Cummins India set to reap gains of pick-up in volumes, changing demand profile: Analysts

By: | Published: September 7, 2018 3:56 AM

Pick up in volumes in the first half of 2018, changing demand profile and new offerings from Cummins India are expected to augur well for the company’s future performance, according to analysts.

cummins india, real estate sectorOn Thursday, Cummins India’s share price closed up nearly 4% at Rs 773.55 on Bombay Stock Exchange after hitting day’s high of Rs 799.30.

Pick up in volumes in the first half of 2018, changing demand profile and new offerings from Cummins India are expected to augur well for the company’s future performance, according to analysts.

The company’s share price, which lost nearly 30% between December 2017 and June 2018, has regained some lost ground, as the stock has risen 19% from the beginning of July till date, Bloomberg data shows. Growth — both domestic and exports — clearly suffered in the past 12-15 months, leading to strong under-performance and earnings cut, analysts at Edelweiss Securities noted in a recent report.

However, the company is now seeing some signs of revival. Sandeep Sinha, managing director, Cummins India, said that commercial realty has started to look better, while there is more capital formation taking place in the manufacturing sector. “This was not the case with manufacturing till sometime back. Infrastructure continues to be really strong, also power generation and industrial markets, so that’s really good news for us. Healthcare, seems to be doing well and even pharmaceutical industry,” he told analysts over a conference call.

On Thursday, Cummins India’s share price closed up nearly 4% at Rs 773.55 on Bombay Stock Exchange after hitting day’s high of Rs 799.30.

According to analysts, with additional opportunities in renewables, defence, manufacturing, smart cities, among others, the number of big-ticket and complex projects is going up. “To us, this indicates a strong imminent market share spike for larger/diversified players with strong balance sheets,” analysts at Edelweiss Securities said in a recent report.

While the revenues of Rs 1,296 crore for the three months of April-June 2018 were lower than street expectations, Cummins India’s Q1FY19 Ebitda (earnings before interest, tax, depreciation and amortisation) at about Rs 215 crore, up 10% year-on-year and net profit increase of over 10% on year-on-year basis to Rs 183 crore were in line, driven by a better revenue mix and favourable currency.

Domestic sales in the current quarter at `856 crore declined by 7% over the same quarter last year and grew by 5% over the preceding quarter. However, Sinha explained that the quarter ended June 30, 2017 was a high base quarter, as there was significant pre-buying by customers on account of impending GST implementation effective July 1, 2017. Meanwhile, exports during the quarter at `441 crore grew 12% on a year-on-year basis and by 13% sequentially.

“We are positive on the medium to long term outlook for domestic sales as underlying demand remains positive arising from sustained investments by the government in creating infrastructure for the Indian economy. As for exports, we believe this is based on varying degrees of recovery taking place in the global economy, commodity markets and geographies. We believe this trend should continue into the medium term,” he said.

The company continues to maintain its guidance for FY19 as it projects a growth of 8-10% during the year in domestic business over last year and export growth remaining flattish to 5%.

Analysts at Kotak Securities expect the “company to report growth in profits in FY19/FY20 on account of continued momentum in domestic industrial and distribution segments”, they said in a recent report, adding that “margins are expected to recover in nine months FY19-FY20”.

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