Timken India Ltd Management Discussions.

Global Economic Overview o Current Global Scenario

The International Monetary Fund (IMF) has averred that the global economy is entering the upcoming financial year from a position of weakness and is projected to close at 3.6% in 2022 from 6.1% in 2021 (Source: International Monetary Fund World Economic Outlook Mar22), largely as a consequence of the conflict in Ukraine and intermittent lockdowns to tackle the spread of newer variants of COVID-19. Energy price inflation, stiffening of monetary policies by central banks and surging interest rates have resulted in substantial inflation than predicted, majorly in the United States and many other emerging and developing markets. The ongoing imposition of sanctions have curtailed financial and trade linkages between Russia and the world that have had repercussions on food and fuel thereby limiting growth prospects.

• Global Outlook

The global economy is projected to deteriorate to 3.6% in 2022-23 which is a 0.8 and 0.2 percentage point drop for 2022 and 2023 than the predicted in the January 2022 World Economic Outlook (WEO). This estimate factors in the humanitarian crisis that is the on-going conflict between Ukraine and Russia, the sanctions imposed on the latter and the on-going climate crisis. Few principal forces that could shape the global outlook are the aftermath of the war in Ukraine, the financial market volatility and the spread of the pandemic and access to healthcare.

India Economic Overview

• Current Scenario

India is a frontrunner amongst the developing economies of the world. As per International Monetary Fund World Economic Outlook Mar22 report, the economy has closed at 8.9% in FY21 and is estimated to drop to 8.2%. Despite tough economic conditions, aforementioned marginal drop can be credited to the enhanced performance in the mining, manufacturing and farming sectors. Indias focus on policies that facilitate growth and infrastructure will continue in 2023, thereby projecting it as a strong contender amongst alternate investment destinations.

• Outlook

India is an emerging economy with a strong emphasis on boosting the manufacturing sector. This vision is backed by government incentives such as lower taxes and rising service exports. The Governments pledge for an Atmanirbhar Bharat and budget allocation in infrastructure has encouraged the bearing manufacturers to ramp-up local manufacturing capability. Strong underlying economic fundamentals of India despite the short-term turbulence, the impact on the long-term outlook will be marginal and will likely help India avoid the long-term impacts of the ongoing conflict in Ukraine.

The countrys manufacturing sector activity has been on a predominant rise. The upward revision is a reflection of an ever-improving outlook on private investment in manufacturing sectors. Sectors have benefited from the Production Linked Incentive (PLI) Scheme and an upsurge in investments in infrastructure. Purchasing Managers Index (PMI), progressed marginally to 54.9 in Feb22 from a four-month low of 54.0 but fell back to 54 in Mar22 owing to slower expansions in factory orders and production as well as decline in new export orders, inflation which is on the rise can cause a significant slow-down if continues to grow. (Source: IHS Markit India Manufacturing). Further, relaxation of regulations and business opportunities have solidified the GDP at 8.9% in FY21 (Source: International Monetary Fund World Economic Outlook Mar22). Moreover, the robust construction and mining equipment market In India is estimated to facilitate growth.

Bearing Market and Future Development

The global bearing market is projected to register a CAGR of 9.1% between 2014 and 2025 (Source: Grand View Research, Inc., Report). As per the market research, global bearing marked has touched an ~USD 60 Billion in FY21 with India contributing to ~3% of the overall global bearing market. Bearings being an integral component of all equipment, and the ever so rising demand is a derivative of its diversified application in the global manufacturing sector mainly the automotive and industrial sector.

• Indian Automotive Industry

The Automotive sector, a major sector for consumption of Bearings is approximately valued at ~ USD 750 Million in FY21. The industry witnessed an overall slump in the market due to COVID restrictions and countrywide pandemic induced lockdowns which concluded in an approximately - 14% drop in growth YoY (FY21 v/s FY20). However, with the enhanced conditions in 2021 with gradual upliftment of restrictions and subsequent increase in production activities, overall automotive bearing market is expected to witness an approximate 10% growth and reach pre-pandemic levels and is expected to approximately touch ~ USD 810 Million in FY22. The Vocal for Local movement has encouraged auto-ancillary manufacturers enhance their capabilities to decrease dependencies on imports.

The Commercial Vehicle sector will soon be a witness to Indias emergence as a segment leader with governments scrappage policy which aims to phase out CVs older than 15 years and certified unfit for usage. With the progressing governments focus on Make in India, bearing localization will be a key for growth for major manufacturers to reduce dependency on imports and have more control on overall supply chain.

