Cummins - Long-term bet; visit note; Hold ::Edelweiss PDF link

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Cummins (KKC IN, INR 451, Hold)

We attended the recently held investors meet for Cummins India (KKC IN), where management discussed the broad industry outlook and its long-term growth plans. While there has been some uptick in past 1-2 months in volume numbers in the HHP segment, export numbers in future, coupled with sustainability of recent improvement in the domestic market remains a key. Maintain ‘HOLD/SP’ rating.

Powergen volumes up; sustainability key monitorable

Management indicated that the company’s HHP powergen volume has improved 10% MoM for December, January and February. This was largely driven by revival in mining in the domestic market, while export picked up due to healthy volumes in Africa, Latin & North America. While management expects this improvement to continue, it does not expect to reach historic high growth rates anytime soon.

Cummins Inc. targets USD7bn India business by FY16E

Led by increased volumes at KKC’s mega-site for existing product lines, coupled with dedicated India manufacturing for LHP generators & other LHP products as part of Cummins Inc.’s global strategy, the group targets to attain a combined turnover of USD7bn by CY16 (CAGR of 25% over CY11-16E). Also, strong contribution from TCL2 at Phaltan for 9 ltr engines would contribute to the strong growth expectation, as per the management. It is expanding its portfolio further by building new plants for engines reconditioning and rebuild, which augurs well for KKC’s existing business.

Outlook and valuations: Recovery priced in; maintain ‘HOLD’

KKC’s No. 1 position in the high HP engines and gensets is further complimented by its existing portfolio of rebuild and recon plants at Phaltan. Also, Cummins Inc.’s strategy of assigning entire LHP product manufacturing to KKC augurs well in the long run. However, we believe, a sharp run up in the recent past largely factors in these near-to-medium-term positives. We maintain ‘HOLD/Sector Performer’ rating for KKC with a TP of ONR 413.

Cummins - Long-term bet; visit note; Hold