Maintain Buy on Cummins India - Motilal Oswal

CUMMINS INDIA 3QFY11: Below est; Sales growth disappoints; Lower operating leverage hurts margins; Maintain Buy

3QFY11 revenues stood at Rs10b (up 20% YoY) lower than our estimates of Rs11b, up 32% YoY. Reported PAT stood at Rs1.38b, down 6.5% YoY.

EBITDA margin was down 480bp YoY at 18.1% (our est of 20.5%, down 242bp YoY), led by higher material costs.

Decline in margins on very high base effect in 3QFY10. There was a labor strike at Cummins plant during 2Q which led to loss of production for two months.

Accelerated production and dispatches in 3QFY10 boosted revenues and margins in 3QFY10 (EBITDA margin of 22.9%).

Cummins Inc has maintained strong growth guidance for India (over 50% sales growth).

We will review our earnings estimates and target price post analyst conference call. We see around 5-7% downside to our current EPS estimate of Rs33 for FY11 and Rs45 for FY12. Maintain Buy.

Source : Equity Bulls

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