Timken India Limited (522113) Earnings Call Transcript & Summary

So ladies and gentlemen, quorum being present, I declare the meeting open. I welcome formally everybody to this 36th Annual General Meeting. The meeting is being held through video conferencing as permitted by the Ministry of Corporate Affairs. It may please be noted this meeting is being recorded for compliance purposes. Myself, Sanjay Koul, I'm the Chairman and Managing Director, participating at this board meeting from Bangalore. I humbly request members of the Board to identify themselves as I call out and also inform location from where they are participating. Mr. Avishrant Keshava, Bangalore, please go ahead. You are on mute as usual.

I'm the CFO and Whole-time Director, and I'm taking this meeting from my office in Bangalore.

Mr. P. S. Dasgupta.

Good afternoon to all the directors and the dear shareholders. I am P. S. Dasgupta. I'm attending this meeting from New Delhi. I'm an Independent Director of your company and also by -- I'm the Chairman of the Audit Committee. Thank you.

Thank you, sir. Mrs. N. S. Rama, please.

I'm N. S. Rama, connecting from Bangalore, my residence -- and I'm the -- I'm an Independent Director and the Chairman of Stakeholder Relationship Committee.

Thank you, ma'am. Mr. George Ollapally, please.

Good afternoon, and greetings to all of you. I'm George Ollapally, Independent Director and Chairman of the Nomination and Remuneration Committee. I am logging in to this meeting from my home in Bangalore.

Thank you, sir. Mr. Veerappan, please.

Good afternoon to shareholders and all directors. Thanks, Sanjay. This is Veerappan, joining from Bangalore from my home and I represent in Audit and Risk Management Committee.

Thank you, everybody, for the kind introduction. We have leave of absence for Mr. Douglas Smith and Mr. Hansal Patel, both are located in U.S. It is very, very early morning for them, and we have added them leave of absence; however, the quorum is complete. It may please be noted as well that we have Mr. Mandar, who is our Company Secretary and Chief of Compliance in this meeting. Mr. Mandar, do you want to speak anything?

Nothing sir. Good to go.

