rd CUMMINS INDIA LTD ISIN… · Cummins India Limited, headquartered in Pune since 1962, is the country's leading manufacturer of diesel and natural gas engines for power generation,

Document code: FOTL_031120184_2 Copyright © 2016 Firstobject Technologies Ltd. All rights reserved

CUMMINS INDIA LTDResult Update (PARENT BASIS): Q2 FY19

CMP: 749.50 NOV 3rd, 2018

Overweight ISIN:INE298A01020

Index Details SYNOPSISCummins India Limited is the country's leadingmanufacturer of diesel and natural gas engines forpower generation, industrial and automotivemarkets.

The company has registered a turnover of Rs.14869.30 mn for Q2 FY19 as against Rs. 11538.50mn in Q2 FY18, up by 28.87%.

During the quarter, EBIDTA stood at Rs. 3293.60mn as against Rs. 2211.00 mn in the correspondingperiod of the previous year, up by 48.96%.

PBT stood at Rs. 2980.20 mn in Q2 FY19 againstRs.1953.00 mn in Q2 FY18.

During the quarter, net profit registered at Rs.2115.60 mn from Rs. 1529.00 mn in thecorresponding quarter ending of previous year, upby 38.36%.

EPS of the company stood at Rs. 7.63 in Q2 FY19as against Rs. 5.52 in the corresponding quarter ofthe previous year.

Net sales for the half year ended September 30,2018 at Rs. 28148.80 mn grew by 9.39% over sameperiod last year’s sales of Rs. 25731 mn.

During H1 FY19, PAT of the company registered agrowth of 5.20% at Rs. 3945.60 mn as compared toRs. 3750.60 mn in H1 FY18.

Domestic sales for the half year ended September30, 2018 at Rs. 18590 mn grew by 12% over thesame period last year.

Exports for the half year ended September 30, 2018at Rs. 8890 mn grew by 16% over the same periodlast year.

Net Sales and PAT of the company are expected togrow at a CAGR of 9% and 7% over 2017 to 2020E,respectively.

Stock DataSector Industrial MachineryBSE Code 500480Face Value 2.0052wk. High / Low (Rs.) 993.45/611.75Volume (2wk. Avg.) 151000Market Cap (Rs. in mn.) 207761.40

Annual Estimated Results(A*: Actual / E*: Estimated)Years (Rs. in mn) FY18A FY19E FY20ENet Sales 51610.60 59352.19 67661.50EBITDA 9609.20 12664.11 14364.61Net Profit 7084.70 8734.69 10020.09EPS 25.56 31.51 36.15P/E 29.33 23.79 20.73

Shareholding Pattern (%)

As on Sep 2018 As on June 2018

Promoter 51.00 51.00

Public 49.00 49.00

Others -- --

1 Year Comparative Graph

CUMMINS INDIA LTD S&P BSE SENSEX

PEER GROUPS CMP MARKET CAP EPS(TTM) P/E (X)(TTM) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Cummins India Ltd 749.50 207761.40 26.26 28.53 5.21 750.00Lakshmi Machine Works Ltd 5805.10 63597.80 189.57 30.62 3.69 400.00Kirloskar Industries Ltd 905.10 8787.30 50.60 17.89 1.10 210.00KSB Pumps Ltd 782.00 27219.70 20.56 38.04 4.11 60.00


QUARTERLY HIGHLIGHTS (PARENT BASIS)

Results updates- Q2 FY19,

(Rs. in millions) Sep-18 Sep-17 % Change

Revenue 14869.30 11538.50 28.87%

Net Profit 2115.60 1529.00 38.36%

EPS 7.63 5.52 38.36%

EBIDTA 3293.60 2211.00 48.96%

The company has registered a turnover of Rs. 14869.30 million for the 2nd quarter of the FY 2018-19 as against Rs.

