MOSL: CUMMINS INDIA (Buy)-Results in-line-domestic execution drives growth
​Cummins India: Results in-line; domestic execution drives growth
(KKC IN, Mkt Cap USD4.1b, CMP INR950, TP INR1170, 23% Upside, Buy)
- Operating performance in-line: Cummins India’s (KKC) 4QFY17 revenue grew 7% YoY to INR13.4b (our estimate: INR13.2b). Gross margin contracted 130bp YoY to 34.9%. EBITDA declined 5% YoY to INR1.95b (our estimate: INR1.95b); EBITDA margin contracted 183bp YoY to 14.6%, in line with our estimate of 14.8%. PAT fell 8.4% YoY to INR1.7b (our estimate: INR1.7b). Margin compression was led by adverse product mix and weak exports.
- Domestic business delivers strong performance; exports remain weak: Domestic revenue grew 10% YoY, aided by power generation (+11% YoY), industrial (+21% YoY), and distribution & spares (+15% YoY) segments. Exports declined 5% YoY (but grew 30% QoQ) due to overall weakness in the global market (Africa, Middle East). For FY18, KKC maintained its guidance of negative 5% to flat export revenue growth, and muted 5-10% growth in domestic business.
- Adverse mix leads to gross margin contraction of 130bp: Gross margin contracted 130bp YoY to 34.9% due to weak product mix, while operating margin contracted 180bp YoY to 14.4%. KKC expects margins to improve, with product mix change in favor of better-margin products. Exports (30% of revenue v/s 34% in 1QFY17) enjoy better margins than domestic sales.
Cummins India is engaged in the manufacturing of diesel and natural gas engines. Co.'s operations are comprised of four business units; Industrial Engine, which caters to the industrial sector with its spectrum of diesel engines ranging from 65 HP to 3500 HP; Power Generation, which addresses standby and prime power needs through the design and manufacture of pre-integrated generator sets, transfer switches, paralleling equipment and controls; Distribution, which provides products, packages, services and solutions for uptime of Co. equipments; and Automotive, which integrates Co.'s diesel and natural gas engines with related technologies.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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