Cummins India Q4 Results Review - Strong Performance; Retaining A Buy: Anand Rathi

Anand Rathi Report

With Rs 23 billion/4.8 billion/5.1 billion Q4 revenue/Ebitda/profit after tax, up 20/49/62%, Cummins India Ltd. reported a strong Q4, roundly beating our expectations. Its Q4 Ebitda margin was 20.9%, adjusted for a one-time Rs600m benefit, including a management cross charge and reversal of advance tax paid.

The gross margin was a strong 36%, to hold at ~35% ahead. Revenue from data centres, a key growth area, is near 10%. We revise our estimates to account for the higher (sustainable) Ebitda margin and export revival from H2 FY25.

We raise our FY25e/26e earnings per share 1.4%/1.5% and value the stock on a sum-of-parts basis, with standalone PE at 42 times (from 36 times) and value of partners/Associates/rental property at Rs 939/share. Thus, we retain our Buy and raise our target prcie to Rs 4,166 (earlier Rs 3,538).

Risks:

Competition catching up on CPCB 4+ transition faster than expected and undercutting in prices.

The company cut prices to maintain its market share due to stiffer-than-anticipated competition. Also, exports being tepid for longer than expected could be a risk.

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