Buy Cummins India Ltd For Target Rs.1,444 - Sushil Finance
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Government’s capital expenditure plans to drive demand recovery
In pursuit of making India a $5 Trillion economy, the government of India, during its Union Budget of 2021 announced various capital expenditure initiatives in an attempt to revive the economy. Sectors like construction, railways, roadways, shipping and ports, etc. were allotted hefty budgets. Cummins caters to the power generation needs of all these sectors and it is expected that demand to recover as execution picks up in the post pandemic scenario
Rich technology base presents opportunity for marketshare growth in an ever-tightening regulatory environment
With the BS VI emission norms being adopted for all vehicles, India is now gearing to adopt the BS IV Construction Equipment Vehicle (CEV) / Central Pollution Control Board (CPCB) IV emission norms for non-highway power generation products. Cummins, through its parent has access to the latest technologies in diesel, gas, electric as well as hydrogen power generation assets. We expect the company to capitalize on this and improve its market share both, domestically as well as internationally.
Introduction of new technologiesto support margin expansion in long term
Cummins has a lot of exciting products for when mainstream diesel/gas power generation assets phase out. The company has operational technologies in battery, hydrogen fuel cell as well as hydrogen production. The company has developed end-to-end zero emission solutions which are seamlessly integrated to work together at the highest level of efficiency.
OUTLOOK & VALUATION
We have forecasted a revenue growth of 10% CAGR over FY20-24E where we expect revenue for FY24E at Rs. 7,603 Cr, EBITDA at Rs. 1,171 Cr at an EBITDA margin of 15.4% and Net Income at Rs. 1,143 Cr. We estimate FY24E EPS at Rs. 41.3 and assign a PE multiple of 35x to arrive at a target price of Rs. 1,444, which is an upside of ~22% from the current price of Rs. 1,185. We re-instate coverage on Cummins India Ltd. with a BUY rating, over an investment horizon of 18-24 months.
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