Cummins India Ltd. share price target

Cost rationalisation in addition to domestic recovery drives decent performance during Q2FY21 Cummins India Ltd (CIL) topline was at `11.6bn (-11% YoY;+133% QoQ).EBIDTA of `1.9bn +25% YoY was despite YoY revenue decline, was supported by better revenue mix of high margin Export + distribution business contributing 63% of sales compared to 52% in Q2FY20, which itself led to gross margin expansion of 3.1 bps YoY to 38.1% and cost rationalization measures lead to another 170bps YoY improvement in margins. EBIDTA margins for the quarter stood at 16.4% (+4.8 bps YoY)....

While Cummins (KKC) reported in-line revenue, EBITDA came in 25% higher than our estimates. This was largely owing to favorable mix (higher contribution of distribution segment and export revenue), continued cost rationalization measures, and cut in employee wages. Further, cost reduction was aided by the reduction in warranty and royalty expenses. As sales normalize and lower margin domestic product sales pick up, gross margin is likely to reverse to historical levels. Also, KKC had reduced employee wages by 10-20% during the lockdown owing to decline in...

We recommend Buy on Cummins India (Cummins) with a PT of Rs606, given high net earnings growth trajectory over FY2021E-FY2023E and discounted valuations. The company reported strong outperformance on OPM led by favorable mix , cost reduction measures and pricing impact. Export revenues rise 18% y-o-y while domestic revenues declined 22% y-o-y. Company is witnessing m-o-m and q-o-q recoveries pretty much in every segment....

We recommend Buy on Cummins India (Cummins) with a PT of Rs606, given high net earnings growth trajectory over FY2021E-FY2023E and discounted valuations. The company reported strong outperformance on OPM led by favorable mix , cost reduction measures and pricing impact. Export revenues rise 18% y-o-y while domestic revenues declined 22% y-o-y. Company is witnessing m-o-m and q-o-q recoveries pretty much in every segment....

led by faster recovery in distribution, construction and mining segments. Going ahead, KKC expects demand to improve across various segment in domestic market. Within exports market early signs of demand recovery in few export markets (~Asia Pacific, Europe & Latin America) were visible leading to better exports. As second wave of Covid seems to be started and lockdown is already announced in some regions, the market conditions continue to remain uncertain in the export market. In short term we are cautious on account of impact of second Covid wave and...

Q1FY21 Performance Sales came in at `4,982mn which was impacted as two months of revenue loss due to closure of factories on account of pandemic. EBITDA declined by 98% YoY to `29mn with EBITDA margin coming at 0.6% compared to 11.3% in Q1FY20. EBITDA was profitable at `876mn due to lower employee cost (-16% YoY,-18% QoQ) and decline in other expenses (-47.8% YoY,-45.7% QoQ). PAT came in at `526mn on account of higher other income which grew 32.9% YoY and 13.8% QoQ to `1,022mn led by tax reversal of `0.3bn and rental income. Post the gradual...

Management remains cautious on demand recovery in both Domestic and Exports market and expects current economic scenario to persist in short run. Cummins India (KKC) reported a decent performance for 1Q amidst the pandemic with cost control measures and higher other income boosting profitability. Execution was weak on account of severe impact of Covid-19 pandemic as factory sites were in containment zone. Domestic/exports revenues decline 64%/61% YoY for the quarter. Within the domestic market,...

Commercial/ Residential real estate activities expected to remain sluggish & will take longer time to recover, while data centers&healthcarewouldlikelytosupportpowergenbiz.Rail &Mining(55%ofindustrialsales)toleadindustrialbizrecovery innext23quarters.Significantdemanduncertaintiespersistin...

technology access may not be as big a barrier to competitors (KOEL, Mahindra, and Perkins), end markets may not be strong enough to absorb such steep price hikes (similar learning from the earlier transition from CPCB-I to CPCB-II), the implementation date is set as July 2021, which may be pushed by six to nine months, especially given the COVID- 19-led disruption. However, the key end markets Manufacturing, Real Estate, Retail, and Hospitality are likely to remain under pressure, with a sluggish growth outlook over the next two years. Even the transition to CPCB-II met with a similar fate, with an anticipation of pre-buying, followed by price hikes, and hope of earnings growth. Given the weak outlook for the end markets and limited pricing power in the Gensets industry, we refrain from being bullish on CPCB-IV opportunities. Currently, macro headwinds remain too strong for the industry to witness double-digit growth on a sustainable basis in the domestic market.

We recommend a BUY on Cummins India Limited with a Target Price of Rs 470, an upside of ~9% from CMP of Rs. 432 and Stop Loss Rs 410.