Shares of Timken India surged almost 12 percent in intraday trade on BSE on Thursday, December 1, days after brokerage firm Ambit said it expects the company to be among the four smallcap stocks that will likely be upgraded to the midcaps segment in the upcoming AMFI semi-annual review.
The stock had ended in the red during the last three sessions on November 28, 29 and 30.
The year so far has been a remarkable one for the stock. Timken India's shares are up more than 66 percent as of November 30 against an 8 percent gain in the benchmark Sensex.
The stock hit its 52-week high of ₹3,760.80 on BSE on November 21.
Brokerage firm JM Financial maintained a ‘buy’ call on the stock and raised the target price to ₹3,700 from ₹3,200, based on 45 times FY25E EPS (earnings per share).
JM Financial said, "Timken India is poised to benefit from macro tailwinds in the bearings industry such as the shift of manufacturing facilities to India, foray into new segments (CRB and SRB) and development of new verticals for growth such as defence and aerospace, F&B and medical equipment exports."
The brokerage firm expects the company to gain from a cyclical recovery over FY23-35 in its existing domestic segments i.e. commercial vehicles and railways.
JM Financial highlighted the following takeaways from the company's conference call, which as per a BSE filing, was held on November 24:
(i) An investment of ₹6bn over the next 24 months to expand its addressable market size including CRBs and SRBs (primarily used in mining, paper pulp and wind) with an estimated industry size of ₹37bn.
(ii) The continued shift of production lines by the parent company can open up new verticals like defence and aerospace, food and beverages and medical equipment exports in future.
(iii) Large tender of 90,000 wagons by Indian Railways, with additional volumes for DFC corridor and high-speed rail rolling stock.
(iv) Cyclical uptick in commercial vehicle volumes.
However, JM Financial added that the outlook for exports remains uncertain in the near term as the order book remains healthy, but growth from Europe declined and has slowed down.
While a sharp increase in raw material prices remains a key risk, JM Financial expects a 24 percent earnings CAGR over FY22-25E, despite a high base (25 perceent CAGR in the last five years).
"We believe earnings growth is expected to accelerate post FY25 as new roller bearings facility is commissioned (Capex over FY23-25 will be three times versus last three years) and assign a higher target PE multiple of 45 times versus 40 times earlier to capture this accelerate growth over FY25-27," said JM Financial.
According to a MintGenie poll, 5 analysts on average have a ‘buy’ call on the stock.
Disclaimer: The views and recommendations given in this article are those of the broking firms. These do not represent the views of MintGenie.