Cummins India Limited - Valuations factoring in muted growth - 1QFY14 Results Review Antique

Cummins India posted disappointing earnings performance in 1QFY14 and has lowered its guidance to flat revenue growth for FY14 compared to earlier guidance of 10% growth. Margins are likely to remain stable with positive operating leverage in remainder of FY14 and control on material costs. The management maintained long-term growth outlook of high teens growth in domestic sales and low teens growth in exports. We have cut earnings by 4.1% to INR26.3 in FY14 and by 5.4% to INR30.9 in FY15. We believe that CIL will continue to enjoy premium valuations due to its dominant market positioning, impressive long-term growth outlook and healthy balance-sheet. In our opinion, post recent stock correction, valuations adequately discount near-term concerns. Maintain Buy.

Valuation and Outlook

We have revised our revenue downwards by 8.6% to INR46.78bn in FY14 and by 8.4% to INR53.8bn in FY15. We have cut earnings by 4.1% to INR26.3 in FY14 and by 5.4% to INR30.9 in FY15 (including profit from associate companies). At CMP of INR396, stock is trading at 15xFY14e and 12.8xFY15e. Historically, the stock has traded in the PE range of 15-25 x with average of 16.5x for FY04-13. Maintain Buy with a target price of INR 494, on 16 x FY15 earnings (earlier INR 588).

Source : Equity Bulls

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