Optimistic about a sequential pick-up in supply chain stability- Cummins IndiaSharvari Joshi
Update on the Indian Equity Market:
On Wednesday, NIFTY closed at 15,752 (+0.5%). Top gainers in NIFTY50 were Adani Ports (+5.3%), Power Grid (+5.0%), and NTPC (+4.2%). The top losers were Bajaj Finance (-4.5%), Bajaj Finserv (-2.9%), and HDFC (-1.2%). The top sectoral gainers were MEDIA (+1.2%), IT (+1.1%), and PVT BANK (+0.9%) and sectoral losers were METAL (-0.4%), REALTY (-0.3%), and FIN SERVICES (-0.2%).
Excerpts of an interview with Mr. Ajay Patil, CFO, Cummins India (CUMMINSIND) with CNBC TV18 dated 7th June 2021
- It has been a good quarter for Cummins with double-digit revenue growth and also margin expansion.
- Pent-up demand and a pick-up in execution aided growth for Cummins India in the March quarter.
- From the early part of July onwards, they are optimistic about a sequential pick up in the supply chain stability, as the pace of vaccination is picking up along with shutdown getting relaxed progressively.
- The impact of the second wave of COVID-19 has been widespread. Even before the second wave, the supply chain was impacted as a result of disruption on the logistics side and supply chain constraints on electronics and semiconductor parts.
- Their portfolio is also shifting to electronic engines and the use of semiconductor components is increasing on the engine side.
- End-markets do have a substantial need for semiconductors and electronics.
- There is a bit of cyclicality to their exports, and Q4 has been about the rebalancing of inventory levels. There is a supply constraint that is impacting the business more than demand, for both domestic as well as export markets.
- Export outlook for the sector is improving with vaccination increasing & infections decreasing.
- There will be an impact on margins of increasing input costs. They are trying to optimize their costs in the best possible manner.
Asset Multiplier comments:
- The power electronics market holds substantial growth potential for companies that are able to leverage the opportunities offered by the electric vehicle sector.
- Increasing commodity prices have been impacting the margins for this industry so the overall outlook remains uncertain.
Consensus Estimate: (Source: market screener and investing.com websites)
- The closing price of CUMMINDIND was ₹ 813/- as of 7th June 2021. It traded at 32x/ 28x the consensus earnings estimate of ₹ 25.6/ 29.5 for FY22E/23E respectively.
- The consensus price target is ₹ 753/- which trades at 26x the earnings estimate for FY23E of ₹ 29.5/-
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