Broking house, Edelweiss Research is bullish on Cummins India and has recommended buy rating on the stock.
Edelweiss Research report on Cummins India:
"Cummins India's, CIL Q2FY07 results were in line with our expectations in terms of revenue growth and above our expectations in terms of profitability. Revenue grew by 30% Y-o-Y to Rs 4.6 billion in the backdrop of an encouraging demand scenario. EBITDA margin expanded by an impressive 500bps Y-o-Y and 100bps Q-o-Q to 16.8% in the quarter on account of better product mix and positive impact of cost reduction initiatives. Consequently, EBITDA grew by 86% Y-o-Y and net profit grew by 66% Y-o-Y to Rs 786 million and Rs 627 million, respectively, in Q2FY07. CIL continues to post superior margins compared to its peers on account of wider product portfolio and a more profitable product mix. We believe the macro environment continues to remain favorable for CIL with the capex cycle momentum being strong in the medium term.
"On our current EPS estimates of Rs 11.6 and Rs 15.7, the stock trades at 23x and 17x FY07E and FY08E earnings, respectively. We expect a revenue growth of ~30% over the next two years with potential of positive surprises. We believe that the revenue growth is likely to be primarily driven by a wider product portfolio. CIL's valuations are attractive with respect to its return metric and vis-à-vis mid-sized capital goods and engineering companies. We favor CIL's central position in the capex cycle, strong growth story, improving profitability, and relatively attractive valuations, and reiterate our 'BUY' recommendation."
