Accumulate Cummins India; target of Rs 933: Prabhudas Lilladher

Cummins (KKC) reported PAT of Rs1.8bn in Q1FY17 in line our estimate, while sales was better than estimate due to good performance in domestic markets (up 9% YoY), exports continued to be weak (down 22% YoY). KKC commented it is becoming increasingly optimistic about the sustainability of domestic market, led by government’s focus on revival through public spending. Key segments that are driving demand for Power Genset include Data centre/Infrastructure/Residential realty/Pharma/Healthcare. Outlook on exports remain weak. KKC has increased the lower range of guidance for domestic sales to 10‐12% against the previous 8‐12% and maintained export guidance at flat sales (with negative bias) for FY17. The company continues to invest in new products, increase customer focus, improve leadership and human resource capabilities and sharpen cost reduction, productivity and quality focus. We have increased our earnings by 3% for FY18 to factor in lower capex and higher other income. We remain positive on KKC, given its strong domestic outlook, gradual likely revival of export markets and strong cost focus. Low utilization leaves upside surprise on margins once volumes improve. Maintain “Accumulate” with revised TP of Rs 933 (previous Rs 880).