Q2FY24 Review: Cummins India: Another solid quarter

9 Nov 2023 , 11:16 AM

Buoyed by strong domestic demand, preparedness on CPCB IV+ with competitive cost structure and continued cost optimization measures, Cummins India (KKC) is confident of delivering 2x GDP growth (12-13% YoY) with healthy gross margin range of 32- 34%. Analysts of IIFL Capital Services revise FY24/25/26 EPS by 4/-3/1%, respectively. While KKC retains it cautious guidance, its portfolio is in a sweet spot amidst increasing share of domestic manufacturing, recovery in real estate cycle, thrust on infra investments and glaring power-supply situation in the country, trading at 32x FY25 EPS. Reiterate BUY. 

H2FY24 poised for volume growth in domestic powergen: 

Defying apprehensions, end consumer preference for CPCB–IV+ products in large cities (despite 20-25% price differential vs CPCB-II range) has surprised KKC positively, delivering double digit share in domestic PG revenues (vs 5-10% expected). Strong domestic demand has broadly absorbed excess stocking of old CPCB-II range products and channel inventory is back to normalised levels, driving confidence in volume growth in H2FY24 driven by dual emission products. 

Near term export look bleak, but driving structural initiatives: 

In addition to sharp inventory corrections visible in North America & the EU, general slowdown in global markets (APAC, Middle-east too) will keep H2 exports soft (drop in Q3 followed by some pick-up in Q4). Initiatives under Fit-for-market 3.0 like driving product approvals and application wise customisation of CPCB-IV+ range in the EU and the US are expected to steer KKC through higher share in global supply chains and better prospects for exports over FY24-26. 

Investing in localisations, new products with an eye on cost structure: 

While KKC retains its lead position to drive cost competitive local offerings across new technology platforms, various new products for domestic and export markets are in pipeline to fuel faster-than-market growth. KKC maintains its cost conscious approach and has launched its customary VRS program to optimise employee costs in targeted areas. Robust Cash conversion cycle has strengthened balance sheet further with cash-chest of Rs26.5bn.