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21.3x FY2012E
CMP : Rs796
RECO : HOLD
TP : Rs820
Investment Rationale
§ Engines business in cyclical upturn
Ø Largest engine manufacturer in India with exposure in Power Gensets and Industrial application
§ With Exports picking up – factor in 3x growth in FY10-12E
Ø Parent company Cummins Inc. global operations has improved outlook
Ø Cummins Inc to source new products from Cummins India (low HP gensets and diesel engines)
§ Cummins India to increase capacity with new facility ‘Megasite’ at Phaltan, Maharashtra
Ø Capacity increase by 45,000 units for power gensets
§ Strong ROE and ROCE at 33.4% and 47% respectively
§ Revenues and Earnings likely to grow at 27% CAGR in FY10-12E period
Valuations
§ At CMP, the stock is discounting FY11E and FY12E earnings of Rs32.0/Share and Rs37.3/Share at 24.9X and
21.3X respectively
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