11538.50 million in the corresponding quarter of the previous year. During the quarter, net profit stood at Rs. 2115.60

million from Rs. 1529.00 million in the corresponding quarter ending of previous year. Reported earnings per share of the

company stood at Rs. 7.63 in Q2 FY19 as against Rs. 5.52 in the corresponding quarter of the previous year. Profit before

interest, depreciation and tax stood at Rs. 3293.60 million as against Rs. 2211.00 million in the corresponding period of

the previous year, up by 48.96%.

Break up of Expenditure

Break up of Expenditure

(Value in Rs. Million)

Q2 FY19 Q2 FY18 %Change

Cost of MaterialConsumed 6836.70 5890.10 16%

Purchase of Stock-inTrade 2321.30 1446.20 61%

Employee BenefitsExpenses 1467.60 1256.60 17%

Depreciation &Amortization Expenses 273.60 220.20 24%

Other Expenses 1675.60 1325.70 26%


Financial Highlights:

Net sales for the half year ended September 30, 2018 at Rs. 28148.80 mn grew by 9.39% over same period last year’s

sales of Rs. 25731 mn.

During H1 FY19, PAT of the company registered a growth of 5.20% at Rs. 3945.60 mn as compared to Rs. 3750.60

mn in H1 FY18.

Domestic sales in the current quarter are again the highest achieved at Rs. 10030 mn, which grew by 34% over the

same quarter last year and grew by 17% over the preceding quarter.

Domestic sales for the half year ended September 30, 2018 at Rs. 18590 mn grew by 12% over the same period last

year.

Exports for the current quarter at Rs. 4480 mn grew 21% over the same quarter last year and by 2% over the

preceding quarter.

Exports for the half year ended September 30, 2018 at Rs. 8890 mn grew by 16% over the same period last year.

COMPANY PROFIECummins India Limited, headquartered in Pune since 1962, is the country's leading manufacturer of diesel and natural gas

engines for power generation, industrial and automotive markets.

About Cummins Group in India

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 $20.4 billion Cummins Inc., Cummins in India is a Group of seven

legal entities across 200 locations in the country with a combined turnover of Rs. 12,975 crores in 2017 and employing

over 10,000 individuals..


FINANCIAL HIGHLIGHT (PARENT BASIS) (A*- Actual, E* -Estimations & Rs. In Millions)Balance Sheet as of March 31, 2017 -2020E

FY17A FY18A FY19E FY20EASSETS1) Non-Current Assets

a) Property, plant and equipment 12240.00 12827.50 12442.68 13064.81b) Capital Work in Progress 4631.30 379.50 675.51 844.39c) Investment Property 2678.90 7311.00 7091.67 7446.25d) Intangible Assets 82.20 54.00 35.10 29.84e) Investments in Subsidiary, Joint Venture & Assoc. 373.50 373.50 392.18 407.86f) Financial Assets

i) Investments 68.10 53.30 52.77 50.13ii) Loans 1286.60 0.00 0.00 0.00iii) Other Financial Assets 117.50 44.60 1145.45 1351.63

g) Income Tax Assets (Net) 800.50 891.80 972.06 1040.11h) Other Non-Current Assets 1417.20 1282.10 705.16 881.44Sub - Total Non- Current Assets 23695.80 23217.30 23512.56 25116.46

2) Current Assetsa) Inventories 5620.60 5374.80 6181.02 6799.12b) Financial Assets

i) Investments 6632.40 5060.10 3086.66 2315.00ii) Loans 0.00 1286.60 321.65 241.24iii) Trade receivables 9556.50 13262.50 16578.13 19562.19iv) Cash and Cash equivalents 1237.60 1523.10 2436.96 3046.20v) Other Bank Balances 53.50 3185.70 3982.13 4698.91vi) Other Current Financial Assets 484.80 700.10 3314.54 3911.16

c) Other Current Assets 2672.70 1660.90 2358.48 2948.10d) Assets Classified as held for sale 454.90 41.20 30.90 26.27

Sub - Total Current Assets 26713.00 32095.00 38290.46 43548.17Total Assets (1+2) 50408.80 55312.30 61803.02 68664.63EQUITY AND LIABILITIES1) EQUITY

a) Equity Share Capital 554.40 554.40 554.40 554.40b) Other Equity 36867.30 39306.30 42843.87 46699.82

