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Shares Of Cummins India Fall To Five-Year Low On Guidance Cut

Cummins India lowered its growth guidance from exports and domestic market to 5-10 percent and 8-10 percent, respectively, in FY20

Diesel engines sit on the assembly line at a Cummins Inc. plant. (Photographer: Luke Sharrett/Bloomberg)
Diesel engines sit on the assembly line at a Cummins Inc. plant. (Photographer: Luke Sharrett/Bloomberg)

Shares of Cummins India Ltd. fell to their lowest in five years as the maker of power generators cut its domestic and exports revenue guidance on lower demand.

Cummins India expects revenues from exports—which forms nearly a quarter of the company’s overall topline—to decline 5-10 percent in the ongoing financial year against 0-5 percent guided earlier, according to a post-earnings conference call with analysts. The company’s revenue from exports fell 26 percent year-on-year in the quarter ended June.

To be sure, the company—which sells its products to key markets such as Middle East and Africa—had guided for lower exports in the ongoing financial year while announcing the results for the preceding quarter.

Cummins India also lowered its growth guidance for the domestic market to 8-10 percent from 10-15 percent forecast earlier as industrial and construction activities slowed. Revenue from its domestic business—that contributes 75 percent to its total topline—rose 16 percent year-on-year in the April-June period.

Order intake was impacted by the liquidity crunch in the Indian economy, according to Managing Director Sandeep Sinha. “This is likely to play out further for at least another quarter, but revival is expected gradually thereafter,” he said in a media statement.

About exports, he said they remained “soft” in the recent quarters because of “global economic challenges”. “In this quarter, we also experienced decline in certain markets within the global power generation business, where conditions became weak based on difficulties that some of these economies are now experiencing.”

During the first quarter, Cummins India’s operating and net profit fell 30 percent and 17 percent, respectively, over the last year to Rs 151.3 crore and Rs 152 crore. Its margin stood at 11.2 percent against 16.12 percent a year ago.

Gopal Ritolia, analyst at UBS, said the company’s margin in the first quarter touched its lowest level in 13 years, while Nomura analyst Priyankar Biswas said the consensus margin is yet to fully factor in the pricing pressure in the domestic market and weak exports. Lower share of exports in overall sales dragged earnings in the first quarter, Biswas wrote in a report.

The company’s management said in the conference call, however, said the margin has “bottomed out and will improve going ahead”.