Cummins India: No interest burden being free from long-term or short-term debt; Buy #BrokerAdvice http://goo.gl/i1z7DP

1. CMP 1189.45
Target Price 1350.00
ISIN: INE298A01020
AUGUST 10th
, 2015
CUMMINS INDIA LTD
Result Update (PARENT BASIS): Q1 FY16
BUY
Index Details
Stock Data
Sector Industrial Machinery
BSE Code 500480
Face Value 2.00
52wk. High / Low (Rs.) 1246.70/644.45
Volume (2wk. Avg.) 54000
Market Cap (Rs. in mn.) 329715.54
Annual Estimated Results (A*: Actual / E*: Estimated)
YEARS FY15A FY16E FY17E
Net Sales 44058.00 49344.96 54279.46
EBITDA 10216.30 11076.99 12145.75
Net Profit 7858.50 8469.44 9307.13
EPS 28.35 30.55 33.58
P/E 41.96 38.93 35.43
Shareholding Pattern (%)
As on June-15 As on Mar-15
PROMOTER 51.00 51.00
FIIs 16.91 18.01
DIIs 18.19 17.31
OTHERS 13.90 13.68
1 Year Comparative Graph
CUMMINS INDIA LTD S&P BSE SENSEX
SYNOPSIS
Cummins India Limited, headquartered in Pune since
1962, is the country's leading manufacturer of diesel
and natural gas engines for power generation,
industrial and automotive markets.
The company’s net sales stood at Rs. 13143.10
million in Q1 FY16, an increase of 25.75% from Rs.
10451.40 million in the corresponding quarter of
previous year.
In Q1 FY16, Net profit stood at Rs. 2107.30 million as
against Rs. 2119.90 million in the corresponding
quarter of previous year.
During the quarter, operating profit is Rs. 2780.00
million as against Rs. 2865.70 million in the
corresponding period of the previous year.
Profit before Tax was at Rs. 2574.50 million in Q1
FY16 as compared to Rs. 2667.20 million in Q1 FY15.
Reported Earnings per share of the company stood
at Rs. 7.60 in Q1 FY16 as against Rs. 7.65 in Q1 FY15.
Total Income has increased from Rs. 11518.50
million for the quarter ended June 30, 2014 to Rs.
13743.60 million for the quarter ended June 30,
2015, grew by 19.32%.
Net Sales and PAT of the company is expected to
grow at a CAGR of 4% and 5% over 2014 to 2017E
respectively.
PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND
Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)
Cummins India Ltd 1189.45 329715.14 28.35 41.96 11.42 700.00
Lakshmi Machine works Ltd 3778.95 42575.60 184.13 20.52 3.38 375.00
Elgi Equipments Ltd 146.95 23284.90 3.57 41.16 4.37 100.00
Lloyd Electric & Engineering Ltd 269.70 9525.90 23.11 11.67 1.33 13.00

2. QUARTERLY HIGHLIGHTS (PARENT BASIS)
Results Updates- Q1 FY16
The company’s Revenue for the quarter increased by 25.75% to Rs. 13143.10 million from Rs. 10451.40 million,
when compared with the prior year period. Net profit stood at Rs. 2107.30 million in Q1 FY16 against Rs.
2119.90 million in the corresponding quarter ending of previous year. Reported earnings per share of the
company stood at Rs. 7.60 a share during the quarter as against Rs. 7.65 over previous year period. Profit before
interest, depreciation and tax is Rs. 2780.00 million as against Rs. 2865.70 million in the corresponding period of
the previous year.
Break up of Expenditure
Months June-15 June-14 % Change
Net Sales 13143.10 10451.40 25.75
PAT 2107.30 2119.90 (0.59)
EPS 7.60 7.65 (0.59)
EBITDA 2780.00 2865.70 (2.99)
Break up of Expenditure
(Rs in millions)
Q1 FY16 Q1 FY15 % Chng
Cost of Materials Consumed 7838.20 6042.70 30%
Purchase of Stock-in-trade 511.20 339.30 51%
Employee Benefits Expense 1027.10 903.30 14%
Depreciation & Amortization
Expense
203.30 186.00 9%
Other Expenses 1594.70 1424.30 12%

3. COMPANY PROFILE
Cummins India Limited, headquartered in Pune since 1962, is the country's leading manufacturer of diesel and
natural gas engines for power generation, industrial and automotive markets. Cummins in India, a power leader,
is a group of complementary business units that design, manufacture, distribute and service engines and related
technologies, including fuel systems, air handling, filtration, emission solutions and electrical power generation
systems. The company’s technology and pioneering initiatives are bringing innovative solutions and dependable
services at the best possible value to users across the country. The high performance outlook is based on
customer focus, integrity and capability of its people. Part of the US $19.2 billion Cummins Inc., Cummins in India
is a Group of eight legal entities across 200 locations in the country with a combined turnover of Rs. 9,285 crores
in 2014 and employing close to 9,700 individuals.
Business Area
• Industrial Engine Business
The industrial Engine Business caters to the industrial sector with its broad spectrum of diesel engines
ranging from 65 HP to 3500 HP. The range is designed to power varied market segments such as
Construction, Mining, Compressor, Marine, Rail, Agriculture, Pumps, Oil & Gas, Power Generation and
Defense.
• Power generation Business
The Power Generation Business addresses standby and prime power needs through the design and
manufacture of pre-integrated generator sets, transfer switches, paralleling equipment and controls.
• Automotive Business Unit
The Automotive Business integrates Cummins’ diesel and natural gas engines with related technologies such
as filtration, exhaust, turbo, fuel & coolant systems and lube oil to serve the commercial vehicle segment.
• Distribution Business Unit
The Distribution operates under the brand name ‘Cummins Sales and Service India’. Acquired in 1967, with
the objective of providing products, packages, services and solutions for uptime of Cummins equipments, it
has since been engaged in the business of sale of engines, and providing after-market support to customers in
India, Nepal and Bhutan.