Total Equity 37421.70 39860.70 43398.27 47254.222) Non Current Liabilities

a) Financial Liabilitiesi) Other Financial Liabilities 303.20 284.20 233.04 202.75

b) Provisions 557.10 428.80 471.68 509.41c) Deferred Tax Liabilities (net) 23.90 298.80 770.90 963.63d) Other Non – Current Liabilities 27.00 21.30 18.11 16.66

Sub - Total Non Current Liabilities 911.20 1033.10 1493.73 1692.453) Current Liabilities

a) Financial Liabilitiesi) Borrowings 2507.80 2515.40 2389.63 2317.94ii) Trade Payables 6081.80 7580.20 9827.99 12336.53iii) Other current financial liabilities 1387.70 2239.20 2597.47 2909.17

b) Other Current Liabilities 679.60 560.40 420.30 344.65c) Provisions 1419.00 1523.30 1675.63 1809.68

Sub - Total Current Liabilities 12075.90 14418.50 16911.02 19717.97Total Equity and Liabilities (1+2+3) 50408.80 55312.30 61803.02 68664.63


Annual Profit & Loss Statement for the period of 2017 to 2020E

Value(Rs.in.mn) FY17A FY18A FY19E FY20E

Description 12m 12m 12m 12mNet Sales 54287.50 51610.60 59352.19 67661.50

Other Income 2079.80 2284.70 2924.42 3450.81

Total Income 56367.30 53895.30 62276.61 71112.31

Expenditure -46269.30 -44286.10 -49612.50 -56747.70

Operating Profit 10098.00 9609.20 12664.11 14364.61

Interest -167.80 -148.30 -160.16 -169.77

Gross profit 9930.20 9460.90 12503.95 14194.84

Depreciation -847.80 -937.90 -1078.59 -1218.80

Exceptional Items 0.00 561.20 0.00 0.00

Profit Before Tax 9082.40 9084.20 11425.36 12976.04

Tax -1736.10 -1999.50 -2690.67 -2955.94

Net Profit 7346.30 7084.70 8734.69 10020.09

Equity capital 554.40 554.40 554.40 554.40

Reserves 36867.30 39306.30 42843.87 46699.82

Face value 2.00 2.00 2.00 2.00

EPS 26.50 25.56 31.51 36.15

Quarterly Profit & Loss Statement for the period of 31st Mar, 2018 to 31st Dec, 2018E

