Cummins India Ltd.
Numbers boosted by amalgamation
SELL
CMP: Rs257 Target Price: Rs195
Cummins India reported its Q4FY09 results which included amalgamation of its two subsidiaries, Cummins Auto Services Limited and Cummins Sales and Services Limited. The results are therefore not comparable. Revenue for the quarter was at Rs.10.2bn an increase of 53.1%. Net profit increased by 56% to Rs.1.1bn. However, excluding the impact of the amalgamation, revenue for the quarter was at Rs.6.3bn, decline of 8.3% and net profit declined by 10.6% to Rs.657mn. Decline in the engine segment clearly demonstrates that the worst may not be over for the company. During the quarter, exports reported decline of 10% to Rs.3.2bn. Going forward export segment will remain as a pressure point for Cummins, which was a growth driver in the past six quarters.
We expect Cummins to be severally impacted due to slowdown in the capex in general and demand for power gensets in particular. Demand is expected to slowdown significantly from manufacturing, IT/ITES and automotive segment. We are revising our EPS estimate, primarily due to better than expected performance of the subsidiary companies (now amalgamated with the parent company). We expect the company to report net profit of Rs.3.2bn in FY10 and Rs.3.8bn in FY11. We expect the company to report consolidated EPS of Rs.16.2 in FY10 and Rs.19.4 in FY11. We maintain our SELL rating on the stock with revised target price of Rs.195, based on 10x FY11 earnings.
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