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Investment Arguments
- Cummins India Limited (CIL) is a 51% subsidiary of Cummins USA
- CIL has a Competitive advantage over peers as its parent company is
equipped with best technologies of the World and has presence across all the
segments
- Cummins Global (USA) targets 15% share of India’s contribution to Global
Revenue from the current 10% share
-The Company’s Guidance is 45% and 21% in top line growth in FY11& FY12 with
stable operating margin
-Cummins Inc aims more than triple its investment in India from $150 million to
$500 million by 2015 which shows the group’s aggressive strategy in the Indian
market
Cummins India Limited (CIL), a 51% subsidiary of Cummins USA, is
India's leading manufacturer of diesel engines in 205 HP to 2365 HP range and
value packages serving the power generation, industrial and automotive
markets. It operates in two segments: Engine and Others. The Engine segment is
engaged in the manufacture of internal combustion engines, gensets and
parts used forvarious applications, such as power generation, construction,
compressor, mining,marine, locomotive and fire-fighting. Others segment includes
income from service solutions business. The Company has 50% interest in
joint ventures, including Cummins Exhaust India Limited, Cummins Research
and Technology India Limited and Valvoline Cummins Limited. Domestic Market
contributes 70% of total revenue and and export form 30% of total revenue.
Investment Arguments
Globally one of the leading independent technology players
With global revenues of US$10.8 Bn, Cummins Group USA is the world's largest
independent Diesel engine designer & manufacturer in above 200 Horse Power
(HP) categories and one of the strongest players catering to power generation,
industrial and automotive segments. Cummins group also has technology to
address growing demand for gas & dual fuel engines. Cummins USA is one of the
few MNC groups in India in which the parent group is making investments in the
listed Indian entity Cummins India (CIL) in developing new products and
technologies to create long term business visibility. Cummins group globally is one
of the preferred engine players across many industries and it provides competitive
edge and synergy to CIL India.
Introduction of new product segment
U.S. engine maker Cummins Inc aims to more than triple its investment in India
from $150 million to $500 million by 2015 as it introduces five new business
segments. The company, which manufactures truck engines, power generation
equipment and other vehicle components, plans to the new projects, could
include manufacturing of high-pressure fuel systems, 2.8-3.8 litre diesel engines
for commercial vehicles and emission solutions. By 2015, the group sees India's
contribution to its global business rising to 15 percent from the current 10
percent and exports from India rising to 40 percent from 30 percent.
Company guides for 45% and 21% revenue growth in FY11E & FY12E
Cummins shared continued growth momentum for FY12E revenue growth at
20% with stable operating margins - driven by both domestic and export
business. Domestic business would see contribution from rebuilds and
reconditioning units alongside supply from Tata Cummins JV in Auto engines.
Domestic market for Power Cogen engines should grow at 15-18%
annually. Export business will benefit from firm commitment of Cummins Inc to
source small generators less then 200 KVA and high HP engines from India
facility. For the near term, Cummins expects to grow at 10% qoq for
Q4FY11E and 45% for FY11E- citing current business environment and
YTD 2011 performance.
CIL to benefit from continuing power deficits
The power generator business is Cummins India’s biggest segment. We expect
this segment to benefit from continuing power supply deficits in India and
the growing demand for back-up power. The engines business caters to
various infrastructure and industrial construction segments and we expect this
segment to register a 25% growth over FY12-13. A significant improvement in
exports revenue– as Cummins India emerges as a key resource hub for
Cummins Inc. – is a key growth driver for the company. Against a backdrop
of severe short supply in power, the investments in power sector in last two
years of Eleventh Five Year Plan (FY08 to FY12E) are not sufficient to match
the demand supply gap of 12% -16%. Also, The Planning Commission of India
expects major shortfall in capacity addition in The Eleventh Plan with total
estimated capacity addition of 62,374 MW as compared to a target of 78,700
MW.
We expect growth of 25 % due to following reasons.
• Still most of the places in India face regular power cuts for many hours of the day.
Due to this, domestic & commercial consumers either buy diesel-powered portable
generators or inverters for un-interrupted power supply.
• About 25% - 30% of industrial consumption is still met by captive power plants as grid
power is not reliable, and dependence on the grid would mean being at the mercy of
SEBs who could impose power cuts.
