The stock price of Cummins India has risen by 68 per cent to ₹865 in the last five years. The price to earnings ratio has increased from 20 times at the end of 2011 to 29 times now, reaching a high of 52 times at the end of 2014.

Cummins, a market leader in manufacturing engines and related technologies, is well-placed to benefit from the Centre’s drive to improve infrastructure. It owns 37 per cent of the $860-million power generator and alternator market and 40 per cent of the $871-million market for industrial engines. The low-cost producer status, ability to manufacture high-quality products, strong R&D and brand are key positives. Sales and net profit increased at an annualised growth rate of 8.7 per cent and 12 per cent, respectively, between FY10 and FY15. The profit margin for the same period has fluctuated between 15 and 18 per cent. Cummins’ accelerated cost reduction programme from 2005 to 2014 helped the company tide over challenging times in the last five years. Besides, a good relationship with original equipment manufacturers helped it remain the market leader in the domestic segment.

For the nine months ending December 2015, the company had a healthy domestic and export sales growth.

The government’s increased Budget allocation in roads, railways and smart cities is expected to increase demand for heavy-duty, mid-range and light-duty (HMLD) engines. Greater emphasis on boosting the power sector through improved coal allocation, UDAY and rural electrification schemes should spur demand for power equipment.

The Centre’s positive vibes in the defence sector and ‘Make in India’ theme should also favour Cummins in the long run.

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