Premium justified Cummins India’s (CIL) 3QFY15 results :: HDFC Securities

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->
Premium justified Cummins India’s (CIL) 3QFY15 results were below estimates as revenue growth (+6% YoY vs. expectation of 20%) disappointed. Growth was once again driven by exports (+39% YoY) even as domestic sales de-grew by 9%. Lower tax rate (13%) led to 18% YoY PAT growth. With available spare capacity, CIL stands to benefit from an expected revival in domestic industrial activity. Revival in HHP exports and increasing export traction in the LHP range are additional growth levers. CIL’s globally diversified business, market leadership position and high RoE (29%, over FY09- FY14) will help sustain premium valuations. We broadly maintain our FY15/16/17 estimates and retain BUY on the stock with an increased TP of Rs 985/sh (from 875), based on 29x FY17E EPS of Rs 34/sh.  Domestic sales – YoY, Powergen declined 22%, Industrial went up by 10%, Automotive declined by 29% and Distribution declined by 2%. Sequentially, Powergen declined 10%, Industrial increased by 43%, Automotive increased 4% and Distribution was flat.  Exports grew 39% YoY to Rs 3.9bn. Growth in exports has been driven by LHP gensets as well as by a revival in the HHP markets. Management expects exports to grow by 30% in FY15 with possible upside, followed by low teen growth in FY16.  Domestic power gen market continues to remain challenging. However, industrial segment benefitted from improved spending in defence, rail and marine sectors. Capacity utilisation was 60-65%. Since the company has spare capacity, company can benefit immediately from a revival in domestic infra spends.  Management was optimistic of a revival in domestic demand in FY16; however, there has been no pick up as yet in industrial activity. Exports will continue to be the main growth driver in FY15 and 1HFY16.  Consistent delivery, strong cash generation and high return ratios justify CIL’s premium valuation. Retain BUY with a TP of Rs 985/sh based on 29x FY17E EPS.

LINK
http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3011115