Add Cummins India Ltd For Target Rs.898 - Yes Securities
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Result Highlights
* Revenue grew by 18% yoy to Rs12.6bn, lower than our estimates of Rs.13.2bn. The domestic industrial revenue stood at Rs2.7 bn, Powergen at Rs2.6 bn and Distribution at Rs.3.4 bn. The construction segment under industrials had revenue of Rs1.5 bn while compressor and rail together formed Rs900 mn of sales. The Capacity utilization which stood at 70% in Q4 FY21 dropped to 50% in April and May due to Covid related restrictions. The demand revival is expected as the COVID impact settles.
* EBITDA saw a sharp jump of 151% yoy to Rs1.7 bn. EBITDA Margin improved by 714bps yoy to 13.5% while contracted by 343bps qoq on account of rising commodity prices. The company continues to focus on cost management and expects to pass on the cost to the end customers where commodity linked contracts are in place. It would also re‐negotiate contacts not linked to commodity prices.
* Higher tax outgo impacted profitability at net levels (tax credit in Q4 FY20). PAT remained flattish yoy to Rs1.7bn.
* COVID‐19 impacted the export business for Cummins. Expects end market will recover fully by FY22 with restarting of the economy and vaccination rate picking up globally. Very gradual recovery of demand is expected in upcoming quarters.
Our view:
Cummins India witnessed a healthy demand recovery in industrial and spares segment during Q4 FY21. However, commodity prices continued to rise which impacted the margins on quarterly basis. The margins are expected to stabilize going forward as certain price hikes are implemented. In recent times, there has been steady improvement in demand from overseas markets and momentum is expected to continue.
The demand for power gen is also expected to revive backed by strong demand from data centers and telecom. We believe that the positive optimism over exports and infrastructure related solutions that has picked up well for the company should aid growth over next couple of years. We largely retain our FY22/FY23 estimates and retain our ADD rating on the stock for target price of Rs898 (28x FY23 EPS).
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