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We recommend Cummins India a “BUY”. Cummins India is country’s leading manufacturer of Diesel and
Gas Engines with strong foundation, unmatched technology & products, scale and time tested strategies.
The company doubled its revenue in the last five years to INR3945.44 crores and is poised to grow at a
CAGR of 14% for the next five years. Cummins India would make headway from the operations at
Megasite at Phaltan in coming years which would foster the margin back to the historic levels and
contribute around additional of INR1500crores to the revenues by 2015.
Substantial Revenue growth despite multiple headwinds: Despite of high interest rates and commodity
prices coupled with uncertain global environment, the company has been growing at a CAGR of 16.47%
for the last 5 years. It is poised to grow at a CAGR of 14% for the next 5 years with improved outlook on
export demand and substantive growth across all segments, particularly in segments like power
generation and industrial business which contribute around 45% and 20% to the total revenue
respectively.
New products to aid to future growth; Margins bottoming out: Cummins elasticity of adopting the new
technology and using the same efficiently will help the margins to bottom out. It will significantly benefit
from the enhanced products built‐in with new emission power generation norms and industrial engines
due to superior product development capabilities. Hence, with the improving demand scenario and
correction in commodity prices, there will be an upside in EBITDA margins, going forward.
Expansion at Phaltan Megasite to fuel Cummins future growth Engine: Cummins is well placed with its
expansion initiatives at Megasite, Phaltan. It constitutes almost 10 facilities in total, out of which 4 are
operational and remaing would be operational by 2016 and contribute additional INR1500 crores to the
overall revenue. The 2 operational facilities namely Upfit centre & MIDC SEZ would add up annual
capacity of 20,000MW & 51,000MW respectively.
Power Generation Business to act as power booster: The company expects the Power generation
business to grow at a CAGR of 12‐15%% over the next five years. The growth will be mainly driven by 1)
market growth 2) LHP export opportunity at MIDC SEZ 3) larger penetration in the domestic LHP market
(though might come at lower margins) and 4) tapping the bio mass opportunity. The company
anticipates some pre‐buying behavior to show up before the change in the emission norms in July 2013
which would contribute heavily to the revenues. Cummins is confident that it will be able to penetrate
the market much better post the norm change, given its technology leadership and readiness with the
product to meet the revised needs of the customers
Cummins‐Cash enriched and Steady Balance Sheet: The Company has enough cash to carry on its future
operation and expansions. It has strong balance sheet with healthy reserves and low debt.
