Microsec:Cummins India Ltd - Q1FY14 Result Analysis. Recommend a “BUY” rating ‐ target price of INR451; upside of 20% microsec.in/static/pdf/Cummins%20India%20Q1FY14%20Result%20Analysis.pdf We are recommending the stock a “BUY” at current level on account of growth visibility in domestic revenue supported by powergen business and recovery in industrial business, growth in exports though in low teens, volume growth due to post-buying on change of emission norms, 15-20% price hike post emission norms, and stable margins due to its cost control efficiencies. We continue to see Cummins India as a fundamentally strong company with its long-term growth visibility intact. But given the worsening of the macro environment with tightening of liquidity in the market by RBI, sharp depreciation of INR, uncertainty in implementation of CPCB norms, our confidence on near-term earnings has reduced. As a result, we have lowered our valuation multiple from 19x to 17x. We have scaled down our revenue estimates by 12% to INR4869.72 crore in FY14e and by 10% to INR4800 crore in FY15e. We have cut adjusted earnings by 20% to INR587.40 crore in FY14e and by 9% to INR734.76 crore in FY15e. We have lowered our TP to INR451 per share (from INR556 per share) led by downward revision in the earnings over FY14e/FY15e by 20%/10% and reduction in assigned P/E multiple to 17x (from 19x earlier). At the current price of INR379, the stock is trading at adjusted P/E of 17.65x its FY14e EPS of INR21.19 per share and P/E of 14.11x its FY15e EPS of INR26.51 per share. We believe that CIL will continue to enjoy premium valuations due to its dominant market positioning, improved long-term growth outlook, healthy balance-sheet, strong ROE as compared to its peers and dividend yield of 3.48%. The average P/E of CIL has been trading in the range of 8x-26x in last 10 years. It is now trading at a P/E of 15.9x, which is at a premium of ~50% to its peer group. Hence, we expect this trend to continue over FY15e. We have valued the stock by assigning a P/E multiple of 17x its FY15e EPS of 26.51 and arrived at a target price of INR451 per share .i.e. an upside of 20% from the current market price of INR379 per share.
Posted on: Thu, 22 Aug 2013 06:09:44 +0000
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