4. FINANCIAL HIGHLIGHT (PARENT BASIS) (A*- Actual, E* -Estimations & Rs. In Millions)
Balance Sheet as at March 31, 2014 -2017E
FY14A FY15A FY16E FY17E
SOURCES OF FUNDS
Shareholder's Funds
Share Capital 554.40 554.40 554.40 554.40
Reserves and Surplus 25097.10 28310.80 31991.20 35638.20
1. Sub Total - Net worth 25651.50 28865.20 32545.60 36192.60
Non Current Liabilities
Deferred Tax Liabilities 465.10 630.80 731.73 834.17
Other Long term Liabilities 201.90 183.00 192.15 199.84
Long term Provisions 1170.90 1265.10 1353.66 1421.34
2. Sub Total - Non Current Liabilities 1837.90 2078.90 2277.54 2455.35
Current Liabilities
Trade Payables 4851.10 6134.30 7238.47 8251.86
Other Current Liabilities 1856.70 2202.30 2532.65 2861.89
Short Term Provisions 3530.10 3936.70 4291.00 4591.37
3. Sub Total - Current Liabilities 10237.90 12273.30 14062.12 15705.12
Total Liabilities (1+2+3) 37727.30 43217.40 48885.26 54353.07
APPLICATION OF FUNDS
Non-Current Assets
Fixed Assets
i. Tangible assets 9175.20 12246.00 14940.12 17031.74
ii. Intangible assets 16.30 93.60 110.45 125.91
iii. Capital Work in Progress 957.60 1706.10 1979.08 2216.57
a) Sub-Total Fixed Assets 10149.10 14045.70 17029.64 19374.21
b) Non-current investments 533.90 457.20 411.48 378.56
c) Long Term loans and advances 6879.50 4633.60 4077.57 3669.81
1. Sub Total - Non Current Assets 17562.50 19136.50 21518.69 23422.59
Current Assets
Current Investment 4419.60 4193.20 4025.47 4146.24
Inventories 5513.40 6822.60 8050.67 9258.27
Trade receivables 7820.30 9355.40 10903.28 12453.21
Cash and Bank Balances 864.90 798.60 838.53 888.84
Short-terms loans & advances 1393.90 2838.10 3462.48 4085.73
Other current assets 152.70 73.00 86.14 98.20
2. Sub Total - Current Assets 20164.80 24080.90 27366.57 30930.48
Total Assets (1+2) 37727.30 43217.40 48885.26 54353.07

5. Annual Profit & Loss Statement for the period of 2014 to 2017E
Value(Rs.in.mn) FY14A FY15A FY16E FY17E
Description 12m 12m 12m 12m
Net Sales 39766.70 44058.00 49344.96 54279.46
Other Income 1777.10 2865.80 3009.09 3189.64
Total Income 41543.80 46923.80 52354.05 57469.09
Expenditure -32799.40 -36707.50 -41277.06 -45323.35
Operating Profit 8744.40 10216.30 11076.99 12145.75
Interest -41.80 -45.20 -28.93 -30.66
Gross profit 8702.60 10171.10 11048.06 12115.08
Depreciation -527.50 -797.20 -892.86 -982.15
Profit Before Tax 8175.10 9373.90 10155.20 11132.93
Tax -2174.90 -1515.40 -1685.76 -1825.80
Net Profit 6000.20 7858.50 8469.44 9307.13
Equity capital 554.40 554.40 554.40 554.40
Reserves 25097.10 28310.80 31991.20 35638.20
Face value 2.00 2.00 2.00 2.00
EPS 21.65 28.35 30.55 33.58
Quarterly Profit & Loss Statement for the period of 31st Dec, 2014 to 30th Sep, 2015E
Value(Rs.in.mn) 31-Dec-14 31-Mar-15 30-Jun-15 30-Sep-15E
Description 3m 3m 3m 3m
Net sales 10830.90 11335.10 13143.10 13668.82
Other income 411.40 660.90 600.50 648.54
Total Income 11242.30 11996.00 13743.60 14317.36
Expenditure -8937.30 -9576.00 -10963.60 -11413.47
Operating profit 2305.00 2420.00 2780.00 2903.90
Interest -13.40 -9.50 -2.20 -2.51
Gross profit 2291.60 2410.50 2777.80 2901.39
Depreciation -216.50 -190.80 -203.30 -225.66
Profit Before Tax 2075.10 2219.70 2574.50 2675.72
Tax -264.90 -315.30 -467.20 -468.25
Net Profit 1810.20 1904.40 2107.30 2207.47
Equity capital 554.40 554.40 554.40 554.40
Face value 2.00 2.00 2.00 2.00
EPS 6.53 6.87 7.60 7.96

