I started working on Timken around August 2020, have closely tracked each and every qtr including the parent company, and made decent money on it. But lately, the actions of both parent and Indian entity have not been shareholder-friendly. The premium these MNCs get just because of ‘good corp governance’ has to be questioned, especially during bull market.
The point of this post is not much deep diving into the business, but I am putting it here hence if anyone is considering investing into the company, can take note of these instances and can accordingly form an opinion. I do believe over long time frame, the business would grow at decent pace given the positioning of Timken globally and having cracked the tapered roller bearings which are used in HCV, railway and machines.
Below I am sharing 1 instance where I found mgmt giving wrong numbers over concall, and 2 instances for how I believe the parent entity smartly reported previous qtr numbers in a way that created optimism about the company:
1st Instance:
1st Stake sale: June 2023 – 10.1% stake for 2,361 Crs.
During the first stake sell, the company was reporting a good set of numbers, and the street was surprised that why would the parent entity cash out when the business was good, the demand in all the sectors the company is catering to are in structural tailwind, hence few eyebrows were raised. And post that, Timken delivered bad qtrs back and back and especially the weakness in exports was very much evident (refer figure 2).
Whereas there has always been talk about making the Indian entity as the manufacturing hub for the Timken Global, it seems more like in the past qtrs mgmt jacked up the inventories and reported very healthy numbers for the Exports for Timken. Since then, they have been struggling for more than 1.5 yrs for the same (refer figure 2).
Below the attached image (refer Figure 1) is my notes from the stake sale concall held by Timken India. The reason given over the call was funny, the mgmt said to ‘look at other MNCs, they have even lesser stake than what Timken India has in the Indian entity, hence nothing major – just move on with life.’
Interestingly, if you compare Q4 concall notes and stake sale call, the mgmt tone for exports changed sharply, earlier they were expecting a revival and then suddenly called out and said that they believed exports for going to be weak.
Figure 1 – Takeaways of Concall on stake sell
Figure 2 – Qtr trends for Timken
2nd Instance
2nd Stake Sale: 29th May, 2024 – 6.65% stake for ~2000 Crs.
If you will read through concall note, a clear question was asked about is railway a lumpy business for them, because if the past if you will observe, it was always in the range of 100-185, but in Q4 it was 305 Crs.(refer Image 2) But the mgmt said they feel there is no one off and quoting the same that it is about structural trends and what not.
Q4FY24 was something which was an exceptionally good for the company, and they sounded so confident over a call with exports bottoming out (which always has been a key trigger for the company).
Q1 numbers although the mgmt made it sounds like some phenomenal numbers they have published, but I would term it as weak given the kind of commentary they had in Q4 (refer figure 2). You might have a different opinion and I might be reading too much in Q-o-Q numbers, but given the timing of the stake sell, I am putting more emphasis on this.
3rd Instance
Incorrect numbers over concall:
In the Q3FY24 concall, the mgmt said over 4 times that their exports over the 9MFY24 period were down 10% compared to 9MFY23 (refer figure 3,4,5), but according to the previous numbers given in the past concalls, if you combine them, the exports were 30% down!
I had a word about this from Kotak Institutional Analyst (since they have been tracking the company since a very long), and Spark Analyst (since they host concall for the company), and guess what? They also agreed that the numbers mentioned over concall were wrong and they are also seeking further information from the company. I dropped a mail to the company, even parent entity, for obvious reasons it went unanswered.
I am putting snippets from past concall (Refer fig 3,4,5,6,7,8,9 & 10) where you can see and match the numbers from qtr number sheet (refer figure 2)
However, in Q4FY24 when giving full year numbers, it matched with the breakup of Q3FY24 they gave for exports with the overall year.
I don’t wanna explain this or put more emphasis over this point anymore, you can make whatever you want from this. All I am saying is, it is not possible that the company didn’t see the email or the analyst who literally hosts the company’s concall wouldn’t have pointed it out to the mgmt.
Figure 3 – Q3FY24 snippet 1
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Figure 4 – Q3FY24 snippet 2
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Figure 5 – Q3FY24 snippet 3
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Figure 6 – Q2FY24 Snippet
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Figure 7 – Q1FY24 Snippet (which also has reference of Q1FY23 numbers)
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Figure 8 – FY23 numbers
Figure 9 – H1FY23 and Q2FY23
Figure 10 – Q4FY23 numbers
To sum it all up throught price chart, you can just refer to below image:
Happy to be corrected if there is any flaw in the argument. Timken leads at the global level and I certainly believe it will continue to do so. But it is high time to question the companies around these stuff. I think other MNCs atleast have been transparent that they are getting good valuation and hence selling off stake.
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