Cummins India Tries To Allay Investor Concerns, Says Won’t Lose Market Share

To allay investor concerns over its U.S.-based parent outsourcing orders to other unlisted group entities in India, Cummins India Ltd. said key businesses will remain with the company and it wouldn’t lose market share.

Cummins India management expects a turnaround in exports in the next five years after witnessing a negative growth in the last four, according to brokerages citing the company’s conference call with analysts.

The manufacturer of diesel engines hopes to achieve a 0-5 percent annual growth rate after reporting a 9 percent decline in exports in the last four years. Exports were weak due to falling oil price, which impacted the company’s finances and growth in key markets like the Middle East and Africa, the management told analysts.

The company expects margins to improve as it improves product mix and cost initiatives begin to yield results. It reported a standalone profit of Rs 161.2 crore in the previous quarter and sales of around Rs 1,205.8 crore.

Yet these failed to enthuse analysts.

Pulkit Patni of Goldman Sachs said a soft export guidance could potentially be due to the company’s manufacturing portfolio being focused on the domestic market, potentially limiting export opportunities.

Puneet Gulati of HSBC has rated the stock as ‘Hold’ on limited visibility of an improving business outlook—domestic or international.

Twenty-two of the 34 analysts tracked by Bloomberg have a ‘Buy’ recommendation on the stock, while seven have a ‘Hold’ and five have a ‘Sell’ rating. The current price indicates a potential upside of 21 percent, according to Bloomberg data.

The company’s stock has fallen 26.6 percent in the last twelve months compared with a 12.5 percent gain in the benchmark S&P BSE Sensex. The scrip is down nearly 40 percent from its July 2017 record.

Key Highlights From The Analyst Meet:

• Management has pegged the five-year growth guidance for the domestic business at 9-11 percent per year and 0-5 percent per year for the exports business.
• Management is confident that the power genset and construction equipment businesses will improve once India completes its transition to new emission norms. Power genset market to be dependent on the mid- to high-end real estate market. Stable growth expected as it remains the leader in the high horse power genset market.
• Industrial segment is seeing fastest growth driven by rail and construction equipment businesses. Management expects this segment to drive growth for the next few years.
• Exports declined 9 percent in the last four years, as both the low horse power and high horse power fell. The management expects this business to grow largely in line with global GDP, with growth range being 0-5 percent.
• Long-term key growth areas would be telematics, electrification, renewables, alternative fuel and advanced analytics. Medium-term performance will continue to be driven by engine development, which is a core business. Will not participate in telecom market as it has become unprofitable.
• The 14/19/28/38-litre engines will be manufactured by listed entity Cummins India while 23/60- litre engines will be manufactured by Cummins Technologies India.

(The highlights were compiled from HSBC and Goldman Sachs reports)