Cummins India BUY,ADD ON DIPS,

Transcription

1 Cummins India BUY,ADD ON DIPS,

2 60, , , , , , , Mar Apr May-17 41, Jun Jul Aug-17 51, Sep Oct-17 50, Nov Dec Jan-18 54, Feb % 18. 0% 16. 0% 14. 0% 12. 0% 10. 0% 8.0 % 6.0 % 4.0 % 2.0 % 0.0 % Cummins India Ltd. Cummins in India, a power leader, is a group of complementary business units that design, manufacture, distribute and service engines and related technologies, including fuel systems, air handling, filtration, emission solutions and electrical power generation systems. Its technology and pioneering initiatives are bringing innovative solutions and dependable services at the best possible value to users across the country. Its high performance outlook is based on customer focus, integrity and capability of its people. Part of the US $19.2 billion Cummins Inc., Cummins in India is a Group of seven legal entities across 200 locations in the country. Eight entities (including five joint ventures)collectively operating 21 facilities across India 2.Cummins Genrator Technologies India Pvt 1.Cummins India Ltd. Ltd. 3.Fleetguard Filters Pvt Ltd. 4.Tata Cummins Pvt Ltd. 5.Cummins Research & Technology India Pvt Ltd. 6.Cummins Sales & Services Pvt Ltd. 7.Cummins Technologies India Pvt Ltd 8.Valvoline Cummins Pvt Ltd. Company Synopsis: Technological innovation to add value to the products in the areas of alternate fuels, recycle / re-use and hybrid engines. Cummins Ind Ltd is doing expansion of the product range to serve the local and global market needs. In the Financial Year , continued investments in infrastructure and implementation of reforms such as GST, if coupled with a normal monsoon, is expected to spur the domestic growth momentum. Company expects that the investments in the IT/ITES sector and particular in datacenter capacity would sustain the growth in the high horse power segment, where the Company holds a significant market share. Outlook: Cummins is looking for a strong improvement in material margin which has been driven by cost reduction effort with Accelerated Cost Efficiency Programme in place, which relies on value engineering and partnering with suppliers.the company witnessed benefits in aspects to costs which will them to grow their sales. Government s mission to increase connectivity in the rural India through building of airports, highways is expected to directly benefit the company in long term The Company is committed to introducing new products and improving existing products to have better performance levels, lower life cycle costs, excellent safety, recyclability characteristics, meet stringent emission norms and specific needs of the Indian customer which will impact in their future growth and expand in the new market. With Indian Railways targeting to commission 3,500 km of new track during the financial year. We expect to increase the demand for track maintenance machines, which will be beneficial for the company. Valuation: On our valuation front, at CMP of Rs747, the company is trading at a P/E multiple of 29.3x which is at a discount as compared to the average P/E multiple of 39.3x and EV/EBIDTA multiple of 28.5x which is at premium as compared to industry EV/EBIDTA of multiple of 26.5x.After considering all these factors and high probability of strong growth in the future we recommend a BUY,ADD ON DIPS rating for this stock Financial Snapshot: Particulars (Rs. Mn) FY15 FY16 FY17 FY18E FY19E Revenue from operations 51, , , , ,180.0 EBITDA (Excl OI) 8, , , , ,949.0 EBITDA Margin (%) 15.9% 15.2% 14.7% 14.7% 15.7% PAT 7, , , , ,297.0 NPM (%) 15.1% 14.1% 13.5% 13.7% 14.5% ROE (%) 23% 20% 19% 18% 18.7% P/E EPS EV/EBITDA P/BV March21, 2018 Rating Matrix CMP Rs. 747 Rating Buy, Add on Dips Holding Period months Current Level Investment 52 week L/H Rs Rs Face value Rs2.00 Sector Industrial Machinery Category Large Cap F&O Stock Yes Risky Level Rs.950 Safety Level Rs725 Shareholding Pattern Particulars Dec 17 Sep 17 Jun'17 Promoter 51% 51% 51% FPIs 15.3% 15.3% 15% Insti. 20.8% 20.8% 20.9% N. Insti. 12.9% 12.9% 13.1% Relative Capital Market Strength Cummins India Ltd. Quarterly Snapshot: Particular (RS. Q3FY18 Mn) Q3FY17 Sensex 18.7% 16.8% 15.9% 15% 14.7% FY13 FY14 FY15 FY16 FY17 Revenue EBIDTA Margin Change (YoY) Total Revenue 14,048 14, % EBITDA (Excl OI) 1, % EBITDA Margin (%) 14.0% 15.1% - PAT % NPM (%) 12.3% 13.2% -

