Accumulate Cummins India Ltd For The Target Rs.621 – Prabhudas Lilladher
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Change in product combine impacts margins Cummins
India (KKC) rumored Q4FY19 PAT of Rs1.4 bn that incomprehensible our expectations (PLe Rs1.8bn) because of lower Earnings Before Interest Taxes Depreciation and Amortization margin and better rate throughout the quarter. Sales were up 11th of September YoY at Rs13.4 bn (PLe Rs14 bn) with domestic sales up twenty second YoY and exports down 17 November YoY at Rs3.2 bn. Domestically, the corporate grew quicker than the market. KKC remains positive on the outlook for domestic sales because the underlying demand remains positive arising from sustained investments by the govt. in making infrastructure for the Indian economy. the corporate has target-hunting for domestic revenue growth of 10-15% YoY for FY20. KKC expects smart growth in HHP section chiefly driven by information center, industrial holding, producing etc. KKC is seeing weak demand from exports markets amid unsure international growth and volatile forex markets. we’ve modelled 10%/11% Revenue/PAT CAGR over next 2 years (FY19-21E). The stock is presently mercantilism at 27/23x FY20/21E. we tend to maintain our Accumulate rating on the stock with TP of Rs841 (26xFY21E).
Change in product combine impacts margin :
Q4FY19 sales were up 11th of September YoY at Rs13.4 bn (PLe Rs14 bn). Domestic sales in Q4FY19 was up twenty second YoY at Rs9.9 bn. However, exports fell by 17 November YoY at Rs3.2 bn. Earnings Before Interest Taxes Depreciation and Amortization margin contractile twelve0bps YoY to 12.8% because of 70bps YoY dip in profit margin. This was because of modification in product combine with higher share of lower vary engines. thus Earnings Before Interest Taxes Depreciation and Amortization was flat YoY at Rs1.7 bn. Finance value was up thirty second YoY at Rs 45mn. rate for the quarter was higher at thirty two.4% compared to twenty two.8% in Q4FY18. thus PAT for the quarter came to Rs1.4 bn, down thirteen YoY. FY19 sales were up 11 November YoY at Rs56.6 bn, Earnings Before Interest Taxes Depreciation and Amortization margin came in at fifteen.3% against fourteen.4% in FY18. Adjusted PAT was down four-dimensional YoY at Rs7.2 bn. Domestic sales for FY19 stood at Rs38.7 bn, up 15% YoY. Exports grew by five-hitter YoY at Rs16.52bn.
KKC continues to launch new product chiefly within the domestic powergen section to deal with the rising competitive intensity. the corporate has plans to strengthen entire product vary by doing little capex. KKC conjointly continues to concentrate on profit, optimizing operational value and market share improvement.
Positive trends in domestic markets, exports market volatile :
The domestic economy continues to grow for the most part in square measureas that are completely benefited through continued government investments in Infrastructure. KKC is seeing traction from information center, industrial holding and producing. Rental business is additionally seeing Associate in Nursing upward trend. KKC stays positive on the medium-to-long term outlook for domestic sales because the underlying demand conditions remain positive. Power information business grew nineteen in FY19 and is predicted to take care of the momentum. Outlook for Industrial business -Compressors would grow at 40-45%, Construction would be flat, Railways would grow 10-12%, Mining would grow at half-hour and Marine expecting important growth.
In export market, a transparent trend is nonetheless to emerge on account of prevailing uncertainties in varied economies through the globe. KKC believes there square measure varied degrees of recovery going down within the international economy, artifact markets and geographies. This trend, however, is probably going to solely play get into the medium term.