While Cummins India is seeing recovery in the domestic business, implementation of Central Pollution Control Board (CPCB II) Norms is leading to higher prices, says Rajiv Batra, CFO, Cummins India.
Emkay Global Financial Services, in a research report, had said under the new norms, engine costs can rise 10-15 percent.
Batra continues to remain firm on full-year guidance - between 0 percent and 5 percent - given by the company, but says it comes with a caveat – the implementation of these emission norms is still being absorbed by the market. Hence, he is on a wait and watch mode.
However, he says being a capital industry, demand will come with a lag. He expects the company’s power and infrastructure-related supplies in road construction, sectors that will lead to recovery like mining to do well, going ahead.
Also Read: New CPCB norms: What it means for cap goods, engineering
Below is the verbatim transcript of Rajiv Batra's interview with Ekta Batra & Anuj Singhal on CNBC-TV18.
Anuj: I want to ask about the domestic business because your exports have been strong but the domestic business has been a bit of a problem but are you sensing any kind of green shoots over the last three-four months?
A: Domestic business has been recovering. One significant development of the domestic business in recent days was the implementation of the new emission norms and that has taken prices and the levels of technology significantly up. Therefore, in terms of technology, the emission levels have moved up from 25 percent to 70 percent, market is in the process of accepting that huge change. So that is a big transition going on. So, on the low horsepower side we are still waiting to see what the impact will be and on the high horsepower side business as usual continues.
Ekta: Would it be fair to assume that you will be sticking by your domestic business guidance which you revised overall to 0 to 5 percent and in your assumption in terms of how things stand, where would it be? Would it be on the higher side of 5 percent?
A: Right now we are standing behind the guidance that we gave and the caveat there is, we are waiting to see how this all works out because it is a very big change in technology and pricing as well. So, yes, we are pretty much in the middle of that band.
Ekta: Regarding your domestic business, if in case you had to see a bit of growth in your domestic business which segments will it be led by, will it be power generation, industrial or autos?
A: We are a capital industry, we are a lag industry, we do expect to see demand with a lag after the project starts to get approve and capital formation restarts once again. So, power generation plus all of our infrastructure-related supplies which are in road construction, sectors which will lead to recovery like mining, so all of the demand is still waiting to happen.
Anuj: A word on margins because last quarter they inched up 17.2 percent. Would you say that that’s the range that you can maintain – 17-18?
A: In the immediate future based on the acceptance of our new pricing levels, the answer is it should be stable.
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