Margins contract sharply on higher traded sales

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News: Revenue was up by 2.6% YoY (-10.6% QoQ) to Rs 717.6 crore. EBITDA margin contracted by 563 bps YoY (-14 bps QoQ) to 18.9%, primarily due to higher traded sales. Subsequently, EBITDA declined by 20.9% YoY (-11.2% QoQ) to Rs 135.7 crore. PAT declined by 23.7% YoY (-13.8% QoQ) to Rs 90.1 crore.

Views: Overall operational performance remained subdued during the quarter with muted revenue growth and contraction in margins. Slower demand scenario in export markets (which contributes ~28% to sales) is likely to have impacted revenue growth. Going ahead, we believe that Timken is expected to benefit from investments in domestic manufacturing of spherical and cylindrical roller bearings which is currently being traded in India through imports. Also, better demand scenario across its industrial segment (including railways) presents strong business visibility over the longer term. Margins are also expected to improve with the reduction of imported traded sales in coming period and increase in localisation.

Impact: Negative