Power generation biz outlook remains strong: Cummins India

Cummins India has declared its fourth quarter results. The company’s net profit stands at Rs 144 crore versus Rs 144 crore on year-on-year (YoY) basis.

In an interview to CNBC-TV18, Rajiv Batra, chief financial officer of Cummins India says, power generation (power-gen) business strongly came back in Q4. “This had been impacted in earlier quarters. But based on high horse power improving in the mix, we did see a strong resurgence in margins. Power-gen, I believe is strong for us,” he adds. Below is the edited transcript of his interview with CNBC-TV18's Mitali Mukherjee and Reema Tendulkar. Also watch the accompanying video. Q: While distribution was strong for you this quarter, there was a disappointment on other verticals like industrial, auto and power generation. Can you just line out what kind of growth you see in the first half of FY13? How that breaks up into some of these key verticals? A: We grew sequential revenue by about 8% points. We did grow our bottom-line by about 4% points reporting profit before tax (PBT) of over Rs 200 crore. Our power-gen business strongly came back. This had been impacted in earlier quarters. But based on high horse power improving in the mix, we did see a strong resurgence in margins. Now, power-gen essentially has got some element of cyclicality. As the monsoon comes, it would slowdown. On the other hand, what is probably not good for the country is power shortage, but it is good for our business. We do see power, shortages despite government’s ambitious plans of bringing on new capacity, at a base of about 5-6% and peak about 10-12%. So, power-gen, I believe is strong for us. Industrial revenue has been improved because of project approvals; new projects are not getting cleared. There is some impact because of foreign currency. Things are getting more expensive there project wise. So that is a slowdown part which we do see in the industrial segment. Mining is not doing as well as it was. Some parts of construction have slowed down. So, there is an impact from our industrial segment. But apart from that, distribution is growing almost 26%. So, it is one of our bright spots. Q: We saw an improvement in operating margins in Q4. Is it likely to be sustained at these 18-19% OPMs? A: On the back of power-gen strongly coming back and if that business sustains then these are sustainable margins as we look out in the future. Q: Your exports have grown about 14% on a year-on-year (YoY) basis. What can we expect in FY13 from exports? A: Exports, currently we are utilising our complete installed capacity, which is almost hitting 100% in March. As we look out few quarters, clearly based on incremental capacities that we have created and also the fact that there are lead times now are much shorter, we do have a short of capturing some export segments and some export markets. Q: Any scope right now for an improvement in your margin performance on the back of further price increases? You announced one after a gap of nearly a year, do you see any elbow room there to move on prices further? A: Prices, based on what we see out in the market, we have taken a 3% price increase primarily to adjust for commodities and escalating inflation. Based on how market does, I would see a 19% margin where we are today pretty significant. I am not sure we can call out any upsides to this level of margin. Q: You have reached a major milestone as a company as well, any plans on that in terms of either a special dividend or announcing any special incentive for your shareholders? A: We are 50 years in the country, which is very pleasing to us as Cummins, 50 years of providing value to our customers. At the very 50th AGM, which is August last year, we did announce a stock spilt. That is very well received clearly. We do create significant value for our shareholders. So ambitious plans of growth in the country, our megasite the entire 150 acres is completely used, two power projects on the export time. So, I think it is a clearly celebration time for us and for our shareholders.