Cummins India - Robust Exports Outlook; Domestic Market Recovery Awaited; Result Update Q2FY15 :: Edelweiss PDF link

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Cummins India (Cummins) reported better-than-expected Q2FY15 performance led by strong growth in exports (up 60% YoY), which coupled with a 20% plus price hike in low KVA gensets (CPCB II compliant engines) led to the 23% YoY surge in sales. The high 41% YoY growth in PAT was driven by the sharp drop in tax rate and higher other income. What is worth noting is that the power generation segment logged 5% YoY growth after 5-6 quarters of double-digit decline, led by the price hike taken. This came despite the 15% plus dip in industry growth in Q2FY15. Management has maintained its FY15E exports and domestic revenue guidance and expects power generation volume growth to pick up from mid-FY16. We raise our earnings for FY15E/FY16E by 6/4%, primarily on lower tax guidance and better other income. We maintain ‘BUY’ with a revised TP of INR814 (INR 715 earlier), assigning a PE of 26x on strong and sustainable exports outlook and improved prospects for the domestic power generation segment.

Export revenue, price hikes bolster top line

Cummins surprised with a strong top-line growth, led by robust growth in export volumes to the UK, US and one-time exports to China. The company also took a 20% plus price hike in the lower than 800kva segment - supplies CPCB II compliant electronic gensets in the domestic market. Management maintained its FY15 growth guidance of 30% exports and 5-10% overall revenues, while it set the tax rate at 18-20% for FY15 on account of higher exports from SEZ and exempt  income.

Targeting 20% global market share in low KVA gensets

Management targets to achieve peak revenue of INR20bn in the Iow KVA gensets by FY18-19, implying 20% global market share. Cummins is already working on expanding its dealer network world-wide.

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