Thank you. And we also have Mr. Sathya Koushik and Mr. Rajesh R, representing our stat auditors Deloitte also in this meeting. We also have Mr. V. Sreedharan, who are our secretarial auditors, that is the company V Sreedharan & Associates and they are all attending from Bangalore. We also Mr. Nagarjun Y. G., who is the scrutinizer appointed by the company for remote e-voting and he is also attending the meeting from Bangalore. Members we know that in terms of the relevant provinces of the law, the company has arranged for remote e-voting facility for all the resolutions to be considered at the AGM from 18th August '23 to 20th August '23, both the inclusion. Those shareholders attending this meeting who could not participate in remote e-voting and wishing to cast their votes in respect of each of the resolution may vote through e-voting. This e-voting is available until till 15 minutes after the closure of the meeting. Detailed illustration regarding e-voting and other relevant matters are given in the AGM notice as usual. Relevant stat registers are available for inspection. For this purpose, please contact Mr. Mandar, who is our Company Secretary. I'll give a little bit of brief obviously, about the Indian economy. The -- as we sit in August of '23 the GDP is posed as per IMF to be above 6%. Last year, also roughly, it was around 6%. While we see around the globe, we got issues in many parts of the world. India is still the shining star. The Indian GDP has crossed $3.6 trillion. So it is becoming a powerful economy, manufacturing, which is roughly 15%, 16% of this is poised to grow as we become -- if I can use the word global workshop. So current projection as we see around except a couple of countries like Korea and Indonesia, but around the globe, the GDP growth looks to be a little bit subdued, but India remains a nice shining star. But the economic indicators, as we see now or we see post-COVID the GDP has been going up. Inflation currently is down and those -- there is an issue with the food inflation, but otherwise, the inflation is pretty much in control. Manufacturing PMI since April of '23 has been going up. Sensex is strong. And USD to INR is running in 80s with the oil being importing from Russia, traded in rupees. Obviously, it has an impact on the CAD of India. So those are the positive things. And we see that steel production, which went up drastically and pushed the prices also up has stabilized, but still [ steel make ] production is pretty much okay. Mining also, which went through a rough patch 3, 4 years back is slowly getting stabilized. Though the business -- ease of doing business has in July gone down a little bit, but last year was pretty much okay. More important for your company performance highlights of financial year '22 to '23. During FY '22 to '23, the company recorded a strong revenue growth of 27.4% year-on-year. This increase is driven by growth across most of the front-end services, whether it is rail or it is off-highway or [indiscernible]. So it has gone up in most of the front-end. It has also been the highest ever revenue in the history of TIL. So your company has posted the highest ever revenue in the history of TIL in '22-'23. EBITDA margin is at 21.9% level, slightly lower compared to the previous year, which was 23.8%, which was obviously influenced by significant inflation on raw material costs. But as we talk now, that is all becoming a little bit soft. Record earnings per share of INR 52, up 19.5% Y-o-Y, primarily driven by good volumes, which is higher volumes. The strong balance sheet with low debt and ample cash to invest for profitable growth. Obviously, as we announce our new plant in the ancient city of Bharuch, we are going to make spherical roller bearings and cylindrical roller bearings, which we used to import and are currently importing and selling in India, which will be made in India. And currently, as we speak, the factory is getting constructed and the required supply chains are being tested and trials are going on. And the new manufacturing facility is the initial investment is INR 600 crores, and it will start from January 2025, the commercial production, though we'll do the pre-preps earlier than that. And all of this currently is from internal accruals only. And I would also propose later that we give a final dividend of INR 1.50 per share as we are mostly investing without borrowing any money. Generally, on profit and loss, our revenue were up by 27.4%, INR 2,203 crores and it went up to INR 2,806 crores. So we had other income of INR 53 crores this year and total revenue was INR 2,859.8 crores and EBITDA percentage was 21.9% as I said. And PBT was INR 523 crore and the PAT was INR 390.7 crore. So there was a strong revenue jump from INR 2,203 crore to INR 2,806 crore and EBIT went up from INR 524 crore to INR 613 crore as we completed the year. And financial balance sheet pretty much healthy and no issues on that side. March '22 INR 1,751 crore and '21 INR 2,117 crore on the balance sheet. So generally, last year was a great year, record performance from the company in terms of the top line, which means that we penetrated more market, we took more share of business, and we are obviously leaders in many areas, including rail, on heavy truck, on Differential Pinion and rail and the steel making is dear to us as we have designed many, many bearings for this industry. And with that, this year, the global markets, as we speak today, the global markets are slightly down, especially North America, but the Indian market is pretty strong. So that is a nice shining star. And the American end user market is not that soft, but it is softening for sure, across the board, customers are reducing their inventories and safety stocks. With that, I would like notice of the 36th AGM and annual report for FY '22-'23 was sent by e-mail to shareholders as permitted by the Ministry of Corporate Affairs. Also same I have put on the website of the company. They are available on our website. I take the notice dated 30 June 2023 convening the meeting and [indiscernible] statement and the Board's report as read with your consent, please. Also statutory auditor's report and secretarial auditor's report are issued with unmodified opinion. Therefore, with your consent, I take them as read as well. In the notice of 36th AGM following business items and resolutions are covered, which are open for voting: To receive, consider [indiscernible] the audited financial statement for the year ended 31 March 2023 and the report of the Board of Directors and the stat auditors to declare a dividend of INR 1.5 per equity share of INR 10 each fully paid up for the year ended 31st March 2023, to appoint a director in place of Mr. Doug Smith, DIN: 02454618, who retires by rotation and being eligible offers himself for reappointment. Appointment of Mr. Ajay Sood, DIN: 03517303, as an Independent Director of the company. Appointment of Dr. Lakshmi Lingam, DIN 10181197 as Independent Director of the company, a ratification of remuneration payable to Cost Auditors, material transaction with the related party, the Timken Company, material transactions with the related party the Timken Corporation, material transactions with a related party, Timken Engineering and Research India Private Limited, material transactions with the related party Timken Wuxi Bearing. With that, I would like to take up any questions from speaker shareholders. I request the moderator to enable speakers one by one. Tarun, over to you.