Value(Rs.in.mn) 31-Mar-18 30-Jun-18 30-Sep-18 31-Dec-18E

Description 3m 3m 3m 3mNet sales 12332.00 13279.50 14869.30 16504.92

Other income 664.00 695.70 784.60 729.68

Total Income 12996.00 13975.20 15653.90 17234.60

Expenditure -10601.50 -11133.00 -12360.30 -13781.61

Operating profit 2394.50 2842.20 3293.60 3452.99

Interest -34.20 -35.60 -39.80 -42.98

Gross profit 2360.30 2806.60 3253.80 3410.01

Depreciation -272.80 -270.50 -273.60 -295.49

Profit Before Tax 2087.50 2536.10 2980.20 3114.52

Tax -475.30 -706.10 -864.60 -802.30

Net Profit 1612.20 1830.00 2115.60 2312.22

Equity capital 554.40 554.40 554.40 554.40

Face value 2.00 2.00 2.00 2.00

EPS 5.82 6.60 7.63 8.34


Ratio Analysis

Particulars FY17A FY18A FY19E FY20E

EPS (Rs.) 26.50 25.56 31.51 36.15

EBITDA Margin (%) 18.60% 18.62% 21.34% 21.23%

PBT Margin (%) 16.73% 17.60% 19.25% 19.18%

PAT Margin (%) 13.53% 13.73% 14.72% 14.81%

P/E Ratio (x) 28.28 29.33 23.79 20.73

ROE (%) 19.63% 17.77% 20.13% 21.20%

ROCE (%) 23.17% 20.46% 25.30% 26.52%

Debt Equity Ratio 0.07 0.06 0.06 0.05

EV/EBITDA (x) 20.04 20.87 15.84 13.92

Book Value (Rs.) 135.00 143.80 156.56 170.47

P/BV 5.55 5.21 4.79 4.40

Charts


OUTLOOK AND CONCLUSION

At the current market price of Rs. 749.50, the stock P/E ratio is at 23.79 x FY19E and 20.73 x FY20E respectively.

Earning per share (EPS) of the company for the earnings for FY19E and FY20E is seen at Rs.31.51 and Rs. 36.15

respectively.

Net Sales and PAT of the company expected to grow at a CAGR of 9% and 7% over 2017 to 2020E, respectively.

On the basis of EV/EBITDA, the stock trades at 15.84 x for FY19E and 13.92 x for FY20E.

Price to Book Value of the stock is expected to be at 4.79 x and 4.40 x for FY19E and FY20E respectively.

Hence, we say that, we are Overweight in this particular scrip for Medium to Long term investment.

INDUSTRY OVERVIEW

ECONOMIC TRENDS AND IMPLICATIONS:

The growth rate of Indian economy in the Financial Year 2017-18 was projected to be ~6.6% on the back of lower

inflation, improved current account balance and focus on infrastructure spending.

Post recovery from demonetization and GST implementation, the Indian economy witnessed robust signs of revival

during second half of Financial Year 2017-18.

Government spend on infrastructure has been increasing (up by 20.8% in Financial Year 2017-18 over previous year)

primarily in roads (up by 31.4% in Financial Year 2017–18 from previous year) and railways (up by 8.2% in Financial

Year 2017-18 from previous year). This has stimulated foreign and private investments in infrastructure and fostered

economic growth.


An impetus on developing industrial corridors and smart cities in addition to the ‘Make in India’ campaign by the

government would assist in industrial development and promoting the domestic manufacturing sector while programs like

‘Bharat Net’ and ‘Digital India’ would help establish a digital infrastructure in India.

Global trade has shown signs of moderate recovery in 2017. However, uncertainty about international government action

and a rising tendency towards protectionist and restrictive trade policies pose a significant risk.

The continual rise in global oil, gas, metals and commodity prices pushed inflation upwards, intensifying supply side price

pressures.

In the long term, India’s growth story remains intact, driven by strong private consumption, public push for infrastructure

spending and recovery from disruption of the GST rollout. This is also reflected in the International Monetary Fund

Financial Year 2018-19 outlook for India economic growth, projected at 7.4%.

OPPORTUNITIES:

Industrial

Government’s impetus through different initiatives especially in manufacturing and infrastructure, along with the “Make

in India” push will boost growth across the product portfolio.

Railways:

Company believes that the announced railway budget that outlines an investment of f 1.48 lakh Crores for capacity

creation, track doubling of 18,000 km of lines and rail track renewal of 36,000 km will spur demand of Track

Maintenance equipment and Diesel Electric Tower Cars (DETC).The continued focus on increasing production of safer

Linke Hofmann Busch (LHB) coaches will result in a growth in Power Car demand.

Mining:

With the Coal Ministry’s target of 1BT coal production by 2020, Company anticipates expansion of higher tonnage

mining equipment market. The increased outsourcing to private contractors will also result in an increased demand for

small tonnage equipment in the private mining sector.

Marine:

Emphasis on inland water transport development coupled with the “Make in India” focus, will boost manufacturing of

transport vessels thereby, increasing demand for marine main propulsion engines and diesel generator sets.

Oil & Gas:

Company expects strong demand in the city gas compression market based on the government’s smart city and City Gas

Distribution (CGD) initiative.


Construction:

Company believes the focus of Indian government on road and infrastructure development projects along with the “Make

in India” initiative will lead to a sustained growth in demand for construction equipment. Company has strong

partnerships with all major equipment manufacturers and will continue to leverage technology leadership to continue

growth in this sector.

