Buy Cummins India - Motilal Oswal

Cummins India (KKC IN; Mkt Cap USD2.8b, CMP Rs649, Buy)

For 3QFY11, Cummins reported standalone revenue of Rs10b (up 20% YoY, down 9% QoQ), significantly lower than our estimate of Rs11b.

EBITDA margin was down 480bp YoY at 18.1%, lower than our estimate of 20.5%. PAT declined 6.5% YoY to Rs1.38b, lower than our estimate of Rs1.67b.

During the quarter, domestic sales stood at Rs7b, down 6% YoY and 12% QoQ. Sales were partly impacted by maintenance shutdown.

We expect exports to further grow to Rs15b by FY12, driven by recovery in global engine sales and increased outsourcing by parent.

Margin decline should be seen in light of very high base effect of 3QFY10.

We are lowering our revenue estimates by 2% for FY11 and by 4% for FY12 in light of lower domestic sales. Accordingly, we cut our EPS estimates by 7% for FY11 and by 12% for FY12. We expect Cummins to record revenue CAGR of 22% and PAT CAGR of 25% over FY11-13, with constant EBITDA margin of 20%. Maintain Buy, with a revised target price of Rs800 (20x FY12E EPS).

Source : Equity Bulls

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