Buy Cummins India; target of Rs 1005: Edelweiss

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26 Aug, 2025 12:21

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Edelweiss' research report on Cummins India

Cummins India (KKC) missed Q2FY18 estimates impacted by GST-related issues. Key highlights: a) Temporary, but significant GST hurdles impacted domestic revenues, while exports dragged due to sustained slow down in low KVA gensets in emerging countries; b) Management expects to recoup most of the lost sales in domestic market, while exports guidance was revised to 5-10% decline (from 0-5% decline earlier), despite some recovery in large engines to parent entity; c) Industrial BU grew at a reasonable 14% YoY in H1FY18 steered by railways and construction and is on track to post 20-25% CAGR over next 2-3 years. We pin hopes on KKC’s sustained domestic positioning in large engines market (power gen), effective cost initiatives and high growth in industrial BU which coupled with its capex-ready status augurs well for RoE/free cash. Maintain ‘BUY’ with revised TP of INR1,005 (INR1,025 earlier) even as we trim FY18/19E earnings by 6/3% building in slow H1FY18.

Outlook
KKC is treading carefully amid heightened competition and muted exports outlook. We expect KKC to record substantial FCF and RoE scale up over 2-3 years as volumes potentially improve. At CMP, the stock trades at 26x FY19E EPS. Maintain ‘BUY/SO’
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