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Cummins India -Value in slower but sustainable growth
„Maintain Buy on sustainability of 18% growth; PO down 16%
Cummins India Q3FY11 PAT declined 6% and missed our estimate by 21%.
Slower genset sales owing to slower infra growth and lesser working days owing
to 10 days plant shutdown led to earning miss. We have cut earnings and hence
PO by 16% to Rs760. We have maintained a Buy as we expect the company to
sustain 18%+ profit growth owing to exports and commencement of old engine
rebuild center. At our PO of Rs760 the stock would trade at 20x FY12e adjusted
for Rs40/sh as the value of its investment in several JV companies.
Earnings estimate cut on Q3FY11 miss and slowing macro
We have cut our growth assumptions within India and hence have cut FY11e EPS
by 11%, FY12e EPS by 20%, and FY13e EPS by 16%. We now expect EPS to
grow 37% in FY11e, 18% in FY12e and 19% in FY13e. We expect earnings
growth to be stronger compared to Q3FY11e given that the quarter had higher
base as the company’s Q3FY10 PBT was higher by Rs300mn following
production spillover from Q2FY10 owing to worker unrest.
Sharp jump in capex plan boosts long term outlook
Cummins announced a capex plan of Rs4bn-5bn per annum in next three year,
which is 3x of our expectation. Company aims to double capacity and improve
technical capability so to become the export hub for Cummins Inc for Middle East,
Asia and Africa for the sub 200KVA and 1000 KVA+ genset. The company is also
confident of maintaining ROCE and hence the growth in investment is positive.
Key risk is domestic slowdown owing to rising interest rate
Our assumption of 21% sales growth in FY12e could be impacted by rising
interest, which could lead to economic slowdown. Rise in exports though could
partly compensate for a domestic slowdown.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Cummins India -Value in slower but sustainable growth
„Maintain Buy on sustainability of 18% growth; PO down 16%
Cummins India Q3FY11 PAT declined 6% and missed our estimate by 21%.
Slower genset sales owing to slower infra growth and lesser working days owing
to 10 days plant shutdown led to earning miss. We have cut earnings and hence
PO by 16% to Rs760. We have maintained a Buy as we expect the company to
sustain 18%+ profit growth owing to exports and commencement of old engine
rebuild center. At our PO of Rs760 the stock would trade at 20x FY12e adjusted
for Rs40/sh as the value of its investment in several JV companies.
Earnings estimate cut on Q3FY11 miss and slowing macro
We have cut our growth assumptions within India and hence have cut FY11e EPS
by 11%, FY12e EPS by 20%, and FY13e EPS by 16%. We now expect EPS to
grow 37% in FY11e, 18% in FY12e and 19% in FY13e. We expect earnings
growth to be stronger compared to Q3FY11e given that the quarter had higher
base as the company’s Q3FY10 PBT was higher by Rs300mn following
production spillover from Q2FY10 owing to worker unrest.
Sharp jump in capex plan boosts long term outlook
Cummins announced a capex plan of Rs4bn-5bn per annum in next three year,
which is 3x of our expectation. Company aims to double capacity and improve
technical capability so to become the export hub for Cummins Inc for Middle East,
Asia and Africa for the sub 200KVA and 1000 KVA+ genset. The company is also
confident of maintaining ROCE and hence the growth in investment is positive.
Key risk is domestic slowdown owing to rising interest rate
Our assumption of 21% sales growth in FY12e could be impacted by rising
interest, which could lead to economic slowdown. Rise in exports though could
partly compensate for a domestic slowdown.
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