Yes. Thank you, Mr. Chairman. My name is Tarun Beniwal. I'm the moderator for the session present from Bangalore location. Before we move on to the Q&A session, I would request all of you to adhere to the following norms. I will call the preregistered speakers to come up one by one. Speaker shareholders are requested to unmute their microphones before speaking and also enable their webcam if they wish to appear on the video. Speaker shareholders are requested to mention their name, folio number and location. So first up I invite Mr. [ Amit Kumar Banerjee ]. Mr. Banerjee?

Hello. It's not coming.

No, we can see you. You're audible and visible?

Good afternoon to everyone.

Good afternoon, Amit da.

Respected Chairman of the meeting, other Board members present, myself [ Amit Kumar Banerjee ] from City of Kolkata. Thank you for getting me connecting an opportunity to speak in such a nice meeting organized by our company, Timken India Limited. It is our 36th Annual General Meeting of the company. As regards the performance is concerned, yes, it is very good, nice growth, strong revenue performance. Total revenue increased about 27%. Profit after tax stood with a tune of around [ INR 51.95 million ]. Dividend is also [ 15% ] [indiscernible]. CSR activity, yes, for the welfare measure, it is a very good activity. Market price of the shares is quite good around INR 3,500. So in comparison with the market shares, the dividend of the shareholders rewarding is concerned is very [ poor, sir ]. So kindly discuss about shareholders rewarding policy. As in comparison with the earning per shares and market price of the shares. What is your capital expenditure plan for next 2 years? Kindly share your views. Key customers and key sectors supplying your products, your vision, mission for the growth of the company, kindly discuss. What is your progress status of the new plant at Gujarat? I hope our company will perform much better result [ year ahead ] and definitely keeping in mind shareholders rewarding policy. I thank our Company Secretary and his secretarial team, also [indiscernible] SEBI management of Calcutta is doing a very good job for the investors purpose as and when the shareholders are needed, try to resolve as earliest. I also thank all team members for smooth conducting such a wonderful meeting through video conferencing today. Myself, [ Amit Kumar Banerjee ], over to you for further proceedings. Thank you, sir.

Thank you, Amit da. Thank you very much for joining and asking questions. And as you are an old shareholder of Timken India Limited. You, for sure, I would remember that we have given dividend of 500%, 200%, 60%, and it is all based on the growth tactics of your company. As you know, and you have asked this question only in Bharuch for the new plant, we are going to invest INR 600 crores. And we are not going to borrow that money and pay interest on debt. This will all come from our internal accruals for which we have to make the choice of either giving a dividend -- large dividend now and borrow money or invest the internal accruals and give better dividends as we grow here in India. There was a lot of debate in the Board about it and the -- given the rate of interest and given that we want to do INR 600 crores between now and next year December, it was felt rightly that we should invest the money and give not a huge dividend currently and do a balance. So that is the reason we have invested the money in the growth of the company. And as you know that when we invest this money in Bharuch, it is going to produce bearings, which currently we were bringing from outside. So it's a great contribution to make in India. Second is that it's a great contribution to the [ speed ] of the market. Most of these bearings as you asked in the question, -- these bearings would go in different industry from steel to cement to infrastructure to railways. And this should bring better profits to the company and also top technology to the customers, and we would make that locally in India. The plant is currently, as you asked, the piling is happening almost 500 piles would be done in a short span of this month, and then we'll start building the structure of PEB, and it would be a world-class plant coming into [indiscernible]. So very much appreciate that the growth has been good, the share price has gone up. [ PEE ] is good and had we not declared an investment of making a new plant, we might have considered giving a better dividend. But our past clearly suggest whenever we have the money and we don't have a project, we immediately give it to our shareholders, as I said earlier, we gave a nice dividend in the last 5 years of 500%, 200%, 60% and then obviously, whenever there is investment. So apart from this CapEx, we have a running CapEx as well for running our old Bharuch plant at the Jamshedpur plant. So all in totality, we have suggested INR 1.5, but all this will go into the growth of the company. All this investment will make more bearings in coming days and more growth, both bottom line and top line for the company. I thank you for asking these questions. And I'm sure that in times to come, this investment would be a great sense of achievement for all the stakeholders in the company. Over to you, Tarun.

