Motilal Oswal: Cummins India - Operating Performance Disappoints; Outlook Weak
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Motilal Oswal Report
Cummins India Ltd. reported weakest top line performance (down 63%YoY) in our coverage universe as the company could operate for just one month in Q1 FY21.
Note that top line included Rs 1.9 billion (or 38% of Q1 FY21 revenue) of deferred revenue from last quarter. Gross margin surprise was largely on account of favorable sales mix with higher contribution from the distribution business.
This is likely to reverse as revenue should normalise hereon. Cost cutting benefits (from employee cost and other expenses) were lower than our expectations (versus other companies in our coverage universe).
We fear that cost cutting measures would not be able to make up for the weak revenue outlook.
Central Pollution Control Board 4 Plus (CPCB4+) led export opportunity remains a key positive for Cummins India.
However, with the likely deferment of implementation by nine to twelve months implies that any benefits from this opportunity would accrue only from FY23.
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