3 Peer Comparison: Companies CMP ROE (TTM) 12MR(%) M. Cap (Rs. Mn) EPS (TTM) BVPS EBIDTA Margin (%) NPM (%) Cummins India Ltd % % 13.9% Kirloskar Oil Engines Ltd % % 5.3% Siemens Ltd % % 10.3% Swaraj Engines Ltd % % 10.1% Thermax Ltd % % 4.4% Average % % 8.8% Companies P/E (x) P/Bv (x) P/Sales(x) EV/EBIDTA (x) D/E PAT(Rs. Mn) (TTM) EBIDTA(Rs. Mn) (TTM) Sales (Rs. Mn) (TTM) Cummins India Ltd , , ,633.2 Kirloskar Oil Engines Ltd , , ,503.3 Siemens Ltd , , ,148.0 Swaraj Engines Ltd , ,708.8 Thermax Ltd , , ,113.4 Financial Snapshot: Average , , ,221.3 Particulars (Rs. Mn) FY13 FY14 FY15 FY16 FY17 Standalone Consolidated Revenue from operations 47, , , , ,577.9 Gr (%) 13.1% -13.4% 23.3% -0.5% 7.0% EBITDA (Excl OI) 8, , , , ,046.0 EBITDA Margin (%) 18.7% 16.8% 15.9% 15.2% 14.7% PAT 7, , , , ,362.7 NPM (%) 15.9% 14.4% 15.1% 14.1% 13.5% Net Worth 23, , , , ,711.0 Total Assets 36, , , , ,143.4 Debt ,521.4 Cash flow from Operations 5, , , , ,482.0 D/E (x) Current Ratio (x) Profitablity ratios (%) ROCE (%) 35.4% 24.1% 21.7% 19.2% 17.4% ROE (%) 32.0% 23.4% 23.0% 20.0% 19.0% ROA (%) 20.8% 15.9% 17.2% 15.5% 14.1% Efficiency ratios (x) Receivable days Inventory days Payable days Source: Choice Research/ Annual reports; Financial data-ace equity

4 10.9% 8.0% 37.0% 34.9% 52.1% 57.1% Q3 FY 18 And Con call Highlights: Revenue for the quarter ended Dec 31,2017 at 14,048 millions marginally declined as compared to 14,993 millions recorded in the same quarter last year. Domestic sales in the current quarter at 8990 millions increased by 3% over the same quarter last year and 20% over the preceding quarter. Exports for the current quarter at 4200 millions declined 7% over the same quarter last year but increased by 13% over the preceding quarter. Exports for the nine months ended Dec 31, 2017 at 11,840 millions declined 10% over the same period last year. Net profit in the quarter ended Dec 31, 2017 is millions which is 13.1% lower as compared to millions recorded in the same quarter last year. Domestic sales in the current quarter increased by 20% sequentially, as working with their customers, they successfully overcame the GST implementation issues that they had encountered in the preceding quarter. Supply issues which had also impacted their results in the last quarter, are now behind. The Company s exports have been volatile over the last 2 years and declined by 13% y-y during the 9M FY18. The management has sounded cautious stance on the exports outlook and downgraded the guidelines for export market to decline by 10% from decline of 5% to 10% guided earlier. Management expects flat revenue for domestic business during FY18. Company expects capex of Rs2.5 bn to 3.0 bn each in FY18 and FY19. Other Expenses of the company have gone up to 100 millions which include R&D expenses,employee cost,overhead expenses. Subsidiaries, Joint ventures & Associates: Cummins Sales & Service Private Limited (CSSPL) a whollyowned subsidiary of the Company which focuses on sales of. Cummins engines, parts, accessories and providing service support to engines and generators. CSSPL generated a revenue of 792.2millions from its operations for the year ended March 31, 2017, as compared to 751.4millions during the previous year (5.43% higher). Cummins Research and Technology India Pvt Ltd (CRTI): The revenue from operations of Cummins Research and Technology India Private Limited (CRTI), a 50:50 joint venture between Cummins Inc., USA and Cummins India for the year ended March 31, 2017, was nil as compared to 308 millions during the previous year. Which has been shut down from 2016 and now it s a part of Cummins India. Valvoline Cummins Private Limited (VCPL): VCPL, a 50:50 joint venture with Valvoline International Inc., USA, a global leader in lubricants and engine oils, generated a revenue of 1, millions from its operations for the year ended March 31, 2017, as compared to 1, millions during the previous year. Cummins Generator Technologies India Pvt Ltd (CGT) Company owns 48.54% shareholding in the Associate Company namely CGT which is in the business of design, manufacturing, marketing, sales and service of alternators and related spare parts. CGT generated a revenue of f 6,024.5 millions from its operations for the year ended March 31, 2017, as compared to 5,362.2 millions during the previous year (12.35% higher). 3 Product Portfolio : Engines (BSIV): On-Highway Engines; Off-Highway Engines; Recon Generators: Power range up to 3000 kw (3750 kva); single-source manufacturer of engines, diesel generator, alternators, digital controls, transfer switches and digital paralleling systems Components: Fuel Systems; Emission Solutions; Turbo Technologies; Filtration Services: Sale of engines, and providing after-market support to customers in India, Nepal and Bhutan. Parts: The Company offers products catering to over 17 engine series, 30 basic engine models with 400 different applications and over 25,000 line items. Lubricants: Valvoline Cummins is one of the leading global producer, distributor and marketer of high quality lubricants and specialized automotive, commercial and industrial solutions. Genset Battery: COMPACT & INDUSTRIAL BATTERY Allied Products: Fluid Cooler; Exhaust Gas Boiler; Chiller; Centrifuge; Hot Water Generator; Fresh Water Generator. Power Gen 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Domestic Sales For Q3FY % Distribution Buisenss Low Horse Power 22.9% 36.7% Industry Buisness Power Gen Sales Breakup Mid Range Power High Horse Power Q3FY18 Q3FY17 Source: Choice Research/ Annual reports; Financial data-ace equity

