Prabhudas Lilladher
Cummins India (Hold)
CMP: ₹570.7
Target: ₹619
Cummins India management is confident on domestic growth (+16 per cent y-o-y in 1QFY20) led by Powergen (30 per cent of revenue) and industrial segment mainly compressors, marine, mining and railways. In 1QFY20 compressors grew more than 150 per cent y-o-y and railways grew by 70 per cent y-o-y. Domestic economy continues to grow largely in areas which are positively benefited through continuing government investments in infrastructure. CIL is seeing traction from data center, commercial realty, hospitals and manufacturing sectors. The company has guided for 8-10 per cent growth from domestic market.
Cummins India’s annual analyst meet indicated of sustained demand for diesel for the next few decades. It re-emphasised on its earlier guidance of single digit domestic growth and weak exports in FY20. Over the next five years, management indicated of new trend lines viz infrastructure spend by the government, emissionised products, alternate fuels, digitization and connectivity. The company is fully geared up for launching new CPCB IV+ products which are expected to be launched in India by 2020-21. We expect CIL to deliver earnings CAGR of 4 per cent over FY19-21E. The stock is currently trading at about 23x/20x FY20/21E and we maintain HOLD rating with TP of ₹619 (22x FY21E).