MOSL: CUMMINS INDIA (Buy)-Results below expectations led by a miss on margins
Cummins India: Results below expectations led by a miss on margins
(KKC IN, Mkt Cap USD3.0b, CMP INR704, TP INR840, 19% Upside, Buy)
- Operating performance below expectations: 4QFY18 revenue grew 4% YoY to INR12.3b, in line with our estimate of INR12.3b. EBITDA grew 2% YoY to INR1.7b (est. of INR1.9b), with the margin contracting 40bp YoY to 14.0% (est. of 15.4%) due to higher-than-estimated RM cost (65.1% of sales). PAT rose 1.7% YoY to INR1.6b (est. of INR1.7b). For FY18, revenue stood flat at INR50.8b, EBIDTA at INR7.3b (-12.3% YoY) and PAT at INR6.5b (-11.2% YoY).
- Revenue impacted by weak domestic performance: Domestic business de-grew by 5% YoY due to a muted power gen performance (INR3.3b, flat YoY). Exports grew by a healthy 30% YoY, supported by a low base of 4QFY17 (INR3.0b, -7% YoY).
- Margins pressurized by intense competition, high input cost: Gross margin was flat YoY at 34.9%, but contracted 200bp QoQ due to inability to pass on RM price rise, given intense competition. EBIDTA margin also shrank 40bp YoY due to high employee cost (9.6% v/s 9.0% in 4QFY17).
- FY19 guidance: KKC guided for domestic business growth of 8-10% (v/s +5-10% earlier) and flat exports growth YoY (zero to +5% growth earlier).
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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