Timken India Limited (NSE:TIMKEN), a ₹42.28b small-cap, operates in the machinery manufacturing industry, which faces increasing demand of capital equipment and machinery from developing economies in Asia, Latin America and the Middle East. Capital goods analysts are forecasting for the entire industry, a positive double-digit growth of 16.2% in the upcoming year , and a whopping growth of 49.7% over the next couple of years. the growth rate of the Indian stock market as a whole. Below, I will examine the sector growth prospects, as well as evaluate whether Timken India is lagging or leading in the industry.
What’s the catalyst for Timken India’s sector growth?
Machinery manufacturers face the challenge of managing a plethora of new data so that it becomes useful, adapt technology to run their supply chains more efficiently. In the previous year, the industry saw growth in the twenties, beating the Indian market growth of 21.8%. Timken India lags the pack with its lower growth rate of 12.1% over the past year, which indicates the company has been growing at a slower pace than its machinery peers. However, in the upcoming year, Timken India is expected to deliver growth in-line with its industry peers, at a growth rate of 16.6%.
Is Timken India and the sector relatively cheap?
The machinery industry is trading at a PE ratio of 20.09x, in-line with the Indian stock market PE of 18.86x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a higher 11.9% compared to the market’s 9.3%, potentially illustrative of past tailwinds. On the stock-level, Timken India is trading at a higher PE ratio of 41.23x, making it more expensive than the average machinery stock. In terms of returns, Timken India generated 14.5% in the past year, which is 2.6% over the machinery sector.
Timken India’s future growth prospect aligns with that of the broader market, however its relative value seems to be above the rest of the industry. This could indicate the price is reflective of factors other than growth. If Timken India has been on your watchlist for a while, now may not be the best time to enter into the stock since it is trading at a higher valuation compared to other capital goods companies. If you’re looking for growth, it seems other industry peers are also delivering the same rate. However, before you make a decision on the stock, I suggest you look at Timken India’s fundamentals in order to build a holistic investment thesis.
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Historical Track Record: What has TIMKEN’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Timken India? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.