5 Choice s Rating Rationale The price target for a large cap stock represents the value the analyst expects the stock to reach over next 12 months. For a stock to be classified as Outperform, the expected return must exceed the local risk free return by at least 5% over the next 12 months. For a stock to be classified as Underperform, the stock return must be below the local risk free return by at least 5% over the next 12 months. Stocks between these bands are classified as Neutral. Don t be an Investor by Force, Be an investor by CHOICE Create a Wealth Building Portfolio with the help of CHOICE Fundamental Research. CHOICE Fundamental Research will handpick stocks for you to invest in an oversold market by helping you build positions in heavily beaten down fundamentally strong stocks. Opportunities to invest in fundamentally strong stocks at a low arise only 2-3 times in a full year cycle. Investors are advised to sell the stock if the recommended upside potential achieves. If recommended upside potential remains under-achieved, investors are advised to consider the update report on suggested stock. OUR TEAM Fundamental Research Team Name Designation id Contact No. Sunder Sanmukhani Head-Fundamental Research sanmukhanis@choiceindia.com Satish Kumar Research Analyst satish.kumar@choiceindia.com Rajnath Yadav Research Analyst rajnath.yadav@choiceindia.com Aman Lamba Research Associate aman.lamba@choiceindia.com Dhruv Thakkar Research Associate dhruv.thakkar@choiceindia.com Shrey Gandhi Research Associate shrey.gandhi@choiceindia.com Rahul Agarwal Research Associate rahul.agarwal1@choiceindia.com customercare@choiceindia.com 4

6 Disclaimer This is solely for information of clients of Choice Broking and does not construe to be an investment advice. It is also not intended as an offer or solicitation for the purchase and sale of any financial instruments. Any action taken by you on the basis of the information contained herein is your responsibility alone and Choice Broking its subsidiaries or its employees or associates will not be liable in any manner for the consequences of such action taken by you. We have exercised due diligence in checking the correctness and authenticity of the information contained in this recommendation, but Choice Broking or any of its subsidiaries or associates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this recommendation or any action taken on basis of this information. This report is based on the fundamental analysis with a view to forecast future price. The Research analysts for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report. Choice Broking has based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Choice Broking makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. The opinions contained within the report are based upon publicly available information at the time of publication and are subject to change without notice. The information and any disclosures provided herein are in summary form and have been prepared for informational purposes. The recommendations and suggested price levels are intended purely for stock market investment purposes. The recommendations are valid for the day of the report and will remain valid till the target period. The information and any disclosures provided herein may be considered confidential. Any use, distribution, modification, copying, forwarding or disclosure by any person is strictly prohibited. The information and any disclosures provided herein do not constitute a solicitation or offer to purchase or sell any security or other financial product or instrument. The current performance may be unaudited. Past performance does not guarantee future returns. There can be no assurance that investments will achieve any targeted rates of return, and there is no guarantee against the loss of your entire investment. POTENTIAL CONFLICT OF INTEREST DISCLOSURE (as on date of report) Disclosure of interest statement Analyst interest of the stock /Instrument(s): - No. Firm interest of the stock / Instrument (s): - No Choice Equity Broking Pvt. Ltd. Choice House, Shree Shakambhari Corporate Park, Plt No: , J.B. Nagar, Andheri (East), Mumbai