Way2Wealth neutral on Cummins India; target Rs 330

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Way2Wealth neutral on Cummins India; target Rs 330

Way2Wealth has kept neutral rating on Cummins India with target price of Rs 330, in its November 22, 2011 research report.

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Way2Wealth has kept neutral rating on Cummins India with target price of Rs 330, in its November 22, 2011 research report.

"Cummins India's Overall Sales are flat at Rs.10.7bn on adverse product mix and lower domestic sales by 5% yoy, while exports were up by 14% at Rs.3.1bn. Purchases of traded goods have increased sharply while the consumption of raw material has remained flat implying higher input cost. Employee cost has increased by an average 12% & with other expenditure remained flat, operating profits have reduced by 19% with reduced margins @16.4%. Resultant PAT has degrown by 23% with reduced margins @12%."

"Higher interest rates have dampened the demand for Power Generation which degrew by 20% and Industrial segment which degrew by 6%. Also, water-well business that accounts for a majority of industrial segment sale continues to be in the declining mode. Within the power generation segment, company has been observing reliant demand from retail and ITES. Telecom which used to be one of the major growth drivers for the segment has been observing sluggish demand. Auto segment has grown by 50% mainly driven by growth in commercial vehicle space and lower revenue base of the segment."

"Its Export growth guidance maintained at 5-10% but domestic growth guidance has been cut to 5-10% from 10-15% earlier. Margins to stay under pressure owing to (1) inflation seems to be leveling but pig iron prices continue to climb and (2) product mix could be poor, similar to what it was in 2Q12, over the next two quarters."

"Times of crisis are duly expected to continue in the near future. At the CMP of Rs 335, the stock discounts 15x its FY13E and 12x FY14E EPS of Rs.22 and Rs.27 respectively. We give a NEUTRAL rating as the stock seems to be fairly priced in with a target price of Rs.330 per share based on a PE of 15x FY13E EPS of Rs.22 per share, says Way2Wealth research report.

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To read the full report click on the attachment