Cummins India (KKC IN)

Rating: HOLD | CMP: Rs570 | TP: Rs619

August 29, 2019 Growth revival elusive

Analyst Meet Update Cummins India Ltd’s (CIL’s) annual analyst meet indicated of sustained
demand for diesel for the next few decades. It re-emphasized on its earlier
 Change in Estimates |  Target |  Reco
guidance of single digit domestic growth and weak exports in FY20. From
Change in Estimates domestic perspective, Powergen, Industrial (Compressors, Railways, Marine
Current Previous and Mining) is expected to drive the growth. Globally, management indicated
FY20E FY21E FY20E FY21E
de-growth across the geographies. Over the next five years, management
Rating HOLD HOLD
Target Price 619 619 indicated of new trend lines viz. infrastructure spend by the government,
Sales (Rs. m) 57,960 62,788 57,960 62,788
Emissionized Products, Alternate fuels, Digitization and Connectivity. The
% Chng. - -
EBITDA (Rs. m) 7,818 8,875 7,818 8,875 company is fully geared up for launching new CPCB IV+ products which are
% Chng. - -
expected to be launched in India by 2020-21. We expect CIL to deliver
EPS (Rs.) 24.7 28.1 24.7 28.1
% Chng. - - earnings CAGR of 4% over FY19-21E. The stock is currently trading at 23x/20x
FY20/21E and we maintain Hold rating with TP of Rs619 (22x FY21E).
Key Financials - Standalone
Y/e Mar FY18 FY19 FY20E FY21E  Confident of domestic growth for FY20: CIL management is confident on
Sales (Rs. m) 50,825 56,590 57,960 62,788 domestic growth (+16% YoY in 1QFY20) led by Powergen (30% of revenue)
EBITDA (Rs. m) 7,325 8,641 7,818 8,875
and Industrial segment mainly Compressors, Marine, Mining and Railways. In
Margin (%) 14.4 15.3 13.5 14.1
PAT (Rs. m) 7,085 7,226 6,838 7,807 1QFY20 compressors grew more than 150% YoY and railways grew by 70%
EPS (Rs.) 25.6 26.1 24.7 28.1 YoY. Domestic economy continues to grow largely in areas which are positively
Gr. (%) (3.6) 1.9 (5.4) 14.2
DPS (Rs.) 15.0 17.0 17.5 18.5 benefited through continuing government investments in Infrastructure. CIL is
Yield (%) 2.6 3.0 3.1 3.2 seeing traction from data center, commercial realty, hospitals and
RoE (%) 18.3 17.8 16.2 17.8
manufacturing sectors. The company has guided for 8-10% growth from
RoCE (%) 15.4 17.3 14.6 16.0
EV/Sales (x) 3.0 2.7 2.6 2.4 domestic market.
EV/EBITDA (x) 20.6 17.5 19.6 17.3
PE (x) 22.3 21.9 23.1 20.2  Global uncertainty impacts exports: Management remains cautious on
P/BV (x) 4.0 3.8 3.7 3.5
exports due to uncertainty in international markets. The exports fell 26% YoY
in 1QFY20 led by Mexico down by 37% YoY, Brazil down by 24% YoY, Europe
Key Data CUMM.BO | KKC IN down by 39% YoY, Africa down by 8% YoY, Middle East down by 33% YoY,
52-W High / Low Rs.885 / Rs.554
Sensex / Nifty 37,452 / 11,046
China down by 25% YoY and Rest of Asia down by 40% YoY. While company
Market Cap Rs.158bn/ $ 2,200m has been trying to improve exports by launching new products, improving
Shares Outstanding 277m
3M Avg. Daily Value Rs.628.1m channel presence and incentivizing dealers, it expects negative 12-15% growth
in FY20 due to overall growth uncertainty.
Shareholding Pattern (%)
 New products and future trend lines: CIL recently launched– 910 KVA diesel
Promoter’s 51.00
Foreign 9.05 gensets, uprate of 35 KVA, 625 KVA, Power Command Cloud – Real time
Domestic Institution 27.61 remote monitoring app. Going ahead, the company is fully geared up with
Public & Others 12.34
Promoter Pledge (Rs bn) - CPCB IV+ norms for Powergen segment which are expected to be launched
by 2020-21. These norms will be applicable to all the products between
Stock Performance (%) 75KVA to 950KVA and the engines will have to be converted into electrical
1M 6M 12M compared to current mechanical. We expect prices to rise by 15% of the final
Absolute (21.3) (18.6) (26.7)
Relative (20.8) (22.0) (24.2)
product. Over the next five years, management expects growth to come from
infrastructure spend by the government, Emissionized Products, Alternate
fuels, Digitization and Connectivity.
Ashwani Sharma
ashwanisharma@plindia.com | 91-22-66322247
Khushboo Parekh
khushbooparekh@plindia.com | 91-22-66322257

