Cummins- Domestic Business Traction, HOLD:: Emkay,

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Cummins India

Domestic Business Traction, Maintain HOLD

HOLD

CMP: Rs 776                                       Target Price: Rs 820

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n     Cummins reported strong performance – revenue growth 76% yoy to Rs10.7 bn and APAT growth of 91% yoy to Rs1.7 bn

n     All-round performance - Domestic business grew 45% yoy to Rs7.9 bn and Export business grew 280% yoy to Rs2.8 bn

n     Management outlook comforting for capacity constraints, export business momentum and operating margins

n     Factoring 4-5% earnings upgrade for FY11E (Rs32/Share) and FY12E  (Rs37.3/Share) – Maintain ‘HOLD’ rating with revised target price of Rs820/Share

Cummins Q2FY11 performance exceeds expectations – APAT 32% ahead

of expectations

Cummins Q2FY11 performance exceeds expectation – APAT being 32% ahead of

expectation. Key highlights of the Q2FY11 performance is as under (1) revenue growth

of 76% yoy to Rs10.7 bn – driven strong growth in domestic and export business (2)

Ebidta growth of 89% yoy to Rs1.9 bn and (3) APAT growth of 91% yoy to Rs1.7 bn.

Cummins reported 130 bps yoy expansion in Ebidta margins to 18.1% - more

importantly held on to 18-20% range defying fears of decline in margins.

All-round performance- contribution from Domestic business and Export

business

It was all round performance with strong growth recorded by both domestic and export

business -

§ ‘Domestic’ business grew by 45% yoy in the quarter to Rs7.9 bn – with robust growth

in all product segments. It was power cogen which lead the growth, followed by

industrial engines, off-highways and automotive segment. Domestic business has

already surpassed the peak revenue run-rate.

§ ‘Export’ business moves along expected lines posting revenue of Rs2.8 bn, growth of

280% yoy. Cummins is just 20% lower then the peak run-rate- which it would surpass

in ensuing quarters.

Addresses concerns on capacity, export business and operating margins

Management outlook is positive, attempts to address few impending concerns – (1) On

capacity constraints – current capacity utilization combined with expansion at megasite

would lead to 20% addition in installed capacity every year (2) on export business –

would maintain current run-rate for next 2 quarters, quite positive and (3) operating

margins could possibly in 17-19% range, factoring cost reduction and marginal rise in

material prices.