Hold Cummins India: Way2Wealth

Way2Wealth has recommended hold rating on Cummins India, in its August 07, 2012 research report.

“CIL delivered a topline growth of 21%yoy, driven by higher export growth, rupee depreciation & favourable product mix. The revenue mix of exports to domestic is in the ratio of 35:65. The full year growth guidance by the management is in the range of 13-15% with domestic growth close to 9-10% & international growth in the the range of 15-20%.”

“CIL registered a strong growth of 21% aided by strong performance in the international market. The domestic segment has grown by 7.7% whereas the exports segment has increased by 59%yoy led by rupee depreciation & sales of low HP gensets. In the domestic business, power gensets have grown strongly by 24%yoy led by strong performance in AP and TN and price hikes (~2.5% in Jun’12). The industrial segment has declined by 15%yoy while the auto segment has declined by 30%yoy & the spares segment has grown by 31%yoy. The revenue mix from HHP engines segment has been 55%, from the mid segment engines it is 20%, the low segment engines has booked segment revenues of 12% whereas for the heavy duty engine segment it has been 10%. Operating profits has increased by 25% led by favourable revenue mix and benefits from operating leverage. Higher interest cost & taxation reduced its PAT margins from 17% to 15% of sales. Its other income has booked foreign exchange gain worth Rs.130mn. Export revenues have been augmented with the introduction of new (Low HP) gensets for exports. This is expected to generate Rs.2bn of revenues in FY13E. The rupee depreciation is also expected to generate 10%yoy growth in its export revenues in FY13.”

“Price hikes on power gensets on implementation of CPCB norms, improved export revenue from introduction of low HP gensets and spare parts along with commercialization of SEZ facility would see lower tax outgo on incremental sales which would have a positive impact on its bottomline. At its CMP of Rs.465, we give a HOLD rating, with the stock trading at 21x FY13E EPS of Rs.21,” says Way2Wealth research report. 

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