Cummins India to maintain ‘buy’ with a target price of Rs.530

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Cummins India Ltd (KKC)’s relationship with top management provides greater comfort at its competitive edge as the demand cycle normalizes. Management is looking for improved bottom-line translation from upcoming emission standards than previous cycles as it aims for greater cost and product offering distinction.

According to a source, exports, the weakest link for some time now, may uncork unexpected upside in the wake of additional parent mandate, Rs. 8 billion in new orders with five to seven years of execution. The management is looking at a sequential sales boost, better launch translation with an emphasis on tapping into new OEMs (Original Equipment Manufacturers) while keeping the Capex and cost-controlled.

The company says that they like the unwavering and bifocal approach of management: new releases and more tight cost-control. With a much more diverse product range, the company’s attempt to retain its competitive advantage could take Street by surprise as the demand cycle normalizes. One key cause remains the potential for stronger industrial and export pick-ups.

According to a report, the management remains hopeful of a sale Quarter on Quarter (Q-o-Q) increase, and Q2 growth has done well to date. They listed a complete overhaul of the manufacturing portfolio for the industry as a whole — whether off-road or power generation, which coupled with current downward demand might force the business into repositioning (previous emission and demand cycles). Management showed greater confidence in their premium pricing capability, strengthened cost structures, and extended global mandate as demand cycle normalizations. We reiterate that the execution of strategies continues to be crucial for Cummins India ltd (KKC).

According to a survey, the modest expectations of street exports and industrial BU, both of which look better sequentially and cyclically, may add a positive surprise to its estimates given KKC’s far better global cyclical demand outlook, domestic resilience, and pickup potential in the railways, infrastructure (for example roads), mines, etc. Faced with the initial anticipation of a cost-led disappointment, we now find a strong increase in the analysis focused on sales. Maintain ‘BUY / SO’ at a Rs 530 target price (22x PE).

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