Optimistic about a sequential pick-up in supply chain stability- Cummins India
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/-
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”