• Commercial Vehicles (LCV and M&HCV) and Tractor Sales

The automotive industry, which is the largest consumer of bearing among all the other industries, witnessed a substantial reduction in vehicle production in FY21 primarily owing to the supply chain disruptions and restrictions on the movement of people but witnessed a steep growth of 26% uptick in sales in FY22 compared to FY21 but CAGR stable at 0%from FY20 to FY22, as per flash figures published by Society of Indian Automobile Manufacturers (SIAM). Also, governments stern focus on implementing Electric Vehicles for Public Transport will aid a sustainable growth in automotive sector.

Sales FY20 FY21 FY22
Commercial Vehicles 718 569 717
Tractors 705 899 842

India Agriculture Tractor Market is expected to grow significantly at a CAGR of 5.8% by volume during 2021-2028 with the increased adoption of precision farming. Amongst the same, 41-60 HP segment is betted to be the market leader and sustain the position and is expected to grow at a CAGR of 5.7% by Volume during the same period.

• Indian Industrial Industry

The key indicator to a countrys economic advancement is the growth of its industrial sector. The Government intends to solidify its Make in India foundation to energize manufacturing and increase the contribution to GDP. Indias Index of Industrial Production (IIP) experienced a varied trend in 2020 owing to the COVID-19 based fluctuations in the Indian Economy. In Apr21, the IIPY-o-Y growth % saw a steep rise to 62.6% fell to 16.4% at the peak of the second wave of pandemic. The witnessed uptick in the recovery period can be attributed to measured lockdown relaxations, rebound in construction activity as well as improvement in consumer demand. (Source: Report released by Office of the Economic Adviser)

• Growth Rates (on Y-o-Ybasis in percent)

The Government of India continues to provide higher thrust to the manufacturing and mining sector in India. With the focused approach, mining sector grew by an average YoY of 14.2% and manufacturing sector grew by 14.3% in the period of Apr21 - Jan22 (MOSPI). To sustain the high growth rate, the government has earmarked a massive budgetary outlay of Rs 7.50 lakh Crore for 2022-2023 (A whopping 35.4% increase from previous Rs 5.54 lakh Crore). This is likely to have a multiplier effect on the core sector industries like steel and cement and with renewed focus on the affordable housing segment leading to an uptick in demand in infrastructure, realty, cement, steel and other commodity-focused businesses. Multiple nation-wide projects and initiatives such as development of industrial corridors, smart cities and Make in India, among others, are likely to aid performance of the industrial sector over the next few years.

Additionally, a host of measures are underway to strengthen Indias railway infrastructure. This includes upgradation of railway stations, building and expanding metro stations and replacing older coaches. Union Budget 2022 has allocated INR 1.40 lakh Crore with the focus on manufacturing of 400 new-generation Vande - Bharat Trains with better energy efficiency in the next three years made of light-weight aluminum consuming much less energy than their steel counterparts and target of 100% broad-gauge route electrification completion December 2023.

• Business Review

Your Companys active operations are in anti-friction bearings, mechanical power transmission products and related services business. Our parent organization, The Timken Company is a 120-year-old US-based organization with operations in 41 countries around the world keeping industries in motion. The journey started when Henry Timken, founder of the Timken Company, designed and patented worlds first tapered roller bearing. Today, Timken is synonymous with innovation, cutting-edge technology, and uality. Your Company was recipient to several awards and recognitions in the year including Golden Peacock Business Excellence Award, Cll National Lean, Kaizen, and Poka-Yoke Competitions, BM Munjal Award for Learning and Development for Business Excellence, The Machinist Super Shopfloor Awards, and the Economic Times Promising Plants Award. Your Company also achieved the distinction of becoming one the few companies in India to receive ISO 31000:2018 certification for Risk Management.

Your Company caters to an entire gamut of bearings including Tapered Roller Bearings, Cylindrical Roller Bearings, Spherical Roller Bearings and Slewing Bearings with focus on localized manufacturing having facilities in Jamshedpur and Bharuch. Your Companys dedicated focus has been towards providing technical value and customer experience with an unbeatable and unquestioned quality standard. With the strong supplier network and localized manufacturing facilities, your Company aims at providing state-of-the-art products and services in India with means of a solid workforce and world-class manufacturing facilities. Your Company stands tall with the Make in India concept by not only localizing finished goods but also raw material sourcing, reducing the dependency on imports. ABC Bearings Division of the Company, acquired in 2018, has only upgraded since then with systems and processes to bring it up to Timken quality standards. The facility is certified and is now successfully manufacturing parts adhering to Timken quality standards which are entrusted by top OEMs of Indian Automotive market. Your Companys expertise in the domains of metallurgy, tribology and mechanical systems enable collaboration with OEMs to customize solutions based on customers requirements and diverse applications with an in-house design and development. With strong footprint of channel partners across India, your Company reaches out to end-markets for its product & services and assists customers in improving the reliability and efficiency of equipment, machinery, and vehicles. Your Company, with its visionary leadership, product portfolio and world-class manufacturing facilities, aims to leverage these growing opportunities in the market and deliver value as we surge forward.

