Accumulate Cummins India; target Rs 558: P Lilladher
Prabhudas Lilladher is bullish on Cummins India and has recommended accumulate rating on the stock with a target price of Rs 558 in its February 21, 2013 research report.
February 22, 2013 / 11:42 IST
Prabhudas Lilladher is bullish on Cummins India and has recommended accumulate rating on the stock with a target price of Rs 558 in its February 21, 2013 research report.
"Cummins India believes that the power deficit scenario in the country is likely to persist for few years and drive growth for Power-gen segment. The company re iterated its guidance of high teen growth for domestic and low teen growth for export over 3 year period. The company expects to defend its market position in MHP and LHP segment while expand presence in the LHP segment (both in domestic and exports). Recently company has seen positive trend in segments such as data centres, healthcare, retail , pharma and textiles while segments such as realty, mining, telecom, auto and infrastructure continues to remain subdued.Cummins Inc as parent incurs certain expense on activities/support like product/marketing/HR related services etc. This expense benefits subsidiaries across the world, so recovery on these charges from subsidiaries is likely to go up (due to new law in USA). While the amount is still under discussion, addition expense for CIL is likely to be ~100- 200mn/quarter starting January 2013(4-8% of PBT).The Company highlighted that the minimum cooling period between new CPCB norm being notified and implemented is one year. Since the norms are not notified yet we believe unlikely new norms get implemented before March 2014(against initial expectation of July/September 2013). Company expects prices of genset to increase by 15-20% and pre-buying to happen before mandatory implementation. Company expects consolidation to happen in industry after the new CPCB norms and believes it is well placed to benefit from introduction of CPCB II norms. It is also not expecting any significant competitive threat or price war post new norms.Outlook and valuation: The stock is trading at 19x FY14E earnings. We continue to believe the stock is likely to underperform for next 1-2 quarters, given that abnormally high demand in Power-gen segment is likely to moderate , outlook on exports continue to be weak in near term and risk to margin on downside. However long term outlook continues to be positive given strong industrial potential, strong balance sheet and technology capability. Maintain Accumulate with a target price of Rs 558," says Prabhudas Lilladher research report.FIIs holding more than 30% in Indian cos Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment 
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