Yes. Thank you, Mr. Chairman. Next, I would like to invite Mr. [ Jaideep Bakshi ] to unmute himself and ask the question.

Very good afternoon, Chairman and Board of Directors, myself [ Jaideep Bakshi ] connecting from the city of Kolkata. Thanks to our Company Secretary and the entire secretarial department, for giving me an opportunity to express my views and presenting a detailed annual report and sending constant reminders before joining this video conference. And also nonetheless, the -- congrats to our registrars, Messrs. CB Management for sorting out our problems and also helping out to join this video conference and conducting this video conference in a [ slight ] smooth manner. Sir, in initial speech, please explain the company's position and also the future prospects based on the geopolitical situations all around. And congrats for the revenue growth of 27% on a year-on-year basis as a very good performance and generating record dividends sir. Sir, in our aim on retaining our position as a leading player and strengthening our position, what is our future growth prospects and how are we placed from our peers. And regarding -- apart from the expansion in our existing Bharuch plant with our own accruals, any other significant investments with new technology for better enhanced productivity? Sir, what is the CapEx for the R&D for improvement in our products as innovation and sustainability are the key drivers for success? And we can stay in tune with the government of India's initiative make in India. Sir, -- leading supplier -- we are the leading supplier to the windmill and the solar projects. Sir, what is our thought process for promoting green energy in our own plants and reducing the [ fuel cost ]? Sir, we have expenses of 31% due to inflation. What are the steps we are taking to cut it down? And what are the risk factors we are forcing and the steps to overcome them? And sir, kindly highlight on the service outsource mentioned in Page 105. And sir, any new tie-up with the OEMs? Because this different automobile industry are opening up and the sale has also gone up. So any tie-up or any railway projects also because many metro lines are also coming up, our products can be well utilized in different fields also? And our foreign exchange earnings has also gone up and what is our future plans on this export line? And sir, we are -- end user photos have been well displayed in the cover page. Why not our own product, our bearings photographs on the inside cover, sir? And CSR activity is well mentioned in Page 20, and nothing to add more, I have supported all the resolutions and wish the company all the best and rewards the shareholders handsomely in the coming years. And hope, sir, our company grows further under the guidance of the whole Board members. Thank you, sir, to all the workforce work contributing to our growth of our company. Thank you, sir, and all stay safe.

Thank you, [ Jaideep da ]. Thank you very much. And you asked many questions. I'll try to summarize the answer. So first of all, now we are the leading suppliers of -- to Indian Railways. When I say Indian Railways, the rail consists of the locomotives, the passenger, the freight and then the mass rapid transportation is what we call as the Metros. So I'm pleased to say that Timken India Limited is the major supplier of bearings to the Indian Railways. Most of the freight and passenger, which is high-speed passengers, they are running on Timken India Limited bearings. And all these bearings have state-of-art technology in it. We use a very special sealing system, which allows low friction, low heat generation, special greases so that the lubrication of the bearings [ stays continues ]. So all this is a very special intellectual property, which is being used in the Railways. And globally Timken Company, the -- one of the promoters, they do a lot of research and development and spend a lot of money on research and development, and we have the access to that, for which we pay obviously the royalty. So we are privy to the latest technology, which is used in windmill. When I say windmill, there are 2 kind of bearings used in windmill. One is what we call as the direct drive and the other is what we call as the gear boxes. So these bearings are actually made in different parts of the promoter shareholder Timken Company. And we buy from them and sell them in India. We provide the technology and the service set up from Timken India Limited. So as far as technology goes, continuous improvement on the bearings, on [ condition ] monitoring and using different materials. So this is a continuous work which the Timken Company does, and we are participating in that, and we get access to all those intellectual properties and technologies. We have been growing on a strong double-digit CAGR, and that is because of the fact that our cost quality delivery has been improving over the years, our customer center fee is well known in the Indian market and also, we are as the best designers for bearings. So whenever -- and we, for example, wants to make a gearbox the first company for bearings he will reach out or would be Timken India Limited and we provide them the design backup. And then obviously, after design backup, we provide them the bearings. So we are continuously trying to be in par or one step ahead on the technology side as the technology is obviously changing very fast. Electric vehicles, for example, are coming. So electric vehicles will not have engines. We don't make bearings for the engine, but it will still have the wheels. We make wheels for the Pinion Differential and [ wheel sets ] which still will be made. So we are continuously working on the tech side of it. And then obviously, process automation, robotics in our plants all that is being used by us. As far as green energy, you mentioned, our Jamshedpur plant has already 3 megawatt, more than 3-megawatt of solar -- currently 2-megawatt is functional of solar, and we use that power every day. Apart from that, we are continuously working with the Jharkhand government while this plant is that we be allowed to buy more green energy, more solar energy which we continuously work on that. We just have started installing the solar roof top in our Bharuch plant. And continuously, we try to buy more green energy, which is either through the solar or through the windmills. The Bharuch plant owned 7 windmills, though they were some [indiscernible] windmills and they just completed their lifespan, but we ran our own 7 windmills in a place called Porbandar and generate electricity which went to the Gujarat grid and then we got it back from their side. So in summary, we are obviously dedicated to the cause of profitable growth for the company and for the shareholders. And ESG is important. If there is planet, then there is business. So planet, people and followed by profits. So we work very strongly on that. We have taken targets on ESG, which obviously, public information after some time. We want to make sure that on environmental, we take very good targets on sustainability, we take good targets. And similarly, on governance, we'll take good targets. Timken globally is known and your company Timken India Limited, is also being awarded many times in the last 1 year for our good work in the area of environmental sustainability, health and also on safety as well. Over to you, Tarun.

