Buy Cummins India; target of Rs 1025: Edelweiss

Edelweiss' research report on Cummins India

We recently interacted with Mr Anant J Talaulicar, CMD and Mr. Rajiv Batra, CFO of Cummins India (KKC) wherein they sounded highly optimistic about near to medium term growth roadmap and sustainability of the Cummins franchise amidst fragile prospects for internal combustion engines (IEC). Key highlights: a) Recent weakness in P/L could be attributed to subdued global commodity/liquidity (for exports) and GST/competition impact leading to adverse revenue mix, though both factors seem to have now bottomed out; b) Widening product applications and higher usage (railways, mining, construction, etc) augur well for the company’s distribution business where it expects to bolster market share; C) Parent’s technological prowess straddles across diesel, natural gas, hybrid, electric, etc and they expect to focus on segments which makes more sense to customers. We maintain ‘BUY’ with TP of INR 1025 (25x PE) given superior RoE/CF growth profile of 22.2/13% (FY17‐19E).

Outlook

We expect OPM to improve sequentially as large engine volumes recoup which will help revive investors’ confidence. Also, with major capex over, focus can revert to generating free cash and RoE expansion. Maintain ‘BUY/SO’ with TP of INR1025. For all recommendations report, click here

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