Cummins India is the country's largest engine manufacturer with a high-quality parent, with exports being its primary driver
09-Mar-2015 •Mohammed Ekramul Haque
Our Cummins recommendation has not even completed one full year and the stock has already doubled your wealth. Cummins is the country's largest engine manufacturer with a high-quality parent, the US-based Cummins Inc.
What has been driving Cummins India's sales and is likely to continue in the future is exports (42 per cent of FY15E revenue). Cummins' US-based parent, Cummins Inc., which has made the Indian subsidiary the global base for low-HP gensets, has been increasingly using India as the base for its low-hp sales. Cummins India management wants to ramp up low-HP exports from current levels of ₹390 crore to 1,500 crore by FY19.
Outlook
EBITDA margins at the time of our recommendation stood at 19.3 per cent. Further cost-cutting has the company reporting margins at 23.25 per cent (trailing 12 months). There are likely to be more margin gains ahead. The company has guided to cut costs by Rs 230 crore by the end of FY15 though its cost-cutting and indigenisation programmes.
Cummins has a vast opportunity ahead of it in the export of low-HP gensets. An improved domestic situation could spell good times to continue for the company. Hold.
Gain of 111 per cent at market price of ₹919. Recommended in February 2014 at ₹435.
