MOSL: CUMMINS INDIA (Buy)-No respite in export markets-domestic business disappoints too
CUMMINS INDIA: No respite in export markets; domestic business disappoints too
(KKC IN, Mkt Cap USD2.1b, CMP INR541, TP INR640, 18% Upside, Buy)
- Big miss on op. performance as revenue slumps: KKC missed our estimates on all fronts. Revenue declined 12% YoY to INR13.1b (16% miss). EBITDA fell 39% YoY to INR1.5b (29% miss), with the margin down 520bp YoY to 11.7% (our estimate: 13.7%). PBT was down 29% YoY, but the PAT decline was restricted to 13.4% YoY (to INR1.8b) led by a lower tax rate.
- 1H performance: Revenue declined 5.7% YoY to INR26.5b. EBITDA was down 34.7% to INR3.0b, with the margin contracting 510bp YoY. PAT was down 17.7% YoY, despite the benefits from lower tax rates. Domestic revenue growth stood at 4%, while exports declined 25% YoY.
- Decline in domestic biz - a negative surprise: Domestic revenue declined 5% YoY to INR9.4b in 2QFY20. Power generation business declined 4% YoY, while Industrial (-10% YoY) and distribution (-5% YoY) disappointed too. Infrastructure and manufacturing segment demand was subdued, while data centers continued performing well. Management thus cut its domestic revenue growth guidance for FY20 to 3-5% from 8-10%.
- Pain in exports continues: Exports business continued facing challenges with a revenue decline of 25% YoY. The Middle East and Africa, which together form 35% of exports, exhibited a decline of ~50% YoY. While HHP exports fell 12% YoY, the decline in LHP exports was more severe at 41% YoY. Management thus now expects exports revenue to decline by 20% in FY20 versus the prior guidance of a decline of 12-15%. It expects some more pressure in the exports business before bottoming out in 2-3 quarters.
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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