Yes. Thank you, Mr. Chairman. Next, I would invite Mr. [ Mahesh Kumar Bubna ] to ask his question.

Tarun, I don't see him in the attendee list, move on.

We would go to Mr. [ Vinay Vishnu ].

I would like to invite Mr. Vinay Vishnu [ Bhide ] to ask his questions.

Hello?

Yes, we can hear you Mr. Vinay.

Yes, yes. Starting my video. Chairman and Managing Director, Mr. Sanjay Koul; Mr. Avishrant Keshava, CFO and Whole-time Director, other directors present at today's AGM, company executives and shareholders. Good afternoon to you all. My name is Vinay Bhide and I'm a longtime shareholder speaking from Mumbai. Well, I've been a shareholder for quite a long time, but I have not been able to speak so far. So this time, I ensure that I registered on time, and could meet all of you online and also ask a few questions to understand the present as well as the company's future better. At the outset, sir, congratulations on this splendid performance on the revenue and the PAT, followed by an excellent annual report that you have made, I must complement the team which has prepared to annual report. So also the summary that you gave us at the outset of the meeting. So congratulations on all those 3 counts. I've got a few questions to understand the present and future better. You've stated in our annual report that 27% revenue growth was there in the past financial year, which are meant -- which were met from the end market sectors. I would like to know that which of the end market sectors contributed best to us in achieving this 27% higher sales? I guess it may be automobile, but then I would like to confirm and understand better from you, sir. The second question, of course, it just answered because my question that I have is for new manufacturing facility, we have earmarked investments of INR 600 crores. And my question here as a source of funds you have mentioned and it will be through internal generation. So that question stands answered. But then [ ancillary ] question comes up, now that we don't require enough funds, we are in a position to give better dividends from next year. As also, I believe that we will be in a position to consider a bonus. So my question is that when did we last given bonus? If we had given one, when did you last gave a bonus? And what was the ratio of that bonus? The third question is an important one and that is on counterfeit and spurious products. I find a mention of that under the threats part of the annual report. So can you tell us if we have faced any issues about counterfeit -- counterfeiting and spurious products? And in case we have noticed anything, what actions we have taken on this count? Another point I noted here is the royalty if anything we were paying to Timken India, you've mentioned in your -- some of the earlier reply that we do pay a royalty to Timken. So 2 questions on royalty. The first question is what is the percentage of royalty that we pay to Timken? Is it encompassing all the products? And what is the percentage of royalty? And when does the royalty come up for review? So these were the few questions that I asked. I must thank our secretarial team for contacting me and ensuring my presence here. I will take this opportunity to wish you, sir, the entire director team, the employees, shareholders and our business partners all the best. Thank you for giving opportunity to speak. I'm sure we will see -- we will [ meet ] in much happier times in the years to come. Thank you so much sir [Foreign Language].

