Sell Cummins India; target of Rs 330: Motilal Oswal

Motilal Oswal 's research report on Cummins India

Cummins (KKC) reported weakest top line performance (-63%YoY) in our coverage universe as the company could operate for just one month in 1QFY21. Note that top line included INR1.9b (or 38% of 1QFY21 revenue) of deferred revenue from last quarter. Gross margin surprise was largely on account of favorable sales mix with higher contribution from the distribution business. This is likely to reverse as revenue should normalize hereon. Cost cutting benefits (from employee cost and other expenses) were lower than our expectations (v/s other companies in our coverage universe). We fear that cost cutting measures would not be able to make up for the weak revenue outlook. CPCB4+ led export opportunity remains a key positive for KKC. However, with the likely deferment of implementation by 9-12 months implies that any benefits from this opportunity would accrue only from FY23. We largely maintain our FY21/22E estimates and our TP of INR330. Maintain Sell.

Outlook

We largely maintain our FY21/FY22E estimates and our TP of INR330 (15x Mar’22E EPS). Other income (largely driven by dividend and rental income), constituted 43% of PBT in FY20 and supported the company’s overall RoE. Adj. for the same, RoE declined to 8.9% in FY20 from reported 15.4%, indicating pain in the core business. Maintain Sell.

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