In FY 2021 -22, your Company made significant headway in service business with MillTec adding five new sites and achieving a business growth of approx. 50% in the year. This was achieved by penetrating new segments including public sector and non- ferrous rolling. Your Company grew progressively in the industrial distribution, Indian Railways and Renewable Energy Segment. Indias economic fundamentals have improved substantially with a rapid economic recovery in key industrial nations and with strong trade ties have aided in strong export growth, strong FDI in 2020 and continued momentum in 2021. Your Company believes in being a strategic technology partner, leverage value selling with technical superiority with customers, explore new markets and products while leveraging global acquisitions made by The Timken Company in order to launch these products in the Indian market.

? Financial Statement Analysis

The Company achieved revenue of ^ 22,032.44 million as compared to ^ 14,105.20 million in the previous year, a increase of 56%. The increase was primarily due to higher volumes of sales during FY 2021-22. The operations of the Company were back to normal as compared to the previous year, which were impacted by COVID-19 pandemic driven lockdown and the Company has shown strong growth in the business throughout the year.The total expenses increased by 44% (Cost of Raw materials 52% increase, employee benefit expenses 18% increase, other expenses 41% increase) compared to previous year. Effective tax rate is 25% in FY 2021-22 as compared to 27% in FY 2020-21. Profit after tax (PAT) stands at ^3,271.05 million as compared to ^ 1,431.79 million in the previous year. Increase in profit is attributed to increase in sales, absorption of fixed overheads and better leverage of variable overheads.

Earnings per share for the year FY 2021-22 was ^ 43.49 as against ^ 19.03 for the previous year. During the year, the Company has generated ^ 328.94 million cash surplus from its operations as against ^ 1,887.08 million during previous year primarily driven by increase in inventory.

Increase in property plant and equipment net of depreciation ^ 489.95 million compared to previous year primarily driven by the addition of plant & equipment and expansion of buildings. Right of use assets as at March ended 2022 stands at ^ 1,040.51 million as compared to ^ 1,066.05 million in previous year. Capital work in progress has reduced by ^ 479.30 million largely driven by capitalisation of projects which were in progress in the previous year end. Capital work in progress stands at ^ 495.43 million for March ended 2022. These projects follow the project management process and are being monitored by the project management team to ensure timely completion. These projects will be capitalised as and when these assets are ready for its intended use.

Inventories for the year ended March 2022 were increased by ^ 1,897.72 million compared to the previous year in line with the volume increase during last quarter. Inventories are maintained at optimum levels supplemented with continuous improvement ideas.

Trade receivables increased by ^ 1,674.27 in line with the increased revenue during the year FY 2021-22. Cash and cash equivalents and investments in mutual funds as at March 31,2022 were ^ 1137.46 million as compared to ^ 1,704.04 million as at March 31, 2021 primarily reduced on account of dividend payout. The cash balances were managed at appropriate levels as depicted in the statement of cash flow.

Borrowings represent discounted bill of exchange with respect to trade receivables. Decrease of ^ 29.09 million compared to previous year was primarily on account of volume decrease of bills discounted. Trade payables were ^ 3,285.39 million as at March 31,2022 as compared to ^ 3,354.52 million as at March 31,2021. This is commensurate with the business volume and expenses during theyear.

Key Financial Ratios

Parameter For Year Ended March 31, 2022 ForYear Ended March 31, 2021 Remarks
DebtorsTurnover (times) * * -
Inventory Turnover (times) * * -
Interest coverage Ratio (times) 215 188 -
Current Ratio (times) * * -
Debt Equity Ratio (%) * * -
Operating Profit Margin (%) 20% 14% Increase is primarily on account of sales volume increase and better absorption of fixed overheadsand leverageofvariableexpenses.
Net Profit Margin (%) * * -
Return on Net Worth (%) 20% 11% On account of increase in net profit and operating profit as explained above.

* Refer Note No. 41 to Financial Statements • Strengths, Opportunities, Threats and Outlook

• Internal Control

The Companys internal control systems are commensurate with the nature of its business and the size, scale, and complexity of Companys operations. The Company has documented policies and procedures covering all financial and operating functions to provide reasonable assurance on:

• Effectiveness and efficiency of its operations

• executing transactions with properauthorisation

• Reliability of financial reporting

• Compliance with applicable laws and regulations

• Prevention and detection of frauds and errors

• Safeguarding its assets

The Company tracks all amendments to Accounting Standards and applicable statutes and makes timely changes to underlying systems, processes and financial controls to ensure adherence to the same. The Company believes in conducting business in a fair and ethical manner.

