Aug 06, 2011, 02.32 PM | Source: Moneycontrol.com
Emkay Global Financial Services is bullish on Cummins India and has recommended buy rating on the stock with a target of Rs 687 in its August 5, 2011 research report.
, Emkay Global Financial Services |
“Cummins India (CIL) reported subdued performance in Q1FY12 – attributed to high base effect of Q1FY11 as well as demand slow down across sectors – consequently performance was marginally lower than estimates. Revenue growth was subdued at 13% yoy to Rs10.5 bn – led by export market (up 26% yoy). Domestic growth was subdued at 8% yoy. Operating profits declined 6% yoy to Rs1.9 bn led by 350 yoy drop in EBITDA margin to 17.8% (Vs es timate of Rs1.8 bn EBITDA and 16.8% margin), remain above expectation. However, APAT grew 2% yoy to Rs1.4 bn, on account of (1) subdued revenue growth and (2) lower than expected other income. CIL had RPAT of Rs1.8 bn factoring extraordinary gains of Rs0.5 bn from sale of Cummins Exhaust.”
“Despite sluggish growth in domestic engines market, CIL saw 10% volume growth and 2% price led growth in Q1FY12. Also, overall revenue mix remains unchanged at 75:25 in favor of domestic market. Further, within domestic business, contribution remains unchanged – Power Cogen (35%), Industrials (12%), Automotives (6%) and Distribution (20%). The current quarter witnessed higher sales of low HP engines, thereby enhancing volume growth but impacting operating margins. Expansion at Phaltan Megasite was on track (1) recently commissioned (Q4FY11), the auto facility under Tata Cummins JV (2) satisfactory ramp-up in high HP rebuild centre (3) parts distribution centre to commence operations in Aug’11 (4) industrial engine uplift centre (for ‘B’ ‘C’ ‘L’ series engines ranging from 5.9 to 9.0 litres) expected to commence operations in Q3FY12E. Reiterates total capex spends of Rs 4.0 bn and Rs2.0 bn in FY12E and FY13E in the CIL operations.”
“We reiterate our positive bias on CIL owing to healthy earnings growth, strong long-term growth drivers, healthy cash generation, de-leveraged balance sheet and superior capital efficiency. Though, we roll back our target PER multiple from 20.0X (then re-rated PER multiple in high earnings growth scenario) to 18.0X 1-year forward earnings , to factor the earnings downgrade. We revise our price target to Rs687 versus Rs800 earlier. While this represents an upside of mere 12% to CMP, we retain our BUY rating on CIL – as commodity price softening lends upside to earnings , which is currently not factored in earnings estimates (akin to Q3FY10 -Q2FY11 period),” says Emkay Global Financial Services research report.
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