timken india ltd share price Management discussions


The rearmost World Economic Outlook published by the International Monetary Fund (IMF) has projected a slightly less caliginous picture than what we anticipated a while ago. Among the top reasons cited were the robust consumer spending and a less severe energy extremity than anticipated post-Russias irruption of Ukraine. Nonetheless, global frugality still faces major headwinds. Global growth is now anticipated to fall from 3.4 percent in 2022 to 2.8 percent this time, before rebounding to 3 percent in 2024. The 2023 growth protuberance is in line with the October 2022 estimate of 2.7, as the IMF visualizes far smaller countries facing recession this time and no longer anticipates a global downturn. One of the main reasons behind the watchful and auspicious outlook is the rearmost downcast trend in inflation, suggesting that inflation may have peaked in 2022. The projection given by IMF on global inflation is that it will dip to 6.6 in 2023 and 4.3 in 2024, which is still above pre-pandemic situations of about 3.5 percent, but significantly lower than the 8.8 percent observed in 2022. (Source: International Monetary Fund)

Global Outlook

Global Economic growth is expected to dampen to 2.7% in 2023 which is 0.2% higher than what was predicted in October of last year in World Economic Outlook (WEO) but lower than the documented (2000-19) average of 3.8%. The upswing in central bank outlays to fight inflation and Russias insurgence in Ukraine continue to chew on the economic activity. The fleeting spread of COVID-19 in Chinas provinces dampened growth in 2022, but the recent and more current reopening has shown a path for a quicker-than-expected recovery. As a bonus, strong labor markets and solid remuneration growth could strengthen consumer demand, while alleviating supply chain disruptions could assist in cooling down inflation and curb the need for more monetary tightening.

Current Scenario

Asias third sizeable economy recorded a year-on-year growth of 4.4% in October-December, dropping from 11.2 percent a year back and 6.3 percent in the aforementioned quarter. The GDP growth forecast for India as provided by the IMF for FY 2023-24 has dropped by 20 basis points to 5.9 percent and for FY25 by 50 basis points to 6.3 percent. Despite a noteworthy drop in the growth rate projections from 6.8 percent to 5.9 percent, India reinstates its position as the fastest growing economy in the world. The deluge from the recent turmoil in financial markets in the United States and Europe constitutes an impending risk to interim investment flows to markets coming to the fore, including India. .

Outlook

In contention with the rest of the world, India too encountered an exceptional set of challenges in tightening the financial atmosphere and alleviated supply chain disruptions from a prolonged and arduous war in Europe but combated them better than most notable economies. As stated by the survey, India is the worlds third-largest economy in PPP (purchasing power parity) terms and sizably fifth in terms of the exchange rate. With the indication that inflation may not be too worrisome, borrowing/ commandeering costs are likely to remain ‘higher for longer as deep-rooted inflation may prolong the tightening cycle. Indias recovery from Covid 19 was quick, with a growth outlook to be supported by solid domestic demand, and a boost in capital investment, but accentuated the defiance of the rupee with the prospect of further interest rate hikes by the US Fed. This optimistic and buoyant growth forecasts stem from several positives like the recoiling of private consumption giving a boost to production activity, higher capital expense, and near-universal vaccination coverage permitting people to spend on contact-based services such as restaurants, hotels, shopping malls, and cinemas. Supporting further economic growth is the expansion of public digital platforms and measures such as PM GatiShakti, the NLP (National Logistics Policy), and the PLI (Production-linked incentive) schemes to bolster manufacturing output. (Source: International Monetary Fund and IBEF)

Bearing Market and Future Development

In 2022, the global bearing market expanse is anticipated to grow at a CAGR of 10.6% from 2023 to 2030 (Source: https://www.grandviewresearch.com/industry-analysis/bearings-market). The roller bearings segment in 2022 accounted for the largest revenue share of more than 47.37%. Against all odds, this segment is also appraised to continue its supremacy and materialize as the quickest-growing segment for the years to come. Bearings are virtually part of every kind of equipments or machinery, thoroughly ranging from automobile parts, farm equipment, and household appliances to segments comprising defense and aerospace equipment. These factors are projected to drive this market.

