time to turn cautious on the company.

Let's find out why the shares plunged today and what the future has in store for the company.

Stake sale by promoters

The promoter's holding indicates their trust in the company. So if promoters are buying shares in the company, they either think the shares are undervalued, or something big is about to happen in the company.

Likewise, when promoters sell shares, investors often perceive it as a sign of caution. Basically, investors become wary when promoters sell their stake from a company.

Today, the promoter of Timken India, Timken Singapore sold up to 8.4% stake, or 6.3 million (m) shares, in its India-listed firm for 18.9 billion (bn) through an open market transaction.

According to the term sheet issued by the sole book-runner for the transaction, Timken Singapore fixed the floor price at Rs 3,000 per share, a 14% discount to Monday's closing price of Rs 3,485.5.

Timken Singapore owned a 67.8% stake in Timken India, as per shareholding data for the quarter ending March 2023.

This is the primary reason why shares saw a kneejerk reaction today.

A look at its financials...

During the financial year 2023, Timken India gave a moderate performance. Its revenue grew by 20% YoY to Rs 8,025 million (m) as steel demand gradually revived in the country.

However, the profit earning capacity remained weak during the year. The company reported a total profit of Rs 1,045 m, down 14% compared to financial year 2022. Rising input material costs wiped off the rise in volume.

Meanwhile, gross margins contracted sharply by 924 basis points YoY to 38.5% mainly on account of the higher share of traded goods which carry lower margins.

Earnings before interest, tax, depreciation, and amortization (EBITDA) declined by 15% YoY to Rs 1,529 m on account of lower margins.

Latest concall highlights

In the past couple of years, the company has focused on localisation. Be it sourcing raw materials or distribution, Timken India was working towards relying on in land sources.

The central theme of the effort was to reduce cost, improve quality and speed up deliveries. Currently, the company continues to work on the same basic metrics.

Apart from rising raw material costs, energy costs were also quite above the pre-Covid levels. The company is working to make sure it's productivity is in line with rising costs. Volume leverages are important for the company, so it focuses on increasing production to match rising costs.

The company imports finished bearings into India which it doesn't produce in India, but at the same time, it exports other products.

So, if the company is importing against the currency, it is exporting for the currency. And that is a great hedge. According to past trends, its exports have been always more than the imports. The company aims to maintain this balance going forward.

A word of caution. Timken India is a steel company, and investors should also keep in mind the uncertainty in steel demand in European markets, which may reduce the company's exports significantly.

How Timken India shares have performed recently

Timken India shares tumbled more than 7% today. The stock is down 1.2% in the last six months.

In the past one year, its share price has rallied around 40%.

Timken India touched its 52-week high of Rs 3,760.8 on 21 November 2022 and a 52-week low of Rs 2,245.1 on 22 June 2022.

At the current price, Timken India trades at a PE multiple of 67.08x and a price-to-book value multiple of 12.87x.

About Timken India

Timken India was incorporated in 1987 as Tata Timken, a joint venture between Tata Iron and Steel Company (TISCO) and The Timken Company, a world leader in bearings. It commenced commercial production at its Jamshedpur plant in March 1992.

The company started manufacturing bearings in India nearly three decades ago and today has state-of-the-art manufacturing plants in Jamshedpur and Bharuch to serve local bearing market needs.

To know more about Timken India, check out its Timken India factsheet and quarterly results.

You can also compare companies with their peers.

Timken India vs NRB Industrial

Timken India vs Galaxy Bearings

Timken India vs Rolex Rings

Since stocks from the steel sector interest you, check out Equitymaster's powerful Indian stock screener tool to find the top steel companies in India

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...