MOSL: CUMMINS INDIA (Buy)-Operational performance disappoints
Cummins India: Operational performance disappoints
(KKC IN, Mkt Cap USD3.6b, CMP INR828, TP INR1040, 25% Upside, Buy)
- Operating performance below expectations: Cummins India’s (KKC) 3QFY18 revenue was flat YoY at INR13.5b, below our estimate of INR14.3b. Gross margin improved 130bp YoY to 36.9%. EBITDA declined 13% YoY to INR1.7b (our estimate: INR2.5b), with margin contracting 220bp YoY to 14.5% (our estimate: 17.2%) due to higher other expenses (12.7% of sales v/s 10.8% in 3QFY17). PAT fell 13% YoY to INR1.7b (our estimate: INR2.1b).
- Revenue decline witnessed in key segment of power gen and exports: Domestic business registered muted revenue growth of 3% YoY, supported by distribution business (INR3.6b, +11% YoY) and industrial segment (INR2.1b, +8% YoY). However, key power generation business witnessed 6% decline YoY to INR3.3b. Exports declined 7% YoY due to weakness in LHP segment (-22% YoY) and HHP segment (-14% YoY) demand.
- Gross margin expansion driven by cost savings and better product mix: Gross margin improved 130bp YoY to 36.9%, led by cost-saving measures (like value engineering initiatives with vendors) and better product mix. Operating margin contracted 220bp YoY to 14.5% due to higher other expenses (trueing up of management cost, higher variable compensation, and knowledge fees paid to parent company).
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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