• In addition to captive power generation requirements, CIL products are also targeted
at back up power for security, stability, connectivity and other requirements.
Enhancing capacity to drive the business growth
With strong demand from domestic as well as exports, CIL is setting up a greenfield
manufacturing facility at Phaltan, Maharashtra for increasing engine and
generator capacity, rebuilding facility and distribution centre. CIL is planning
total investments of Rs 1,400 mn and Rs 900 mn in FY12E and FY13E,
respectively, entirely from internal cash generations. We expect about 40%
increase in CIL gross block over FY12 to FY13E
Exports to increase on back of parents' outsourcing
CIL is one of the top three outsourcing locations identified by parent group along
with China and England for sourcing high horse power and medium horse power
engines. CIL exports engines up to 50 Litres to its parent group (V-28, K-38, and
K-50 series engines). Of the total exports, about 75% falls under engines in high
horse power category and the balance 25% is for generators under 200 KVA.
Recently, parent group has identified CIL as sourcing hub for
(1) Engines plant (6 litre capacity diesel as well as gas engine) with annual
capacity of 30,000 units for highway vehicles, power generation and off highway
equipments.
(2) Plant for manufacturing 15,000 units per annum of 200 KVA generators for
exports to parent group. The capacity will be scaled up to 40,000 units per annum
in three phases over next three years.
3) Unit for rebuilding and refurbishing of engines for domestic market. CIL has a
large population of engines which it plans to overhaul and rebuild. As the
population of engines increases this segment will also grow in future.
(4) Components & parts distribution centre which will centralize assembling and
distribution activities from a centralized location to cater to the requirements of
other plants of Cummins as well as aftermarket sales requirements.
Valuation
We expect CIL to grow revenues by 40% in FY11 and 20% in FY12 the stock is
trading at 19x and 16x FY11E & FY12E EPS estimate of Rs. 31 and Rs. 37
respectively. We assume the conservative fair PE Band of CIL is 20-21 for FY12
and hence our one year target will be Rs. 740. Stock has upside potential of 23%
from current price.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Investment Arguments
- Cummins India Limited (CIL) is a 51% subsidiary of Cummins USA
- CIL has a Competitive advantage over peers as its parent company is
equipped with best technologies of the World and has presence across all the
segments
- Cummins Global (USA) targets 15% share of India’s contribution to Global
Revenue from the current 10% share
-The Company’s Guidance is 45% and 21% in top line growth in FY11& FY12 with
stable operating margin
-Cummins Inc aims more than triple its investment in India from $150 million to
$500 million by 2015 which shows the group’s aggressive strategy in the Indian
market
Cummins India Limited (CIL), a 51% subsidiary of Cummins USA, is
India's leading manufacturer of diesel engines in 205 HP to 2365 HP range and
value packages serving the power generation, industrial and automotive
markets. It operates in two segments: Engine and Others. The Engine segment is
engaged in the manufacture of internal combustion engines, gensets and
parts used forvarious applications, such as power generation, construction,
compressor, mining,marine, locomotive and fire-fighting. Others segment includes
income from service solutions business. The Company has 50% interest in
joint ventures, including Cummins Exhaust India Limited, Cummins Research
and Technology India Limited and Valvoline Cummins Limited. Domestic Market
contributes 70% of total revenue and and export form 30% of total revenue.
Investment Arguments
Globally one of the leading independent technology players
With global revenues of US$10.8 Bn, Cummins Group USA is the world's largest
independent Diesel engine designer & manufacturer in above 200 Horse Power
(HP) categories and one of the strongest players catering to power generation,
industrial and automotive segments. Cummins group also has technology to
address growing demand for gas & dual fuel engines. Cummins USA is one of the
few MNC groups in India in which the parent group is making investments in the
listed Indian entity Cummins India (CIL) in developing new products and
technologies to create long term business visibility. Cummins group globally is one
of the preferred engine players across many industries and it provides competitive
edge and synergy to CIL India.