August 29, 2019 1

 Cummins India

Financials
Income Statement (Rs m) Balance Sheet Abstract (Rs m)
Y/e Mar FY18 FY19 FY20E FY21E Y/e Mar FY18 FY19 FY20E FY21E

Net Revenues 50,825 56,590 57,960 62,788 Non-Current Assets

YoY gr. (%) 0.1 11.3 2.4 8.3
Cost of Goods Sold 32,581 36,135 37,964 41,126 Gross Block 20,803 21,298 24,843 27,343
Gross Profit 18,244 20,455 19,996 21,662 Tangibles 20,749 21,273 24,773 27,273
Margin (%) 35.9 36.1 34.5 34.5 Intangibles 54 25 70 70
Employee Cost 4,979 5,458 5,567 5,846
Other Expenses 5,940 6,356 6,611 6,941 Acc: Dep / Amortization 7,922 8,450 9,644 10,994
Tangibles 7,922 8,450 9,644 10,994
EBITDA 7,325 8,641 7,818 8,875 Intangibles - - - -
YoY gr. (%) (8.7) 18.0 (9.5) 13.5
Margin (%) 14.4 15.3 13.5 14.1 Net fixed assets 12,882 12,848 15,199 16,349
Tangibles 12,828 12,823 15,129 16,279
Depreciation and Amortization 938 1,103 1,158 1,216 Intangibles 54 25 70 70

EBIT 6,387 7,538 6,660 7,659 Capital Work In Progress 7,691 8,865 8,965 9,065
Margin (%) 12.6 13.3 11.5 12.2 Goodwill - - - -
Non-Current Investments 2,645 2,742 3,026 3,226
Net Interest 148 162 170 179 Net Deferred tax assets (299) (988) (988) (988)
Other Income 2,285 2,928 3,279 3,673 Other Non-Current Assets - - - -

Profit Before Tax 9,084 10,304 9,769 11,153 Current Assets

Margin (%) 17.9 18.2 16.9 17.8 Investments 5,060 2,427 2,427 2,427
Inventories 5,375 6,254 6,405 6,939
Total Tax 2,000 3,078 2,931 3,346 Trade receivables 13,263 12,727 13,035 13,777
Effective tax rate (%) 22.0 29.9 30.0 30.0 Cash & Bank Balance 4,709 7,379 6,461 6,471
Other Current Assets 1,661 1,660 1,700 1,841
Profit after tax 7,085 7,226 6,838 7,807 Total Assets 55,312 58,536 60,940 64,123
Minority interest - - - -
Share Profit from Associate - - - - Equity
Equity Share Capital 554 555 555 555
Adjusted PAT 7,085 7,226 6,838 7,807 Other Equity 39,306 40,750 42,370 44,177
YoY gr. (%) (3.6) 2.0 (5.4) 14.2 Total Networth 39,861 41,305 42,925 44,732
Margin (%) 13.9 12.8 11.8 12.4
Extra Ord. Income / (Exp) - - - - Non-Current Liabilities
Long Term borrowings 284 268 325 325
Reported PAT 7,085 7,226 6,838 7,807 Provisions 429 727 500 500
YoY gr. (%) (3.6) 2.0 (5.4) 14.2 Other non current liabilities - - - -
Margin (%) 13.9 12.8 11.8 12.4
Current Liabilities
Other Comprehensive Income - - - - ST Debt / Current of LT Debt 2,515 3,092 3,592 4,092
Total Comprehensive Income 7,085 7,226 6,838 7,807 Trade payables 7,580 8,251 8,292 8,983
Equity Shares O/s (m) 277 277 277 277 Other current liabilities 4,323 3,886 4,298 4,484
EPS (Rs) 25.6 26.1 24.7 28.1 Total Equity & Liabilities 55,312 58,536 60,940 64,124
Source: Company Data, PL Research Source: Company Data, PL Research

August 29, 2019 2

 Cummins India

Cash Flow (Rs m) Key Financial Metrics

Y/e Mar FY18 FY19 FY20E FY21E Year
Y/e Mar FY18 FY19 FY20E FY21E

PBT 9,084 10,304 9,769 11,153 Per Share(Rs)

