Result Update: Cummins India Ltd - BUY - TP Rs.785 - Kotak

Cummins India met our Q1FY19 estimates on back of margin expansion (highest in last six quarter) aided by favourable product mix and currency movement. Domestic business declined 7% y/y on the high base of last year (pre-GST buying in Q1FY18). Management sounded confident of building growth momentum in 9MFY19 and maintained domestic business revenue growth guidance at 8-10% y/y. Export business reported revenue growth of 12.4 % in Q1FY19 (though management maintained guidance of muted growth for now and rather wait for one more quarter of exports growth to revisit guidance).

Key Highlights

- Cummins India revenue declined 1% y/y to Rs 13.2 Bn in Q1FY19 due to muted performance in the domestic market. Domestic business declined 7% y/y, reported at Rs 8.5 Bn, on the high base of Q1FY18 which was aided by pre-GST buying. Exports revenue grew 12.4% y/y, reported at Rs 4.4 Bn in Q1FY19.

- EBITDA margin expanded to 16.2% in Q1FY19 against 14.2% in Q1FY18 driven by favourable product mix and currency movement. Management is confident of maintaining margins going forward and expect expand Gross Margin to expand by c.100 bps in FY19.

Valuation & Outlook

- At CMP of Rs 675, Cummins India is trading attractive at PER of 20.6x and EVEBITDA of 16.6 on FY20 earnings estimate.

- We maintain our FY19/FY20 earnings estimates and value Cummins India at PER 24x FY20 earnings. In view of significant upside to our unchanged target price of Rs 785, move recommendation to 'BUY' from 'ACCUMULATE' earlier.

Shares of CUMMINS INDIA LTD. was last trading in BSE at Rs.679.7 as compared to the previous close of Rs. 670.5. The total number of shares traded during the day was 42425 in over 1936 trades.

The stock hit an intraday high of Rs. 681.9 and intraday low of 669.8. The net turnover during the day was Rs. 28675084.

Source : Equity Bulls

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