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Cummins India — Exuding confidence
Country Overview
Company guidance of 20% growth in FY12 is encouraging
Cummins India reported 25% growth in profit in Q4FY11 and guided to 20%
revenue growth in FY12, which are in line with our expectations. The company
also expects to sustain its PBT margin at around 19.1%, similar to Q4FY11 and
marginally lower than FY11 PBT margin of 19.5%. We maintain our Buy rating, as
we believe that the stock is attractive at an adjusted PE of 13.6x FY13e, given its
20% growth prospects.
Strong domestic demand beating expectation
Cummins India has beaten our expectations in the domestic market in Q4FY11
by growing at 28%. The company expects its domestic sales, contributing 74% of
FY11 revenue, to grow by 25% in FY12, as it sees sustained strong demand for
diesel gensets and engines for mining/construction equipment. Stronger-thanexpected growth in the domestic market, however, has been partly neutralized by
less-than-estimated growth in exports, and company expects exports to grow by
15% in FY12.
Margin to stabilize at Q4FY11 level on easing cost pressure
The sharp rise in pig iron and other raw material costs, along with the increase in
contribution from exports, impacted profit margins during FY11. The PBT margin
declined from 21% in FY10 to 19.5% in FY11 and 19.1% in Q4FY11. The
company took a 1% price hike in Apr2011 and plans another 1% price hike by
July 2011 to offset cost pressures. We also expect the company to benefit from
subdued steel prices during FY12, as well as the change in revenue mix in favor
of the domestic market. Accordingly, we are slightly adjusting our estimates.
Valuation attractive, given 20%+ growth & investments
Cummins India is trading at a PE of 18.6x FY12e and 15.5x FY13e. However,
given the 20% growth prospects for FY12e and FY13e, and adjusted for its 50%
stake in associate companies having a combined net profit of Rs1.8bn in FY11,
the stock is trading 15.2x FY12e and 13.6x FY13, which is attractive, in our view.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Cummins India — Exuding confidence
Country Overview
Company guidance of 20% growth in FY12 is encouraging
Cummins India reported 25% growth in profit in Q4FY11 and guided to 20%
revenue growth in FY12, which are in line with our expectations. The company
also expects to sustain its PBT margin at around 19.1%, similar to Q4FY11 and
marginally lower than FY11 PBT margin of 19.5%. We maintain our Buy rating, as
we believe that the stock is attractive at an adjusted PE of 13.6x FY13e, given its
20% growth prospects.
Strong domestic demand beating expectation
Cummins India has beaten our expectations in the domestic market in Q4FY11
by growing at 28%. The company expects its domestic sales, contributing 74% of
FY11 revenue, to grow by 25% in FY12, as it sees sustained strong demand for
diesel gensets and engines for mining/construction equipment. Stronger-thanexpected growth in the domestic market, however, has been partly neutralized by
less-than-estimated growth in exports, and company expects exports to grow by
15% in FY12.
Margin to stabilize at Q4FY11 level on easing cost pressure
The sharp rise in pig iron and other raw material costs, along with the increase in
contribution from exports, impacted profit margins during FY11. The PBT margin
declined from 21% in FY10 to 19.5% in FY11 and 19.1% in Q4FY11. The
company took a 1% price hike in Apr2011 and plans another 1% price hike by
July 2011 to offset cost pressures. We also expect the company to benefit from
subdued steel prices during FY12, as well as the change in revenue mix in favor
of the domestic market. Accordingly, we are slightly adjusting our estimates.
Valuation attractive, given 20%+ growth & investments
Cummins India is trading at a PE of 18.6x FY12e and 15.5x FY13e. However,
given the 20% growth prospects for FY12e and FY13e, and adjusted for its 50%
stake in associate companies having a combined net profit of Rs1.8bn in FY11,
the stock is trading 15.2x FY12e and 13.6x FY13, which is attractive, in our view.
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