Buy Cummins India Ltd Target Rs.1,195 - Yes Securities
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Mixed quarter; optimistic outlook
Our view
Cummins India Ltd (KKC) reported a mixed set of numbers, with healthy revenue growth led by Powergen segment (33% up YoY), Spares (up 9% YoY), Exports (up 66% YoY) while Industrial segment declined 29% YoY. EBITDA Margins contracted sequentially owing to elevated commodity prices (despite taking price hikes, there is still an unrecovered portion) and high freight costs. Going forward management expects strong traction in domestic markets led by sectors such as data centres, electrification, green energy, industrial, pharma, construction, realty, railways, etc. Commodity‐dependent export markets such as Middle East and LatAm are on a strong footing along with other key markets like APAC, Europe and Africa. The company doesn’t see much impact of geopolitical tensions and is bullish on underlying demand both globally and in India however rising interest rates and supply chain are to be monitored.
We expect the company to report Revenue/PAT CAGR of 22%/21% over FY21‐24E factoring the 1) change in product mix, 2) price hike, 3) margin expansion and 4) recovery in export markets. The stock is trading at 31.0x/25.5x FY23E/24E. We maintain our BUY rating with a TP of Rs1,195, valuing the stock at PE of 30x FY24E, given strong export visibility. We slightly tweak our FY23E/FY24E EPS estimates by ‐ 1%/3% respectively to account for margin pressures going ahead.
Result Highlights
* Sales came in at ~Rs14.9bn (up 20% YoY) (YSLe: Rs12.2bn; consensus: Rs15.1bn) led by better execution across segments
* EBITDA increased by ~23% YoY to Rs2.1bn (YSLe: Rs1.4bn; consensus: Rs2.1bn) with EBITDA margins coming at 13.8% vs 13.4% in 4QFY21 and 15.6% in 3QFY22. EBITDAM were impacted sequentially on account of lower gross margin and higher freight cost.
* PBT de‐grew by 0.6% YoY to Rs2.4bn owing to lower other income (down 31% YoY) and higher depreciation expense (up 14% YoY).
* PAT came in at Rs1.9bn, up 1.9% YoY (YSLe: Rs2.1bn, consensus: Rs2.4bn).
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