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Cummins India ---------------------------------------------------------------- Maintain OUTPERFORM
Growth to rebound from March quarter; Strong guidance for FY12
● In a post-result conference call, management attributed the
shortfall to one-offs – lower working days in the quarter and
temporary supply chain correction, due to component constraints
at customer end. Growth is expected to rebound in March quarter.
● Management highlighted that although powergen’s growth may
have been slower than the past, demand from industrial segment
remains robust. Management remained positive on India business
and reiterated strong capex plans (Rs4-5 bn in FY11/12).
● Guidance (FY12) maintained at 20% YoY with margins expanding
100 bps. With news articles (ET) quoting management’s view of
20-30% growth for India in the coming years, current guidance
could serve to be a base case in our view.
● While most MNCs raise stakes in Indian units to use India as
export hub, Cummins’ ownership remains 51% and it has US$1.4
bn cash reserves. We factor in the 3Q earnings miss and
management growth expectations. This moderates FY11-13 EPS
which are revised down 5-13%. OUTPERFORM maintained with
revised TP of Rs760 (from Rs872). (JVs valued at Rs30/share.)
Dec quarter a one-off; growth targets maintained
In a post-result conference call, management highlighted that the
reason for shortfall in 3Q sales was due to fewer working days in the
quarter, some supply chain correction leading to lower sales to OEMs
(as OEMs had supply constraints that impacted their production).
Management also highlighted that since they came off a mini labour
strike in December last year, pending shipment for previous quarter
was booked in December and further wages were lower. These
comments and the fact that sales are expected to rebound next
quarter and grow at over 20% YoY in the coming year make us
believe that the shortfall was a quarter-specific event.
Commentary from management was positive and although it may
have highlighted slower growth in power gen segment (compared to
the 50% growth rates in the past), it was very positive on growth in
industrial segment and exports. Feedback from Greaves Cotton’s
analyst meet on Friday also seemed to indicate no signs of slowdown
as yet (slower pace of growth, but not a slowdown).
Guidance maintained
Management highlighted that while the powergen segment’s growth
may have slowed compared to the past few quarters, demand from
the industrial segment remains robust. Management expects sales to
rebound 10% QoQ and expects over 20% YoY growth in FY12.
Margins are expected to grow 100 bps in FY12. In a recent new article
(ET), management was quoted as expecting 20-30% growth for India
over the coming years, hence the current guidance may serve as a
base case in our view.
Focus on India increasing; India to be an export hub
Cummins Inc. intends to spend US$500 mn in India over the coming
years to expand manufacturing facilities in the country. Management
has been quoted in news reports (Economic Times) suggesting that it
is scouting for more land, ~200 acres (Cummins has 300 acres at
Phaltan) and intends to add over 4,500 employees to the group
(current ~13,000 in India). Cummins Inc. also outlined plans to make
India an export hub for Asia, Africa and the Middle East. An increasing
focus on exports should increase the mix of exports from ~30%;
however, management highlighted that it expects the mix to broadly
remain the same, suggesting strong domestic market growth.
On the risks front, management highlighted that increasing interest
rates to contain liquidity and inflation may not be a correct strategy by
policy makers (as this impacts demand), instead, focus should be on
increasing supply-side response through promoting investment.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Cummins India ---------------------------------------------------------------- Maintain OUTPERFORM
Growth to rebound from March quarter; Strong guidance for FY12
● In a post-result conference call, management attributed the
shortfall to one-offs – lower working days in the quarter and
temporary supply chain correction, due to component constraints
at customer end. Growth is expected to rebound in March quarter.
● Management highlighted that although powergen’s growth may
have been slower than the past, demand from industrial segment
remains robust. Management remained positive on India business
and reiterated strong capex plans (Rs4-5 bn in FY11/12).
● Guidance (FY12) maintained at 20% YoY with margins expanding
100 bps. With news articles (ET) quoting management’s view of
20-30% growth for India in the coming years, current guidance
could serve to be a base case in our view.
● While most MNCs raise stakes in Indian units to use India as
export hub, Cummins’ ownership remains 51% and it has US$1.4
bn cash reserves. We factor in the 3Q earnings miss and
management growth expectations. This moderates FY11-13 EPS
which are revised down 5-13%. OUTPERFORM maintained with
revised TP of Rs760 (from Rs872). (JVs valued at Rs30/share.)
Dec quarter a one-off; growth targets maintained
In a post-result conference call, management highlighted that the
reason for shortfall in 3Q sales was due to fewer working days in the
quarter, some supply chain correction leading to lower sales to OEMs
(as OEMs had supply constraints that impacted their production).
Management also highlighted that since they came off a mini labour
strike in December last year, pending shipment for previous quarter
was booked in December and further wages were lower. These
comments and the fact that sales are expected to rebound next
quarter and grow at over 20% YoY in the coming year make us
believe that the shortfall was a quarter-specific event.
Commentary from management was positive and although it may
have highlighted slower growth in power gen segment (compared to
the 50% growth rates in the past), it was very positive on growth in
industrial segment and exports. Feedback from Greaves Cotton’s
analyst meet on Friday also seemed to indicate no signs of slowdown
as yet (slower pace of growth, but not a slowdown).
Guidance maintained
Management highlighted that while the powergen segment’s growth
may have slowed compared to the past few quarters, demand from
the industrial segment remains robust. Management expects sales to
rebound 10% QoQ and expects over 20% YoY growth in FY12.
Margins are expected to grow 100 bps in FY12. In a recent new article
(ET), management was quoted as expecting 20-30% growth for India
over the coming years, hence the current guidance may serve as a
base case in our view.
Focus on India increasing; India to be an export hub
Cummins Inc. intends to spend US$500 mn in India over the coming
years to expand manufacturing facilities in the country. Management
has been quoted in news reports (Economic Times) suggesting that it
is scouting for more land, ~200 acres (Cummins has 300 acres at
Phaltan) and intends to add over 4,500 employees to the group
(current ~13,000 in India). Cummins Inc. also outlined plans to make
India an export hub for Asia, Africa and the Middle East. An increasing
focus on exports should increase the mix of exports from ~30%;
however, management highlighted that it expects the mix to broadly
remain the same, suggesting strong domestic market growth.
On the risks front, management highlighted that increasing interest
rates to contain liquidity and inflation may not be a correct strategy by
policy makers (as this impacts demand), instead, focus should be on
increasing supply-side response through promoting investment.
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