Despite the recent surge in commodity prices making it difficult to maintain margins, Cummins India Ltd. will not be at their mercy, said Managing Director Ashwath Ram.
The company raised its product prices when commodity costs rose and maintained them when prices fell. It is working to control costs and improve efficiency to achieve better margins. Following the announcement of its fourth-quarter results, brokers are cautiously optimistic about margin sustainability.
Cummins India reported a 54.4% increase in net profit in the fourth quarter of fiscal 2024 on Thursday, leading Nomura and Citi to upgrade their ratings for the company.
The diesel and natural gas engine manufacturer will also have to comply with new regulations from the Central Pollution Control Board. The new CPCB IV+ regulations, effective July 1, mandate a 90% reduction in particulate matter and nitrogen oxide concentrations in generator exhaust, surpassing the existing CPCB II standards.
Cummins India has been ready with CPCB IV compliant products since last June and is already supplying to a niche market. "Once bulk production begins, we will understand the exact margins of CPCB IV products, and we expect them to still be incremental to CPCB II," said Ram.
The new CPCB IV products will feature higher-tech and value-added content, resulting in a better cost profile and margin, he added. Brokerages expect the pricing to stabilize by September-October.
Cummins India Q4 FY24 Highlights (Consolidated, YoY)
Revenue rose 20% to Rs 2,319 crore.
Ebitda up 63.1% to Rs 539 crore versus Rs 330 crore.
Margin at 23.2% versus 17.1%.
Net profit up 54.4% at Rs 539 crore versus Rs 349 crore.
Board recommended a final dividend of Rs 20 per share.
Here is what brokerages have to say about the company:
Citi
The brokerage maintains 'buy' call, with a target price of Rs 4,384, an upside of 22% from the previous close.
Strong Q4 led by domestic demand and margin expansion.
Data centers are now close to 10% of power generation revenue.
Royalty and technology fee have come down. FY25 seen at similar level.
Management guided to double-digit growth in FY25.
Growth of two times of GDP, that is 12-16% growth over medium term.
Increase FY25E/F26E EPS by ~17/~24%.
Build in 6%/10% higher revenue and 150/200 bps higher margin.
Nomura
The brokerage maintains 'buy' call, with a target price of Rs 3,470 per share.
Domestic demand intact, while exports likely to bottom out by Q1 FY25.
Data centers powering sustainable growth.
High-margin segment growing at a faster pace.
Raw material volatility is key monitorable.
The stock remains expensive and currently trades at 46 times/39 times FY26F/27F EPS.
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