MOSL: CUMMINS INDIA (Buy)-Results miss estimates due to subdued revenues
​Cummins India: Results miss estimates due to subdued revenues
(KKC IN, Mkt Cap USD4.0b, CMP INR907, TP INR1150, 24% Upside, Buy)
- Operating performance below estimates: Cummins India’s (KKC) 2QFY18 revenue declined 10% YoY to INR11.5b (our estimate: INR14.1b). Gross margin improved 170bp YoY to 36.9%. EBITDA declined 16% YoY to INR1.7b (our estimate: INR2.3b), with the margin contracting 110bp YoY to 14.5% (our estimate: 16.0%) due to negative operating leverage. PAT fell 22% YoY to INR1.5b (our estimate: INR1.9b).
- Revenue declines across most segments. Domestic revenue declined 7% YoY, impacted by the power generation (-6% YoY) and distribution & spares (-14% YoY) segments. Exports declined 17% YoY due to weakness in LHP segment demand (-20% YoY).
- Gross margin expands led by cost savings and better product mix: Gross margin improved 170bp YoY to 36.9%, led by cost-saving measures (like value engineering initiatives with vendors) and a better product mix. KKC expects 2HFY18 gross margins to sustain at the current levels. Operating margin contracted 110bp YoY to 14.5%, given negative operating leverage.
- Cutting guidance on exports, but maintaining on domestic revenue: For FY18, KKC lowered its exports growth guidance to -5-10% growth (from flat-to-negative 5%), and maintained its 5-10% growth outlook in the domestic business. It expects the domestic markets to bounce back over 2HFY18, recovering the lost sales of 2QFY18.
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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