The risk-based internal audit plan is approved by the Audit Committee of the Board. Significant audit observations and follow-up actions thereon are reported to the Audit Committee. The Company has obtained Bureau Veritas Certification for maintaining the management system as per ISO 31000:2018 which provides principles, a framework and a process for managing risk.

The adequacy and effectiveness of Internal controls are continuously examined by the independent Internal Auditor appointed by the Company and findings of these audits including its recommended improvements are reported to the Audit Committee of the Board. The adequacy of internal controls is examined by Statutory Auditors as well and the Company has not received any adverse comments from them on adequacy of the internal control system.

The Audit Committee periodically reviews significant audit finding, adequacy of internal controls and takes update on implementation of audit recommendations.

The Company has developed and implemented a framework for ensuring internal controls over financial reporting. This framework includes entity-level policies, process controls, IT General Controls and Standard Operating Procedures (SOP). These internal controls are reviewed and tested by Internal Auditors every year. The results are presented to the Audit Committee. Based on the periodical testing, the framework is strengthened, from time to time, to ensure adequacy and effectiveness of Internal Financial Controls. The Company uses Global SAP ERP and allied IT tools as an integral part of internal control system. Emphasis is placed on automated controls within the processes wherever possible to minimise deviations and exceptions. The Company has carried out evaluation of design and effectiveness of these controls and no significant material weaknesses or deficiencies were observed.

• HR Front

Performance Management System

Companys Performance Management System ensures that individual goals are aligned to Company goals and our system encourages continuous feedback module. This helps Managers and Associates to actively discuss, update achievements throughout the year. The continuous feedback module helps the Company to stay focused on the future, to be agile and flexible.

Companys Performance Management System gives equal weightage to Goals and Competencies. Every associate is expected to have a development goal which helps them get better in their existing role or prepare for the next role. Organization wide initiatives like Diversity and Inclusion, Engaged Leadership are driven through the development goal, which is auto assigned to all the Managers and they are accountable for the success of these initiatives.

The year end discussions actively engage all the Managers to provide inputs about the performance of their team members and evaluate them against their peers. There is a distribution that is achieved based on which the merit and variable pay is allocated. The whole process is extremely transparent and fair.

Total Rewards

The robust performance management system drives the complete rewards process. The philosophy of Pay for Performance is backed up by detailed market studies and benchmarking conducted every year. This helps Timken to position in a better way. Companys rewards system is designed in such a way that it is aligned to our performance management system which is directly linked to our company goals. The Company offers competitive benefits and long term incentive plans to Senior Management.

The Company also offers an array of wellness programs under the umbrella of Corporate Wellness initiatives to all associates. This offers non-monetary benefits to associates and helps them have a healthy and active life. Health related sessions are offered by industry experts. Apart from this, the Company also have paid health check facility for associates.

Continued Learning

Continuous learning is one of the key objectives of the Company. Inspite of the pandemic and hybrid working conditions, a lot of emphasis was given to Training and Development. Most of the trainings conducted were virtual, some of the important topics covered were CRM related, Risk Management training etc. The virtual onboarding & orientation for all new joiners continued through theyear.

One of the key programs of this year was the Level 1 foundations training, the program covers in-depth product and application related topics. This training primarily is extended to sales, services and application engineers of the Company. The program covers all technical, commercial aspects of our products and introduces participants to some of the soft skills like negotiation, presentation & social styles.

The emphasis is still to use online learning platform Timken University which offers an array of courses for the professional development of our associates. Associates can take up these courses at leisure.

Associate Resource Groups

WIN (Womens International Network) and YPN (Young Professionals Network) are the 2 active Associate Resource Groups (ARGs) functioning in India. The ideology and concept of these ARGs are on similar lines of what the Global teams offer. Both the ARGs have a common objective of fostering professional development of associates.

Both the ARGs engage associates on different events aligned to their objectives. The Core Leadership team of each ARG is responsible for executing the events for the year. Every year WIN starts off their calendar of events with the International Womens Day celebration and focusses on providing opportunities for associates to attend sessions on topics related to Financial wellbeing, Ergonomics and other health related topics. Networking is another key objective of both the ARGs and they consciously drive events which encourage networking like Ignite, Air Crash, Impromptu speech competitions etc. Both the ARGs collaborate on common events likeCSR.

• Cautionary Statement

Certain statements made in this Report describing industry structure and development, business outlook and opportunities may be "forward looking statement" within the meaning of applicable Securities law and Regulations. Actual results could materially differ from those expressed or implied. Important factors that could make difference to the Companys operations include economic conditions affecting demand/supply and price conditions in the domestic and overseas markets in which the Company operates, changes in the Government regulations, tax laws and other statues and incidental factors.

For and on behalf of the Board of Directors
Sdl-
Sanjay Koul
Date: 1 July, 2022 Chairman & Managing Director
Place: Bengaluru DIN: 05159352