Introduction of new product segment
U.S. engine maker Cummins Inc aims to more than triple its investment in India
from $150 million to $500 million by 2015 as it introduces five new business
segments. The company, which manufactures truck engines, power generation
equipment and other vehicle components, plans to the new projects, could
include manufacturing of high-pressure fuel systems, 2.8-3.8 litre diesel engines
for commercial vehicles and emission solutions. By 2015, the group sees India's
contribution to its global business rising to 15 percent from the current 10
percent and exports from India rising to 40 percent from 30 percent.
Company guides for 45% and 21% revenue growth in FY11E & FY12E
Cummins shared continued growth momentum for FY12E revenue growth at
20% with stable operating margins - driven by both domestic and export
business. Domestic business would see contribution from rebuilds and
reconditioning units alongside supply from Tata Cummins JV in Auto engines.
Domestic market for Power Cogen engines should grow at 15-18%
annually. Export business will benefit from firm commitment of Cummins Inc to
source small generators less then 200 KVA and high HP engines from India
facility. For the near term, Cummins expects to grow at 10% qoq for
Q4FY11E and 45% for FY11E- citing current business environment and
YTD 2011 performance.
CIL to benefit from continuing power deficits
The power generator business is Cummins India’s biggest segment. We expect
this segment to benefit from continuing power supply deficits in India and
the growing demand for back-up power. The engines business caters to
various infrastructure and industrial construction segments and we expect this
segment to register a 25% growth over FY12-13. A significant improvement in
exports revenue– as Cummins India emerges as a key resource hub for
Cummins Inc. – is a key growth driver for the company. Against a backdrop
of severe short supply in power, the investments in power sector in last two
years of Eleventh Five Year Plan (FY08 to FY12E) are not sufficient to match
the demand supply gap of 12% -16%. Also, The Planning Commission of India
expects major shortfall in capacity addition in The Eleventh Plan with total
estimated capacity addition of 62,374 MW as compared to a target of 78,700
MW.
We expect growth of 25 % due to following reasons.
• Still most of the places in India face regular power cuts for many hours of the day.
Due to this, domestic & commercial consumers either buy diesel-powered portable
generators or inverters for un-interrupted power supply.
• About 25% - 30% of industrial consumption is still met by captive power plants as grid
power is not reliable, and dependence on the grid would mean being at the mercy of
SEBs who could impose power cuts.
• In addition to captive power generation requirements, CIL products are also targeted
at back up power for security, stability, connectivity and other requirements.
Enhancing capacity to drive the business growth
With strong demand from domestic as well as exports, CIL is setting up a greenfield
manufacturing facility at Phaltan, Maharashtra for increasing engine and
generator capacity, rebuilding facility and distribution centre. CIL is planning
total investments of Rs 1,400 mn and Rs 900 mn in FY12E and FY13E,
respectively, entirely from internal cash generations. We expect about 40%
increase in CIL gross block over FY12 to FY13E
Exports to increase on back of parents' outsourcing
CIL is one of the top three outsourcing locations identified by parent group along
with China and England for sourcing high horse power and medium horse power
engines. CIL exports engines up to 50 Litres to its parent group (V-28, K-38, and
K-50 series engines). Of the total exports, about 75% falls under engines in high
horse power category and the balance 25% is for generators under 200 KVA.
Recently, parent group has identified CIL as sourcing hub for
(1) Engines plant (6 litre capacity diesel as well as gas engine) with annual
capacity of 30,000 units for highway vehicles, power generation and off highway
equipments.
(2) Plant for manufacturing 15,000 units per annum of 200 KVA generators for
exports to parent group. The capacity will be scaled up to 40,000 units per annum
in three phases over next three years.
3) Unit for rebuilding and refurbishing of engines for domestic market. CIL has a
large population of engines which it plans to overhaul and rebuild. As the
population of engines increases this segment will also grow in future.
(4) Components & parts distribution centre which will centralize assembling and
distribution activities from a centralized location to cater to the requirements of
other plants of Cummins as well as aftermarket sales requirements.
Valuation
We expect CIL to grow revenues by 40% in FY11 and 20% in FY12 the stock is
trading at 19x and 16x FY11E & FY12E EPS estimate of Rs. 31 and Rs. 37
respectively. We assume the conservative fair PE Band of CIL is 20-21 for FY12
and hence our one year target will be Rs. 740. Stock has upside potential of 23%
from current price.
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