Power Generation:

Company expects the segment to grow, on the back of the Governments’ emphasis on infrastructure projects and the

‘Make in India’ initiative.

With increasing digitalization of the economy, the Data Centers segment is expected to grow, which would further fuel

demand for High Horsepower generator sets, where Company holds a significant market share.

The Commercial Realty segment is expected to exhibit higher growth as the demand for office spaces and commercial

establishments continues to increase with the growing economy.

The overall power deficit of the country is expected to continue its’ declining trend. However, Company believes there

will be a sustained demand for backup power due to rapid urbanization, GDP growth and changing preference of

consumers.

Distribution:

Government’s emphasis on infrastructure projects like road and bridge construction, augmenting coastal infrastructure,

and expansion of railway infrastructure will drive purchase and higher utilization of equipment, resulting in positive

outlook for parts, new engines and rebuild engine sales.

Exports:

Company has identified new opportunities for supply of machined components to Cummins Inc. Parts Distribution

Centers and other inter-company units.

OUTLOOK AND INITIATIVES FOR THE CURRENT YEAR AND THEREAFTER:

Industrial:

Government’s impetus through different initiatives, especially in manufacturing and infrastructure will boost growth

across the product portfolio.

With the underslung technology and innovative cost-effective noise attenuation solutions, Company is well positioned for

the Indian Railways’ plan to focus on safety and modernization.

Company continues its strong partnership with Indian Navy, Coast Guard and major shipyards with its main propulsion

engine and propulsion package along with diesel generator set offerings. In addition, Company is working on various

initiatives to strengthen its position in the fishing boats segment as a complete propulsion package provider.


Company is working with global partners to develop Factory Mutual and/or Underwriting Laboratories (FM/ UL) certified

products for pump applications.

Company is also working closely with Defence OEMs for stringent engine and system requirements for guns and tanks.

Due to sustained government initiatives, the highways sector in the country is in revival mode. With investments in

infrastructure growth like Rail, Road and Irrigation set to go up, the demand for construction equipment is set to rise

further.

Both earthmoving and road construction segments are witnessing significant growth, led by road-building and

infrastructure development initiatives of the Indian Government. Company expects to retain its strong position in these

markets.

Power Generation:

With greater focus on more stringent environmental norms in the future, Company is positioned favorably as a pioneer in

producing engines with cleaner technology and higher fuel efficiency.

Data Centers and Infrastructure segments are expected to continue their growth trend and Company is undertaking

targeted initiatives to sustain and improve its’ dominant position in these segments.

Company expects the power deficit to remain low, intensifying the shift in generator set usage towards a standby pattern.

However, with the renewed push on infrastructure & industrial development, as well as increasing urbanisation, the

demand outlook for backup power continues to be optimistic.

Recent advances in energy storage technologies are expected to create significant opportunities as a result of disruptions

in the power landscape. Company is preparing to take advantage of these developments.

Distribution:

Company is expected to continue the growth story on account of continued demand for Spares, Engines and Service

Contracts. The demand is primarily driven by key accounts. Focus will also be on business development through

expansion of product range to new customers, development of repowering packages and penetration improvement with

the existing customers.

Exports:

Company is focused on increasing the exports of its products and is positioned strongly in all its export markets as the

global markets recover. Company has identified profitable opportunities to supply parts to various Cummins engine plants

and parts distribution centers globally.


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The following analysts hereby state that their views about the companies and sectors are on best effort basis to the best oftheir knowledge. Unless otherwise stated, the individuals listed on the cover page of this report are research analysts. Theanalyst qualifications, sectors covered and their exposure if any are tabulated hereunder:

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Exposure/Interest tocompany/sector UnderCoverage in the CurrentReport

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Documents

rd CUMMINS INDIA LTD ISIN… · Cummins India Limited, headquartered in Pune since 1962, is the country's leading manufacturer of diesel and natural gas engines for power generation,