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All?round stellar show; positive outlook

Our view

* Cummins India Ltd (KKC) reported a record operational quarter, with healthy revenue growth led by Powergen segment (42% up YoY), Spares (up 17% YoY), Industrial segment (up 18% YoY) and Exports (up 23% YoY). EBITDA margin expanded by ~330bps YoY owing to healthy gross margin and operating leverage benefits. Going forward management expects strong traction in domestic markets led by sectors such as e data centers, commercial real estate, rental, infrastructure, healthcare, and telecom, etc. The company believes geo?political risks, inflation, rising interest rates and possibility of a slowdown have clouded the outlook for developed markets and therefore, management refrained from providing any guidance for FY24.

* We expect the company to report Revenue/PAT CAGR of 19%/34% over FY22?25E factoring in 1) change in product mix, 2) price hikes, 3) margin expansion and 4) recovery in export markets. The stock is trading at 41.9x/30.8x/24.2x FY23E/FY24E/FY25E. We roll forward our target multiple to FY25E and upgrade it to BUY with a TP of Rs1,953 (earlier Rs1, 488), valuing the stock at PE of 30x FY25E EPS.

Result Highlights

* Sales came in at ~Rs21.8bn (up 26% YoY) (YSLe: Rs20.9bn) led by better execution across segments

* EBITDA increased by ~52% YoY to Rs4.1bn (YSLe: Rs3.3bn) with EBITDA margins coming in at an all?time high of 18.9% vs 15.6% in 3QFY22 and 14.9% in 2QFY23

* PBT grew by 50% YoY to Rs4.8bn owing to healthy operational performance and higher other income (up 20% YoY)

* PAT came in at Rs3.6bn, up 49% YoY (YSLe: Rs3bn)

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