Indian Automotive Industry

The Automotive Market for India was valued at USD 100 billion in 2021 and is anticipated to hit USD 160 billion in 2027, inscribing a CAGR of 8.1% over the forecast period (2022-2027). The automobile sector accounts for 7.1% of Indias GDP and 49 % of the manufacturing GDP. Hence, the automobile sector in India is a significant driver of macroeconomic growth and technological advancement. Being a significant driver in the bearing market, it is said to propel India bearing market size from US$ 1,772.6 Mn in 2021 to US$3,374.4 Mn by the end of 2027 thus registering growth at a CAGR of 10.9%.

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

The automotive market, which is arguably the most sizeable consumer of bearings in India among other notable industries registered a stable CAGR of 0% from FY20 to FY22 due to increased supply chain disruptions and other factors as per the report published by SIAM (Society of Indian Automobile Manufacturers).

(In Thousands)
Sales FY20 FY21 FY22 FY23
Commercial Vehicles 718 569 717 962
Tractors 705 899 842 944

Source: Domestic Sales (SIAM and Tractor Manufacturers Association)

With the onset of a steep growth of about 26% in FY22, the momentum continued into FY23 registering a staggering 32.88% uptick as compared to FY22 with figures inching towards the one-million-unit sales mark.

The Indian Agriculture tractor market surpassed their all-time records and have registered an increase of about 12% in sales over last year with 944,000 units in FY23. Few reasons include an increase in farm income as a consequence of rising MSP (minimum support prices) as well technological advancements in 40HP plus tractors aiding to this increased demand. Mahindra tops the list with TAFE, John Deere and CNH following up on the list. Tractors in the range of 41-60 HP have proven to be the market leader and is expected to sustain growth at a CAGR of 5.78%.

Indian Industrial Industry

India is gradationally progressing on the road to Industry 4.0 through the Government of Indias enterprises like the National Manufacturing Policy aimed at increasing the share of manufacturing in GDP to 25 percent by 2025 and the PLI( Production Linked Incentive) scheme for manufacturing which was launched in 2022 to develop the core manufacturing sector proportionate with global manufacturing norms. Industrial Production in India ballooned 5.2% year-on-year in January of 2023, following a 4.3% ascension in December and equated to market forecasts of a 5% increase. Yields from the manufacturing sector rocketed to 3.7%, mining 8.8% and electricity 12.7%. Considering the April 2022- January 2023 period, the artificial product went up 5.4%. (Source: Report released by the Ministry of Statistics and Programme Implementation)

Growth Rates (on Y-o-Y basis in per cent)

The Indian government continues to bestow momentum on the Manufacturing and Mining industry. Early January 2023, the mining growth stood at 8.8% versus 9.8% back in December last year, while the manufacturing output stood at 3.7% versus 2.6% and electricity growth came in at 12.7% versus 10.4%. Expectations are that the mining production in India will be 2% by this quarters end. The current projections for 2024 and 2025 are 3.10% and 2.50% respectively with a CAGR of 3.07% (2023 2025). Indias output of 8 core industries registered a growth of 7.8% in January 2023 against 4% growth during January 2022 (Source: Ministry of Commerce) The production of coal, fertilizers, electricity, steel, cement, natural gas, and refinery products increased early this year in January over the corresponding month of last year. The government has recently taken several initiatives to boost growth in the industrial sector. Among notable ones are PLI (Production linked incentive), PM GatiShakti (Multimodal connectivity infrastructure), Bharatmala (Northeast India connectivity), Startup India, Make in India 2.0, Atmanirbhar Bharat Campaign, Disinvestment plans, and MSME innovative schemes.

Additionally, there are measures that have commenced to strengthen the railway infrastructure. As per the Union budget, which was discussed, Indian Railways finalized a tender to procure 90,000 freight wagons by 2025. The investment involved is about INR 1 Trillion. They are also set to achieve a loading of 2024 MT (metric tonne) in 2024 from the current 1600-1700 MT loading in 2023. Also, Indian Railways launched the National Rail Plan, Vision 2024, to facilitate the implementation of important and critical projects, such as multitrack congested routes, achieving 100% electrification, upgradation of the speed to 160 kmph on the Delhi-Howrah/Mumbai routes, upgrade speeds to 130 kmph on all other golden quadrilateral/diagonal (GQ/GD) routes /circuits thus eliminating all level crossings for the same, by 2024. Indian Railways have prepared an NRP (National Rail Plan) which is directed at formulating certain strategies based on both functioning capacities and business-oriented policy initiatives to increase the modal allotment of the Railways in freight to 45%.

