Buy Cummins; target of Rs 1880: HDFC Securities

HDFC Securities' research report on Cummins

Cummins India Ltd (CIL) delivered a positive surprise with quarterly revenue/EBITDA/PAT at INR 19.2/3.3/3.2bn, beating our estimates by 7/15/33%. On a full-year basis, these were the highest ever. CIL is seeing strong pre-buy for its below 800kW power gensets as the CPCB 4+ norm will become effective from 1 July 2023. CIL, however, has only 20% of its portfolio above the 800kW rating. All its products under 800kW are undergoing significant change with electric components and better power density and system control than their mechanical counterpart. These products are expected to cost 20-50% higher. The export market is also robust with lower HP product sales in FY23 recording a growth of 40% YoY compared to 11% YoY growth in High HP products. Also, CIL has introduced its next iteration of Fit-For-Market 3.0 products, catering to the region and application-specific products for the export market. In CY24, CIL expects to ramp up its manned capacity, which is currently at a utilisation level of 90% as against its installed capacity utilisation of 60-65%.

Outlook

CIL has multiple tailwinds, namely, stringent upcoming norms, Capex cycle recovery, adoption of alternative fuels with lesser carbon footprint, revival in industrials and supporting manufacturing policies. We maintain BUY, with an unchanged SOTP of INR 1,880 (35x Mar-25 EPS).

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