Motilal Oswal
Cummins India (Buy)
CMP: ₹730.6
Target: ₹950
In its guidance for FY20, Cummins India expects 10-12 per cent growth in the domestic market backed by strong growth across infrastructure segments such as data centres, hospitality and metro. It is also seeing a demand pick up in the manufacturing segment. However, on the exports front, it expects growth to remain flattish; hence a weak guidance of 0-5 per cent. Demand for powergen segment products (major part of its exports business) has witnessed a decline. Even key markets such as West Asia (slowdown in investment) and Africa (payment concerns), which contributes 50 per cent to LHP exports have not picked up. Cummins expects its distribution business to register steady growth of 8-10 per cent growth y-o-y.
Valuation and view: We are positive with a long-term view on the stock given its market leadership in the HHP and MHP segment, strong after-sales service & distribution, and its preparedness to take advantage of the upcoming CPCB4 emission norm change. Exports is still a bleak spot in the near-term given the decline in demand for HP engines from its parent. But, we are upbeat on the long-term prospects of exports as we expect capex cycle recovery in the key markets of Europe and Africa, post firming up of oil and base metal prices.