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 46 countries around the world keeping industries in motion. The journey started when Henry Timken, founder of the Timken Company, designed and patented the worlds first tapered roller bearings. Today, Timken is synonymous with innovation, cutting-edge technology, and quality.

Your Company was the recipient of diverse awards and recognitions in the year including CII National lean award, Kaizen, ET Promising Plant award (Jamshedpur), TPG Accreditation for Heat treating (Qualified Manufacturers list - Chennai), TATA Steel Kalinganagar Safety competition and received the full approval from the LRC (Launch Readiness Council) to assemble completely knocked down (CKD) SRBs for the domestic market.

Your Company caters to an entire spectrum of bearings including Tapered Roller Bearings (TRB), Spherical Roller Bearings (SRB), Plain Bearings, Cylindrical Roller Bearings (CRB), Needle Bearings, and Slewing Rings with a focus on localized manufacturing having facilities in Jamshedpur and Bharuch. Your Companys focus has been primarily on providing technical value and customer experience with an unmatched and uncontested quality standard. With a strong supplier network base and localized manufacturing facilities, your Company aims at providing state-of-the-art products and assistance/services in India by means of a concrete workforce and world-class manufacturing facilities. Your Company stands towering above the ‘Make in India concept by not only localizing finished products but also raw material sourcing, lowering the dependency on imports. ABC Bearings Division of the Company, which was acquired in 2018, has only enhanced since then with systems and operations to bring it up to Timkens quality standards. The facility is corroborated and is now successfully and profitably manufacturing parts adhering to Timken quality standards which are saddled by top OEMs (original equipment manufacturers) of the Indian Automotive market. The Bharuch facility is also currently expanding its manufacturing capacity by adding SRBs and CRBs. The Company would be investing approx. Rs 600 crore towards this expansion and commercial operation is expected to start in January 2025. With a robust footprint of channel partners all across India, your Companys outreach to end markets for its product, services, and operations assists customers in improving the reliability and efficiency of equipment, machinery, and vehicles.

In FY 2022-23, your Company made significant progress in the service business with Milltec adding 3 new sites in the year. This was achieved by penetrating new segments including the public sector and non-ferrous rolling.

l Financial Statement Analysis

The Company achieved revenue of Rs 28,066.10 million as compared to Rs 22,032.44 million in the previous year, an increase of 27%. This increase is driven by growth across most of the end market sectors. The total expenses increased by 31% on account of inflationary impact on metals and other expenses. There is no change in effective tax rate of 25% as compared to previous year. Profit after tax (PAT) stands at Rs 3,907.45 million as compared to Rs 3,271.12 million in the previous year.

Earnings per share for the year FY 2022-23 was Rs 51.95 as compared to Rs 43.49 for the previous year.

Property plant and equipment net of depreciation as at 31 March, 2023 stands at Rs 5,006.24 million as compared to Rs 5,094.97 million in previous year. Right of use assets as at 31 March, 2023 stands at Rs 1,015.66 million as compared to Rs 1,040.51 million in previous year. Capital work in progress has stands at Rs 534.54 million as compared to Rs 495.43 million in previous year. These projects follow continuous monitoring by the project management team to target for timely completion. These projects will be capitalized as and when these assets are ready for its intended use.

During the financial year improvement in Inventory Turnover ratio and Trade receivables turnover ratio is noted and reflected in the table below. Cash and cash equivalents and investments in mutual funds as at 31 March, 2023 were Rs 3,942.94 million as compared to Rs 1,137.46 million as at 31 March, 2022. The increase was primarily due to better working capital management. The cash balances were managed at appropriate levels as depicted in the statement of cash flow.

The companys low debt equity ratio provides enough scope for gearing the balance sheet. Trade payables were Rs 3,444.19 million

as at 31 March, 2023 as compared to Rs 3,285.39 million as at 31 March, 2022.

Key Financial Ratios

Parameter For Year Ended 31 March, 2023 For Year Ended 31 March, 2022
Trade Receivables Turnover 5.04 4.84
Inventory Turnover 2.94 2.58
Interest coverage Ratio (times) 187 180
Current Ratio 3.77* 2.89
Debt Equity Ratio 1%** 2%
Operating Profit Margin 19% 20%
Net Profit Margin 14% 15%
Return on Net Worth 19% 20%

* Current Ratio has changed due to changes in working capital.

