Release Date: May 10, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Timken India Ltd (BOM:522113, Financial) reported a record quarterly revenue of INR898 crores, up double digits from the same period last year.
- The domestic rail market is performing robustly, driven by increased wagon manufacturing and projects like Vande Bharat.
- The company is working on a new plant, which is progressing as planned and expected to start production by the end of the year.
- The process industry segment, including steel, cement, and power, is seeing healthy improvement and is expected to continue growing.
- The company has a strong order book for the next 15 months, providing good visibility and stability in revenue.
Negative Points
- Exports were down and are expected to remain soft in the short to medium term, particularly in the heavy truck market.
- The heavy truck market in both domestic and international segments is not performing well and is expected to remain sluggish.
- The company faces challenges due to the upcoming elections, which add uncertainty to the market.
- The export contribution to total revenue has decreased significantly, from over 30%-35% to 14% in the current quarter.
- There is no immediate timeline for expanding into new product segments like couplings, chains, and belts, despite the potential market.
Q & A Highlights
Highlights of Timken India Ltd (BOM:522113) Q4 FY24 Earnings Call
Q: Can you provide an update on the export market and Class 8 demand?
A: The export market remains soft, particularly in the heavy truck segment, which is not expected to improve in the short to medium term. However, the rail market in South America is robust, and North America is stable. Domestic rail markets are performing well, while Australia and ASEAN are flat, and China is down. (Sanjay Koul, Executive Chairman and Managing Director)
Q: Could you share the revenue breakup for Q4 and the full financial year?
A: For Q4, rail contributed 34%, mobile and others 17%, distribution 19%, process industry 17%, and exports 14%. For the full year, rail was 23%, mobile 20%, distribution 18%, process 19%, and exports 20%. (Sanjay Koul, Executive Chairman and Managing Director)
Q: What is driving the strong growth in the rail segment, and is it sustainable?
A: The growth is driven by increased wagon manufacturing, Vande Bharat trains, metro projects, and locomotive production. The rail market in India is expected to grow year-on-year due to ongoing infrastructure projects and government initiatives. (Sanjay Koul, Executive Chairman and Managing Director)
Q: Do you have enough capacity to meet the growing demand in the rail segment?
A: We are closely monitoring our capacity and evaluating options to increase throughput and base capacities. No decisions have been made yet, but it is under active consideration. (Sanjay Koul, Executive Chairman and Managing Director)
Q: What are your thoughts on the growth trajectory of the process industry segment?
A: The process industry, including steel, cement, and power, is expected to remain healthy due to new capacity additions and continuous operations. Our Bharuch plant will support this growth, and we are well-positioned to serve the market. (Sanjay Koul, Executive Chairman and Managing Director)
Q: Can you provide an update on the new plant's timeline and CapEx?
A: The new plant's main shop floor steel work is completed, and major installations are in progress. We are on track to start production by the end of this year, with commercial production following soon after. CapEx for FY24-25 is expected to be over INR 400 crores. (Sanjay Koul, Executive Chairman and Managing Director)
Q: How do you see the export market evolving in the near term?
A: The export market is expected to remain soft in the short to medium term, particularly in the heavy truck segment. However, we anticipate a slight improvement in the next quarter. (Sanjay Koul, Executive Chairman and Managing Director)
Q: What is driving growth in the distribution segment, and is it sustainable?
A: The distribution segment, particularly the MRO business, is expected to grow in line with GDP growth. The auto aftermarket is more commoditized, but the industrial distribution market remains solid. (Sanjay Koul, Executive Chairman and Managing Director)
Q: How are your utilization levels at the Jamshedpur and Bharuch plants?
A: Both plants are running at full capacity, with Jamshedpur operating six days a week in three shifts. Bharuch is also nearly fully loaded. (Sanjay Koul, Executive Chairman and Managing Director)
Q: What explains the margin expansion despite a decline in exports?
A: The margin expansion is driven by better utilization, favorable product mix, cost leverage, and price realization efforts. We have been focusing on optimizing supply chains and reducing waste. (Sanjay Koul, Executive Chairman and Managing Director)
Q: What is your outlook for the rail segment over the next few years?
A: The rail segment is expected to grow year-on-year due to ongoing infrastructure projects, increased wagon manufacturing, and government initiatives. We have a strong order book and visibility for the next 15 months. (Sanjay Koul, Executive Chairman and Managing Director)
Q: How do you see the competitive landscape in the rail and process segments?
A: Competition is always present, but we are focused on innovation, optimizing supply chains, and leveraging our technological expertise to maintain our competitive edge. (Sanjay Koul, Executive Chairman and Managing Director)
Q: What is your strategy for the new CRB and SRB capacities?
A: Our focus is primarily on the domestic market, with some exports to ASEAN and nearby countries. We aim to increase our market share in India from single-digit to double-digit penetration. (Sanjay Koul, Executive Chairman and Managing Director)
Q: Are you considering distributing new products from recent M&A activities in the domestic market?
A: We are exploring opportunities to distribute new products such as couplings, chains, and pulleys in India. We are working on optimizing the supply chain to serve the domestic market and potentially become part of the parent company's global supply chain. (Sanjay Koul, Executive Chairman and Managing Director)
Q: What is your outlook for export contribution to overall revenue?
A: We expect exports to contribute 25% to 30% of our overall revenue in the coming years, driven by the growing domestic market and the China Plus One strategy. (Sanjay Koul, Executive Chairman and Managing Director)
Q: How do you see the rail segment's growth and margin profile?
A: The rail segment is expected to grow steadily, with freight being the largest contributor, followed by passenger, metro, and locomotive segments. We aim to optimize costs and improve margins across all segments. (Sanjay Koul, Executive Chairman and Managing Director)
Q: Are Q4 margins sustainable for the full year FY25?
A: Margins are volume and mix-driven, so there may be fluctuations. Our focus is on optimizing supply chains and leveraging volume to achieve profitable growth. (Sanjay Koul, Executive Chairman and Managing Director)
Q: What is your CapEx plan for FY25
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
