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Disappointing numbers; PAT moderates
Cummins India (KKC) reported disappointing set of numbers, with top-line up
only 20% Y-o-Y (estimated: 28%), largely due to 6% Y-o-Y and 12% Q-o-Q drop
in domestic revenues (70% of sales for Q3FY11). Also, PAT declined by 6% YoY
for the quarter, owing to high base last year on account of larger mix of High HP
product sales.
9mFY11 exports up 200%; FY11 revenue guidance maintained
Exports continue to remain strong with, up 200%+ Y-o-Y for Q3FY11 and
9mFY11, on the back of strong volumes shipped to global entities of KKC Inc.
Management maintains its FY11 revenue guidance (Company level) at 45%+,
which seems achievable to us.
Expansion to contribute to FY12E revenues
Management expects phase I of capex at Phaltan to start contributing to
revenues in FY12E. Also, the rebuilding and reconditioning centre is close to
completion, with total investment of INR 80 cr; it is expected to contribute INR 2
bn to FY12E distribution revenues. KKC is expected to double its overall capacity
across products over FY10-14E. Currently, it has a capacity of 25 engines per
day in the high horse power category and a similar capacity in heavy duty
engines, while medium HP engines have a capacity of 200,000 units per annum.
Reduced dividend from subsidiaries & JVs in FY11E
KKC has reported lower other income in 9MFY11 (down 40% YoY) owing to
reduced dividend income from related parties like Cummins Valvoline, Cummins
Generator etc. We have reduced our EPS for FY11E & FY12E building in nil
dividend income from these Subsidiaries/JVs etc, cutting our EPS by 2.4% &
4.5%, for FY11E & FY12E, respectively.
Outlook and valuations: Exciting times ahead; maintain ‘BUY’
The company maintained healthy revenue growth of 45% for 9mFY11, led by
strong growth in export revenues. We expect the company to maintain
momentum in export revenues, given strong outlook by the parent for increased
outsourcing from Indian plants, especially low KV generators, engines etc. We
maintain our ‘BUY/Sector Outperformer’ recommendation/rating on CIL. The
stock is currently trading at P/E of 21x and 16x FY11E and 12E, respectively.
Current utilization level at 85%+
KKC’s average plant utilization is currently at ~80-85%, which it expects to maintain,
going ahead, given strong export requirement and decent traction in the domestic
market. We expect KKCs export revenues in FY11E to growth by more than 125% to Rs
11 bn and for FY12E to be ahead of peak export levels of FY09 which stands at Rs 13 bn.
Company Description
KKC is a subsidiary of Cummins, US, which holds 51% stake in the company. It is a
leading manufacturer of medium-high HP range of diesel engines in India with
manufacturing facilities in Pune and Daman.
Investment Theme
KKC is a play on the multiple segments of power requirement, rising mobile penetration
across rural and suburban geographies, strong coal requirement (driving demand in
mining), and continued growth in automobile sales on the back of large potential in
environment-friendly natural gas fuel-based engines. We expect KKC to benefit from
growth in the above segments. Furthermore, KKC will benefit from Phaltan expansion
which should cater to KKC’s growing business demands from FY12.
Key Risks
Any slowdown in the economy is bound to have an impact on the capital goods industry.
By nature, the capital goods industry is the first to be affected by an economic slowdown
and the last to benefit from an economic upturn. Besides, KKC derives a large chunk of
its revenues from export markets. While we expect the export markets for the company
to revive in FY11E & FY12E, any further deferment in recovery would pose a significant
down side risk to our estimates.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Disappointing numbers; PAT moderates
Cummins India (KKC) reported disappointing set of numbers, with top-line up
only 20% Y-o-Y (estimated: 28%), largely due to 6% Y-o-Y and 12% Q-o-Q drop
in domestic revenues (70% of sales for Q3FY11). Also, PAT declined by 6% YoY
for the quarter, owing to high base last year on account of larger mix of High HP
product sales.
9mFY11 exports up 200%; FY11 revenue guidance maintained
Exports continue to remain strong with, up 200%+ Y-o-Y for Q3FY11 and
9mFY11, on the back of strong volumes shipped to global entities of KKC Inc.
Management maintains its FY11 revenue guidance (Company level) at 45%+,
which seems achievable to us.
Expansion to contribute to FY12E revenues
Management expects phase I of capex at Phaltan to start contributing to
revenues in FY12E. Also, the rebuilding and reconditioning centre is close to
completion, with total investment of INR 80 cr; it is expected to contribute INR 2
bn to FY12E distribution revenues. KKC is expected to double its overall capacity
across products over FY10-14E. Currently, it has a capacity of 25 engines per
day in the high horse power category and a similar capacity in heavy duty
engines, while medium HP engines have a capacity of 200,000 units per annum.
Reduced dividend from subsidiaries & JVs in FY11E
KKC has reported lower other income in 9MFY11 (down 40% YoY) owing to
reduced dividend income from related parties like Cummins Valvoline, Cummins
Generator etc. We have reduced our EPS for FY11E & FY12E building in nil
dividend income from these Subsidiaries/JVs etc, cutting our EPS by 2.4% &
4.5%, for FY11E & FY12E, respectively.
Outlook and valuations: Exciting times ahead; maintain ‘BUY’
The company maintained healthy revenue growth of 45% for 9mFY11, led by
strong growth in export revenues. We expect the company to maintain
momentum in export revenues, given strong outlook by the parent for increased
outsourcing from Indian plants, especially low KV generators, engines etc. We
maintain our ‘BUY/Sector Outperformer’ recommendation/rating on CIL. The
stock is currently trading at P/E of 21x and 16x FY11E and 12E, respectively.
Current utilization level at 85%+
KKC’s average plant utilization is currently at ~80-85%, which it expects to maintain,
going ahead, given strong export requirement and decent traction in the domestic
market. We expect KKCs export revenues in FY11E to growth by more than 125% to Rs
11 bn and for FY12E to be ahead of peak export levels of FY09 which stands at Rs 13 bn.
Company Description
KKC is a subsidiary of Cummins, US, which holds 51% stake in the company. It is a
leading manufacturer of medium-high HP range of diesel engines in India with
manufacturing facilities in Pune and Daman.
Investment Theme
KKC is a play on the multiple segments of power requirement, rising mobile penetration
across rural and suburban geographies, strong coal requirement (driving demand in
mining), and continued growth in automobile sales on the back of large potential in
environment-friendly natural gas fuel-based engines. We expect KKC to benefit from
growth in the above segments. Furthermore, KKC will benefit from Phaltan expansion
which should cater to KKC’s growing business demands from FY12.
Key Risks
Any slowdown in the economy is bound to have an impact on the capital goods industry.
By nature, the capital goods industry is the first to be affected by an economic slowdown
and the last to benefit from an economic upturn. Besides, KKC derives a large chunk of
its revenues from export markets. While we expect the export markets for the company
to revive in FY11E & FY12E, any further deferment in recovery would pose a significant
down side risk to our estimates.
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