From ₹2,490 to ₹4,350: Timken India shares jump 75% in 2 months; what’s behind the rally?

Timken India, a well-established player in bearings manufacturing and a growing presence in power transmission products, has had an impressive run over the past two months, with the stock price rising nearly 75%, thanks to strong financials as well as strong order execution in railway. Timken has a 50% market share in railway bearings in India.

The shares of Timken India have rebounded strongly from its 52-week low of ₹2,490.05 on March 14, 2024, to hit an all-time high of ₹4,350 in intraday trade on May 24, 2024. In the calendar year 2024, the railway-related stock has risen 30%, while it gained 32% in the past one year.

On Tuesday, Timken India shares opened higher at ₹4,080.40 after ending 4.5% lower at ₹3,952.80 on the BSE in the previous session. In the first hour of trade so far, the midcap stock has surged as much as 7.5% to ₹4,250.45, while market capitalisation rose to ₹31,471 crore, driven by strong volume amid block deal.

As many as 50 lakh shares, representing 6.6% of equity shares of the company, changed hands via block deals. The names of buyers and sellers could not be ascertained immediately, but report suggest that Timken India's promoter, Timken Singapore, was looking to sell 6.6% stake in the company via block deals today. The shares were being offered at a floor price of ₹3,550 per share, a discount of 10.2% to Monday's closing price, which would fetch around ₹1,775 crore to the promoter. As on March 31, 2024, the promoter owned 57.7% stake in Timken India.

Strong demand in railway fuelled rally

Earlier this month, Timken India released its financial results, posting a notable growth in both top and bottom lines, mainly driven by strong order execution in railway. The revenue grew by 11.86% year-over-year to ₹897.76 crore, while the profit jumped 35.41% to ₹141.43 crore compared to the same quarter last year. Operating income rose by 34.37% YoY to ₹176.91 crore, while margins expanded by 310 basis points YoY to 22.1%, mainly led by better product mix and operating leverage.

Post Q4, JM Financial in a report says the company is expected to report revenue/earning CAGR of 19%/25% over FY24-26, led by robust demand from the railway industry and strong capex in the process industry like steel, cement and infrastructure. Besides, capacity expansion to cater industry tailwinds, capturing the new opportunities, and China+1 will further add up to the revenue and earnings growth. The brokerage maintained ‘BUY’ on the stock with a target price of ₹3,670, as per the report released on May 12.

The brokerage says the demand in the domestic market continues to remain healthy, driven by railway and process industries like steel, cement etc. “Also, Rail demand also remains strong in South America. Demand for Heavy truck continues to remain soft in abroad markets and is expected to recover in H2FY25. Wind demand was also muted in China. Also, Elections in U.S. from November 24 will create uncertainties of demand there,” it says in a note.

In FY24, the company’s revenue from railway related business was up 20% YoY and contributed 20% of sales versus 17% in FY23. Process segment revenue grew 23% YoY and contributed 19% of sales in FY24.

Going ahead, the outlook for the company remains positive as India is expanding its railway track lines, electrification, developing dedicated freight corridors, focusing on increasing Vande Bharat trains, which will lead to strong demand for wagons, locomotives, etc. On an average 8 bearings go into a wagon, JM Financial says in its report.

“Also, companies in steel, cement industries are aggressively investing in setting up new facilities which will further create demand for the process segment,” it adds.

Besides, Timken is looking to capture new opportunities from railways, solar, wind, etc. As per the report, the company will do a capex of ₹400 crore in FY25 and its new plant for SRB (Spherical Roller Bearings) and CRB (Cylindrical Roller Bearings) will be operational by FY25 end and most of the capacity will be utilised for domestic demand. Also, it has developed the technologies for rotating solar panel ahead of its peers which will help it to cater new opportunities, the report notes.

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