Release Date: August 09, 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 its best-ever June quarter revenues of INR784 crores, driven by higher volume in most front-ends and better performance in the rail sector.
- The company has a strong balance sheet and robust cash results, enabling strategic investments, including the completion of a new greenfield project in Bharuch.
- The rail sector remains a sustainable growth area for the company, with significant potential for the next 20-30 years due to government initiatives and increasing demand for metro and freight corridors.
- Timken India Ltd (BOM:522113) is exploring opportunities in the wind energy sector, which is expected to grow significantly in India, driven by local manufacturing and export potential.
- The company is focused on improving productivity and efficiency through automation and robotics, which is expected to enhance margins and operational performance.
Negative Points
- PBT margins declined to 16.6% from 17.1% in the previous year, primarily due to increased energy and transportation costs.
- Intercompany sales, particularly exports, were flat, and geopolitical issues continue to pose challenges, impacting costs and delivery times.
- The gross margin has been gradually declining, falling below 40% this quarter, compared to 44-46% three to four years ago, due to higher steel prices and transportation costs.
- The company faces challenges in the export market, particularly due to issues in the Red Sea, leading to increased transportation costs and delays.
- There was a significant increase in other expenditures, attributed to higher freight costs and export-related expenses, impacting overall profitability.
Q & A Highlights
Timken India Ltd (BOM:522113) Q1 FY25 Earnings Call Highlights
Q: Can you share the revenue breakup for the quarter?
A: The revenue breakup for Q1 FY25 is as follows: Rail at 24% (INR185 crores), Mobile at 19%, Distribution at 19%, Process at 19%, and Exports at 20%. The total revenue was INR780 crores.
Q: Were there any challenges related to the Red Sea issues affecting export growth?
A: Yes, the Red Sea issues have added to transportation costs and delays. This has impacted both inventory and delivery times, and we do not see this challenge going away in the near term.
Q: Do you see export growth picking up in the coming quarters, especially in the rail segment?
A: Yes, North and South American rail markets are in better shape, and Timken India is a dedicated source for these regions. We expect rail exports to remain strong, although heavy truck exports are still lagging.
Q: How should we think about the gross margin going forward?
A: Margins are influenced by both selling prices and costs. Steel prices have not returned to pre-2018 levels, and transportation costs have increased. We are focusing on productivity and automation to improve margins.
Q: What is the outlook for the railway and wind segments?
A: The railway segment is expected to see sustainable growth for the next 20-30 years due to government initiatives. The wind segment is also growing, with more local manufacturing and increased demand for wind energy solutions.
Q: Can we expect the railway segment's run rate to improve, and what is the current order backlog?
A: The railway segment remains strong, and we are working six days a week, three shifts. The outlook for rail in India and North America is solid, and we expect this to continue for many years.
Q: What is the impact of increased other expenditures, and what is the contribution of freight costs?
A: Other expenditures have increased due to higher freight costs, which contribute about 3% to the total costs. However, this is not a major needle mover in overall expenses.
Q: How will the new Bharuch facility impact imports from the Chinese subsidiary?
A: The new Bharuch facility will help localize production and reduce imports. However, certain large-bore bearings will still need to be imported until the Indian market matures further.
Q: What are the current utilization levels at the Jamshedpur and Bharuch plants?
A: The Jamshedpur plant is running six days a week, three shifts for rail and taper bearings, while the roller lines are underloaded. The Bharuch plant is also fully loaded, focusing on both domestic and export markets.
Q: Are there any plans for TRB expansion in the next 6-12 months?
A: We are focusing on capacity utilization and efficiency improvements. While there are no immediate expansion plans, we are working on automation and productivity enhancements.
Q: Why was the employee cost lower this quarter?
A: The lower employee cost this quarter is due to adjustments for gratuity that were present in the last quarter but not in this one.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
