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Cummins India
Aiming high
„Well positioned to double sales yet again in 4-5 years
Cummins India strategy as per FY11 annual report (highlights in Page 3) makes
us more confident of 20%+ EPS growth in FY12e and FY13e. Company is well
positioned to extend its market leadership and double sales by 2015. Key growth
drivers will be (1) expansion of product range, and (2) savings from new factory.
We maintain Buy and expect stock to rerate on sustained strong growth.
New products with ‘fit for market’ solution driving growth
Cummins India is looking to sustain the pace of product range expansion that was
key to doubling of sales in last four years. The new product strategy involving
expansion of product range in both higher and lower horsepower range will also
leverage product development capability in India that makes it fit for market and
hence offers better value proposition than its competitors.
Rise in cost reduction & govt incentive to support margin
Cummins India new factory started recently in Phaltan is more cost competitive
than existing unit owing to it being far leaner and in addition it enjoys host of govt
incentive including sales tax exemption. Rising contribution of Phaltan to nearly
50% of sales in five year from zero in FY11 is likely to boost profitability.
Valuation net of investments is attractive
Cummins India is trading at a PE of 18.8x FY12e and 15.6x our FY13e. However,
given the 20% growth prospects for FY12e and FY13e, and adjusted for its 50%
stake in group companies having combined net profit of Rs1.8bn in FY11, the
stock is trading at 15.3x FY12e and 13.6x FY13e, which is attractive, in our view.
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