** The ratio has decreased from 2% to 1% in current year mainly due to increase in the shareholders equity.

Also refer Note No. 41 of the Financial statements for more details. Current Ratio has changed due to changes in working capital.

Strengths, Opportunities, Threats and Outlook

Strengths
• Strong base of Tapered Roller Bearings.
• Flag bearer of localization with dedicated focus on localized finished goods and indigenously sourced steel requirements.
• Technologies and R&D capabilities of Timken Group with significant design and process innovation capability.
• Custom application knowledge, and proactive service and engineering engagement with customer to provide energy and cost-effective solutions.
• De-risked revenue stream with cross industry presence.
Threats
• Impact on Supply chain and Logistics due to aspects related to Russia Ukraine war.
• Any adverse modifications in the industrial environment or government policymaking affecting our customers demand.
• Safety and operational risks posed by low quality counterfeit or spurious products.
Opportunities
• Leveraging the capabilities of various Acquisitions
• Providing complete offering in mechanical drive train like belts, industrial chains, couplings, clutches, lubrication systems and housed units.
• Make use of Available support from Government under Make in India initiatives.
• Product portfolio expansion with electrification of Indian Railways.
• Channel footprint strengthening to penetrate General MRO market and address regional gaps with value added services.
Outlook
• Focus on localization and improvement in indigenous components sourcing in the up-coming years.
• Value proposition of all Timken Associated Brands.
• Risk mitigation by educating customers on importance of using genuine high-quality bearings procured from authorized channel partner.

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 proper authorisation

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 is certified by Bureau Veritas for maintaining the risk 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, which is commensurate with the size and operations of the business in alignment with requirements of the Companies Act, 2013.

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

The Companys Performance Management System ensures that each employees goals are linked to Company goals & encourages active discussions round the year through a continuous evaluation process. The employees are required to update their achievements in the system & managers have to evaluate them from time to time & provide continuous feedback. The continuous feedback monitoring system helps the Company to stay agile & flexible.

Our Performance Management System gives equal weightage to Goals & Competencies. All employees are expected to have a development goal which helps them get better in their existing role or prepare for the next role. Few initiatives like Diversity & Inclusion, Development Driven Leadership are driven through Corporate & are assigned to all Managers and they are accountable for the success of these initiatives.

Our year end discussions provide a platform to all 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

Our reward system follows a very data driven approach, the final output of the Performance Management system flows into our rewards process. The philosophy of Pay for Performance is backed by detailed market studies and benchmarking conducted every year. This helps the Company to be competitive in the job market. 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 for all employees. The Corporate Wellness program offers health related sessions, health checks etc, which leads to employees having an active & healthy life. The Company also reimburses the annual health check cost for employees once a year.

Continued Learning

Continuous learning is one of the key objectives of the Company. This year with the Company opening up working from office post the pandemic, there were many learning & development programs conducted through the year. A lot of emphasis was given to technical trainings apart from a few other topics like Value Selling, CRM related trainings, Basic life support & ERT trainings. Most of these trainings were instructor led & conducted offline. India Operations Academy is a signature training program of the Company & the same was conducted in 2022 after almost 3 years.

Employee onboarding process was revamped & we tried to centralize onboarding of employees in regional offices also at Bangalore. This gave a great onboarding experience to many employees.

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.

Leveraging of Timken University which is the Companys online learning platform continued. Employees could either self-assign the courses available or Managers would nominate them. Some of the mandatory programs related to information security, POSH and other topics were assigned to all employees.

Resource Groups

In India, the Company has two employee resource groups i.e. WIN (Womens International Network) and YPN (Young Professionals Network), these resource groups operate with goals & objectives aligned to Company goals. The ideology and concept of these groups are on similar lines of what the Global teams offer. The common objective of both the resource groups is to foster professional development of associates.

The resource groups engage employees in different events aligned to their objectives. The core team of each resource group 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 employees to attend different events. WIN Santhe which is a fund raising event aims at generating some funds & we tie up with Jeevodaya an NGO supporting upliftment of distressed women in the society. Networking is a key objective of both the resource groups and they consciously drive events which encourage networking like Ignite, Air Crash, Impromptu speech competitions etc. Both the resource groups collaborate on common events like CSR, Trek etc.

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
Sd/-
Sanjay Koul
Date: 30 June, 2023 Chairman & Managing Director
Place: Bengaluru DIN: 05159352