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Cummins India

Results Update:Cummins reported stellar earnings growth for Q3 FY09 mainly aided by strong export volumes and margin expansion as a result of rupee depreciation and softer metal prices. However, during the third quarter, the company witnessed a
degrowth of 12% in the domestic sales. Given the lackluster scenario in the
domestic market coupled with lower export demand, the management has indicated that order book for the current quarter indicates likely degrowth of 20 - 30% on a sequential basis.

Management guidance of 15-20% decline in FY10 revenues.
In 9M FY09, revenues grew 35% yoy mainly led by strong export volumes. During the period, export revenues likely grew 91% yoy to approximately Rs 10.1 bn. Sharp hike in export volumes was a result of new low HP engine facility at Pirangute and the High HP KVA facility in Kothrud. Share of exports in revenue mix increased to 47% from 31% in FY08. On the other hand, domestic market growth has been modest during the nine-month period. The outlook has deteriorated further as reflected by the IIP figures.

Cummins is trading at 8.3x and 9.7x FY09 and FY10 earnings respectively. On
an EV/EBITDA basis, the stock is trading at 5.1x FY09. The stock could be avoided.