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CUMMINS INDIA
Strong overall outperformance; maintain conviction
Strong revenue and PAT numbers for Q2FY11
Cummins reported strong set of numbers for Q2FY11, which were above our and
consensus estimates by 34% & 25%, respectively in revenue terms. Domestic
market contributed 75% of the total revenues and grew at a strong 45% YoY for
Q2FY11, while exports grew at a stellar 280% YoY to Rs 2.7 bn. For H1FY11,
Cummins saw a 59% YoY growth in revenues, and a bottom-line growth of 74%
YoY, led by strong volumes and margin improvement.
Improved growth outlook; Next two quarters to remain strong
While management expects the domestic market demand to remain strong with
around 40-50% growth in FY11 across key verticals like power generation,
industry etc, the traction in export markets is far stronger with Q1 & Q2FY11
revenues growth at 131% & 280% YoY. Cummins exports engines upto 50 litres
in the high horse power category largely to its parent company.
Phaltan mega-site capex on track
Cummins will invest INR1 bn in FY11E & INR 1.5 bn in FY12E towards expansion
at its Greenfield meta-site in western Maharashtra & expects the new plant to be
fully operational wef April, 2011. Apart from engines re-building and repairs
facility, Cummins will also have a generators manufacturing plant with an annual
capacity of 40000 generators ( 10-200 kva) per annum and expects to attain ~
40-50% utilization levels in the initial years. Cummins is currently facing
capacity constraints with utilization levels near peak levels at around 80-90%
which justifies the capex undertake by the company couple of quarters ago.
Outlook and valuation: Exciting times ahead; maintain ‘BUY’
Cummins has posted strong positive surprise in H1FY11 profit numbers leading
to revision of our estimates on account of better than expected demand in both
domestic and export market. We maintain our BUY/SO rating for the stock and
expect the buoyant demand scenario to continue particularly in the domestic
market. Also, we believe outsourcing from the parent would continue to support
Cummins India’s plants in India. Cummins trades at a PE of 24x & 18x for FY11E
& FY12E respectively.
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