Buy Cummins India; target of Rs 1175:Prabhudas Lilladher

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Prabhudas Lilladher's research report on Cummins IndiaCummins’ (KKC’s) reported PAT of Rs 1.98bn in Q2FY16 was largely in line, sales were lower than estimates due to weak exports (down 9% YoY) led by dip in LHP export. In spite of weak global economy, KKC is confident of growing exports in short/medium term due to low market share (especially LHP), lower base and increased sourcing from parent. Domestic market continues to see improved traction and they expect the same to continue. In the domestic market, company continues to focus on increasing market share. The company is working on improving cost structure and aggressively pursuing localization of new engines, benefits of which will be visible over next few quarters. Company expects the domestic business to grow 10‐15% and exports to grow by 0‐5% (previous 10‐ 15%).We remain positive on KKC’s potential in the domestic market, driven by structural factors like revival in Infrastructure/Industrial demand, unreliable quality of power in India and lack of credible options for power back‐up and exports given the strong demand for LHP machines in both Asia and Africa. Low capacity utilization of 60% also leaves an upside surprise on margin once volumes improve. We believe KKC remains best play on recovery in capex cycle. Maintain “BUY”.For all recommendations, click here 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.

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