The story so far ………..
Cummins India is the 51% subsidiary of Cummins Inc- US and has a dominant 35% market share in diesel engines. The company has quite clearly demonstrated its ability to leverage its strong brand equity and technology edge in a challenging business environment both globally and in India. We expect the company to maintain margins and end FY'13 with a growth of 12.5% in its domestic business and 6% in its international business (exports is close to 30% of revenues). Much of this growth is volume led as price increase this year was only 2% and in a scenario wherein diesel prices have been on an uptick the performance is quite creditable as the power shortage leaves consumers with little choice but to shift towards standby applications.
The story ahead ………..
With the new Power Gen facility going on stream in June this year we expect this business to grow at a CAGR of 20% and Cummins has stepped up capital expenditure significantly for next fiscal at around 550crs from 230crs this year. Going forward the plan is to move people to its new upcoming India office thereby freeing up land at its existing facility at Kothrud in Pune.
Industrial, Automotive, Distribution and Service contract businesses are growing at a steady pace despite the industrial slowdown. Exports are led primarily by high HP products but we believe that the low HP gensets is gaining significant traction this year and exports could in our view clock a higher growth of 8% next fiscal.
In our view the new emission norms from October this year would induce some amount of pre-buying in India as Cummins products could get costlier by close to 20% once the new norms are in place. Cummins is a debt-free company running a 30% ROE business and with cash of 1000crs on its balance sheet the valuation at 17x one-year forward earnings is unlikely to get cheaper. We recommend a BUY with a one-year price target of Rs600.
Thanks and Regards
LKP Advisory
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