Add. Depreciation 938 1,103 1,158 1,216 EPS 25.6 26.1 24.7 28.1
Add. Interest 148 162 170 179 CEPS 28.9 30.0 28.8 32.5
Less Financial Other Income 2,285 2,928 3,279 3,673 BVPS 143.8 148.9 154.8 161.3
Add. Other (1,634) (1,367) (3,279) (3,673) FCF 22.9 19.7 17.1 16.9
Op. profit before WC changes 8,537 10,202 7,818 8,875 DPS 15.0 17.0 17.5 18.5
Net Changes-WC (370) (2,381) (134) (847) Return Ratio(%)
Direct tax (1,823) (2,361) (2,931) (3,346) RoCE 15.4 17.3 14.6 16.0
Net cash from Op. activities 6,344 5,460 4,754 4,682 ROIC 15.7 15.6 12.6 13.7
Capital expenditures (905) (2,734) (3,610) (2,467) RoE 18.3 17.8 16.2 17.8
Interest / Dividend Income 1,095 947 3,279 3,673 Balance Sheet
Others (1,518) 1,956 (284) (200) Net Debt : Equity (x) (0.2) (0.2) (0.1) (0.1)
Net Cash from Invt. activities (1,327) 169 (615) 1,006 Net Working Capital (Days) 79 69 70 68
Issue of share cap. / premium - - - - Valuation(x)
Debt changes 8 576 331 500 PER 22.3 21.9 23.1 20.2
Dividend paid (4,639) (5,641) (5,218) (6,000) P/B 4.0 3.8 3.7 3.5
Interest paid (100) (121) (170) (179) P/CEPS 19.7 19.0 19.8 17.5
Others - - - - EV/EBITDA 20.6 17.5 19.6 17.3
Net cash from Fin. activities (4,731) (5,186) (5,057) (5,679) EV/Sales 3.0 2.7 2.6 2.4
Net change in cash 285 443 (918) 9 Dividend Yield (%) 2.6 3.0 3.1 3.2
Free Cash Flow 6,344 5,460 4,754 4,682 Source: Company Data, PL Research
Source: Company Data, PL Research

Quarterly Financials (Rs m)

Y/e Mar Q2FY19 Q3FY19 Q4FY19 Q1FY20
Net Revenue 14,869 15,038 13,404 13,430
YoY gr. (%) 28.9 11.0 8.7 1.1
Raw Material Expenses 9,217 9,771 8,817 10,793
Gross Profit 5,652 5,267 4,587 2,637
Margin (%) 38.0 35.0 34.2 19.6
EBITDA 2,509 2,267 1,718 (418)
YoY gr. (%) 49.8 15.3 (0.7) (119.5)
Margin (%) 16.9 15.1 12.8 (3.1)
Depreciation / Depletion 274 279 280 291
EBIT 2,235 1,988 1,438 (709)
Margin (%) 15.0 13.2 10.7 (5.3)
Net Interest 40 41 45 52
Other Income 785 755 692 769
Profit before Tax 2,980 2,702 2,085 9
Margin (%) 20.0 18.0 15.6 0.1
Total Tax 865 831 676 525
Effective tax rate (%) 29.0 30.8 32.4 6,108.1
Profit after Tax 2,116 1,871 1,409 (517)
Minority interest - - - -
Share Profit from Associates - - - -
Adjusted PAT 2,116 1,871 1,409 (517)
YoY gr. (%) 38.4 8.7 (12.6) (128.2)
Margin (%) 14.2 12.4 10.5 (3.8)
Extra Ord. Income / (Exp) - - - -
Reported PAT 2,116 1,871 1,409 (517)
YoY gr. (%) 38.4 8.7 (12.6) (128.2)
Margin (%) 14.2 12.4 10.5 (3.8)
Other Comprehensive Income - - - -
Total Comprehensive Income 2,116 1,871 1,409 (517)
Avg. Shares O/s (m) 277 277 277 277
EPS (Rs) 7.6 6.7 5.1 (1.9)
Source: Company Data, PL Research

August 29, 2019 3

 Cummins India

Price Chart Recommendation History

(Rs)
No. Date Rating TP (Rs.) Share Price (Rs.)
1075
1 09-Aug-19 Hold 619 604

948 2 04-Jul-19 BUY 841 760

3 24-May-19 Accumulate 841 757
822
4 05-Oct-18 BUY 836 676
695

569
Aug - 16

Aug - 17

Aug - 18

Aug - 19
Feb - 17

Feb - 18

Feb - 19

Analyst Coverage Universe

Sr. No. Company Name Rating TP (Rs) Share Price (Rs)
1 ABB Reduce 1,296 1,394
2 Apar Industries Accumulate 795 538
3 Bharat Electronics Accumulate 120 98
4 BHEL Hold 56 57
5 Cummins India Hold 619 604
6 Engineers India BUY 139 103
7 GE T&D India Hold 179 175
8 Kalpataru Power Transmission BUY 624 482
9 KEC International BUY 352 294
10 Larsen & Toubro BUY 1,710 1,400
11 Power Grid Corporation of India BUY 224 211
12 Siemens BUY 1,263 1,101
13 Thermax Accumulate 1,147 1,091
14 Triveni Turbine Accumulate 124 103
15 Voltamp Transformers BUY 1,505 1,160

PL’s Recommendation Nomenclature (Absolute Performance)

Buy : > 15%
Accumulate : 5% to 15%
Hold : +5% to -5%
Reduce : -5% to -15%
Sell : < -15%
Not Rated (NR) : No specific call on the stock
Under Review (UR) : Rating likely to change shortly

August 29, 2019 4

 Cummins India

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August 29, 2019 AMNISH

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Date: 2019.08.29 09:30:09 +05'30'