[Foreign Language] Thank you very much, Vinay ji. So first, let me take the question on the counterfeit bearings. Counterfeit bearing is a big challenge for the bearing industry and it has been happening for years and years and years and decades. Most of the counterfeit bearing generally come through China. Over the years, at least last 5 years, the customer records are all digitized. So anybody importing anything has to declare what he is importing. So if anybody is importing a Timken bearing then it would be immediately red flagged to us as we have systems in place to see that. But generally, in India, the smaller bearings, especially ball bearings, which our competitors make a lot -- is a big area of counterfeit. On the taper side, on 0 to 8-inch, now we have introduced -- actually, we are the first in the Indian market to use something called holographic pouch and we educated the Indian market that all the Timken's ball bearings will be in a special pouch, which is holographic and once you tear it open it gets destroyed and then we also have bar code in place, which can be scanned and it can tell you the story about the bearings. We also have special packaging, which you once open cannot be then fixed back. So we have taken these issues and challenges. And I can't say that it is 0%. There might be most of the Indian counterfeit market thrives out of Bombay. And all the bearing companies keep tab of that. And we also keep tab of that if anybody is into these activities. So once in a while here and there, somebody might try to do it. But overall, now with technology -- modern technology, it is easily catchable and with the special pouching, special packaging, bar coding and also sending -- we always tell our customers whenever you buy a Timken bearing from our distributor, you need to also ask for a certificate and that certificate gets issued by engineers, which are located in different parts of the country. So we take that special measures. But at the same time, the challenges will not vanish, and we will always use digital technology going forward to make sure that customers gets what he pays for and our revenue loss does not take place. So that is one. And second question is that we have never given a bonus. We have always used internal accruals for growth. And currently, we have, again, with the consent of and deliberation of the Board, we have decided that we will give INR 1.5 per INR 10 share, and use all our generating cash, which we are continuously generating use it for the investment. And as I said previously that whenever there is a chance we don't have a big project happening we give healthy and good dividends. We are currently not requiring any bonus. But having said that, this is a continuous debate and as and when the Board decides that it is time to give -- give a bonus then certainly we'll be more than happy to do that. Apart from that, our growth mostly has come from mobile when I say mobile, anything which has a wheel on it, is mobile for us, which means an excavator, a backhoe, a train, a truck is the mobile equipment. So our major growth last year has come from both the mobile unit and also from industrial distribution. Industrial distribution, they are the bearings which are sold to end users like cement, steel, energy, et cetera. And going forward, as we see the infrastructure in India is growing. We are getting more roads. So we are getting more infra, so that will still keep on consuming more bearings. As India starts to produce more steel, more cement that would consume more bearing. So it is currently at a healthy path. We have continuously outgrown the market. If the GDP grow at 6, we will grow at double digits. So we will continuously -- our endeavor is to outgrow the market at a profitable rate and that is how we are looking at that. And apart from that, you heard a question on Page number, Avishrant, what was the page number?

It was on royalty.

Royalty. Can you say what is the royalty percentage?

Good afternoon, Sir. We pay a 6% royalty on the products which are manufactured in India and sold domestically or if it is exported as a finished goods. We do not pay royalty on the [indiscernible] products which we import and sell in the Indian market, and we also do not pay any royalty on components.

It is generally 6%, 7% in the industry norm also, and it is reviewed every year and based on all the factors, we take that call and also the promoter, generally, they have a uniform royalty policy across the world driven by more taxation aspects. With that, I think we have no more questions, and I would I would -- Tarun, if there is nothing else, then I would like to thank all participants in the meeting. Upon receipt of the report from the scrutinizer, the Company Secretary who is authorized for the purpose shall declare the voting result and also place the same on the website of the company. The voting results will also be sent to the stock exchange for further action. With that, I declare the proceedings as closed. I thank all our shareholders and esteem Board members and the participating members from Deloitte and also from V. Sreedharan & Associates and from -- and also Mr. Nagarjun. With that, I thank you, everybody. Thank you very much for having a successful 36th AGM and which we are closing with now. Thank you very much.