6. Ratio Analysis
Particulars FY14A FY15A FY16E FY17E
EPS (Rs.) 21.65 28.35 30.55 33.58
EBITDA Margin (%) 21.99 23.19 22.45 22.38
PBT Margin (%) 20.56 21.28 20.58 20.51
PAT Margin (%) 15.09 17.84 17.16 17.15
P/E Ratio (x) 54.95 41.96 38.93 35.43
ROE (%) 23.39 27.22 26.02 25.72
ROCE (%) 36.15 38.15 36.78 36.27
EV/EBITDA (x) 37.10 31.78 29.33 26.73
Book Value (Rs.) 92.54 104.13 117.41 130.56
P/BV 12.85 11.42 10.13 9.11
Charts

7. OUTLOOK AND CONCLUSION
At the current market price of Rs. 1189.45, the stock P/E ratio is at 38.93 x FY16E and 35.43 x FY17E
respectively.
Earnings per share (EPS) of the company for the earnings for FY16E and FY17E are seen at Rs. 30.55 and Rs.
33.58 respectively.
Net Sales and PAT of the company are expected to grow at a CAGR of 4% and 5% over 2014 to 2017E
respectively.
On the basis of EV/EBITDA, the stock trades at 29.33 x for FY16E and 26.73 x for FY17E.
Price to Book Value of the stock is expected to be at 10.13 x and 9.11 x for FY16E and FY17E respectively.
CUMMINS INDIA has no long term or short term debt, thus there is no interest burden. Power Generation
business grew 23 percent over the previous quarter as company improved market share. The Industrial
business was flat quarter on quarter, but has grown 22 percent based on improving government led
infrastructure investments. The Company has recorded strong growth in export revenues particularly for low
kVA generators. Domestic sales grew 17% as compared to the same period last year and 14% compared to
the prior quarter. Exports increased 36% as compared to the same period last year and 16% compared to the
prior quarter. The Company remains focused on improving its cost position as well as productivity. The
investments in capacity, technology and talent position of the Company to deliver significant value and
remain a dependable partner to its customers. Hence, we recommend ‘BUY’ in this particular scrip with a
target price of Rs. 1350.00 for Medium to Long term investment.
INDUSTRY OVERVIEW
Power Generation
Renewed thrust on industry and infrastructure will lead to increase in power demand and hence backup power
requirement. New global products launched especially in the telecom segment have resulted in additional export
opportunities. With the product from India gaining confidence globally, Company is receiving repeat orders from
its global customers.
Domestic market sentiments continue to be weak for capital goods in the short term. The domestic power
generation business while remaining subdued is likely to see volume increase in the forthcoming financial year.
However, with the increased export offerings, Company is more optimistic about its low kVA exports business. In
the long term Company expects the power deficit to remain low leading to a shift in usage pattern. However, with
the renewed push on infrastructure & industry development Company is optimistic about the future of the power
generation business.

8. Automotive
The M&HCV market (Medium and Heavy Commercial Vehicles - GVW >7.5 Ton) grew by 22% in FY 2014 – 15
over the previous financial year after two years of sharp declines. This was mainly driven by GDP growth, lower
interest rates & lower fuel prices which helped replacement demand. OEMs have been launching electronic
products in the market in order to deliver a better performance and experience to the end customer. There also
have been 4 cylinder engine launches in the traditional 6 cylinder engine arenas in the 12-16 tonne range which
would open new sub-segments if successful.
Revival in the M&HCV market is expected in the coming year at the back of positive factors such as stronger
economic growth, rise in freight rates and decrease in diesel prices – improving the profitability of transporters.
However, to sustain demand, government policies to boost infrastructure need to be implemented. Though
mining bans have been lifted in some regions, its full impact is yet to be seen. The Company will continue to
support its key customers through its range of products in a highly competitive market.
Distribution
The Company continues to focus on improving customer support & engagement through segment prioritization,
key account & territory management. Introduction of the CRM system called Common Dealer Operating System
(CDOS) was completed in all dealerships across India. This should enhance customer experience & also improve
dealer operational performance. Development of training infrastructure is a key enabler for Company’s plans to
deliver customer support excellence. The scheduled completion of state of the art Cummins Technical Training
Center at Phaltan is expected by September 2015.
The Company’s performance in the FY 2014-15 has been consistent in-spite of a sluggish economic environment.
Based on the expectation of a resurgent FY 2015-16, the Company is targeting better revenue performance
through focus on Mining, Railway and Construction segments. One of the key initiatives of the Distribution
Business Unit is to improve pan-India customer reach through its dealerships for the Power Generation segment.
Disclaimer:
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in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the
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