Buy Cummins India Ltd Target Rs.1,374 - Yes Securities
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Decent quarter; margins to recover gradually
Our view
Cummins India Ltd (KKC) reported a strong set of numbers, with healthy revenue growth led by Powergen segment (41% up YoY), Spares (up 39% YoY), Industrial segment (up 25% YoY) and Exports (up 57% YoY). EBITDA Margins contracted ~12bps sequentially owing to a lag in pass?through of commodity inflation. 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. Export markets such as Middle East, LatAm are on a strong footing along with other key markets like APAC, Europe and Africa on the back of high crude prices. The company believes India is better placed compared to other countries in terms of macro?economic indicators.
We expect the company to report Revenue/PAT CAGR of 14%/20% over FY22?24E factoring in 1) change in product mix, 2) price hikes, 3) margin expansion and 4) recovery in export markets. The stock is trading at 37.7x/27.0x FY23E/FY24E. With the recent run?up in the stock price, we now have an ADD rating (previously BUY) with a TP of Rs1,374 (earlier Rs1,195), valuing the stock at PE of 30x FY24E EPS, given strong export visibility.
Result Highlights
* Sales came in at ~Rs16.9bn (up 42% YoY) (YSLe: Rs13.6bn; consensus: Rs14.3bn) led by better execution across segments
* EBITDA increased by ~44% YoY to Rs2.1bn (YSLe: Rs1.6bn; consensus: Rs2bn) with EBITDA margins coming at 12.7% vs 12.6% in 1QFY22 and 13.8% in 4QFY22. EBITDAM were impacted sequentially on account of lower gross margin and higher other expenses.
* Adj PBT grew by 63% YoY to Rs2.8bn owing to higher other income (up 82% YoY). There was a one?off charge of Rs143mn on account of VRS expense during the quarter
* Adj PAT came in at Rs2.1bn, up 101% YoY (YSLe: Rs1.5bn, consensus: Rs1.8bn).
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