According to DSIR, the Compressors, Pumps, and Diesel Engines sector in India is expected to develop significantly in FY24, with a predicted market size of over Rs 1.5 trillion.
The diesel engine industry alone is forecast to generate over 1.2 million engines, reflecting advances in technology and production capacities. This industry is critical to the support of several industries, including agriculture and manufacturing.
With a market capitalization of Rs 99,326.30 crore, the shares of Cummins India Limited were trading at Rs 3,584.55 per share, decreasing around 5.20 percent as compared to the previous closing price of Rs 3,781.35 apiece.
Brokerage recommendation:-
Goldman Sachs, one of the well-known brokerages in India, gave a ‘Sell’ call on the automation stock with a target price of Rs 2,900 apiece, indicating a potential upside of 19 percent from Friday’s price of Rs 3,585.00 per share.
Rational:-
According to the brokerage, the increased use of Battery Energy Storage Systems (BESS) and other alternatives would diminish overall demand for diesel generators over the medium to long term. A sluggish macroeconomic climate and rigorous emission requirements are also anticipated to hamper the company’s export growth rates.
Financial Condition:-
Examining the company’s financial performance, revenue magnified by 4 percent from Rs 2,209 crore in Q1FY24 to Rs 2,304 crore in Q1FY25, but during the same time frame, net profit zoomed significantly by 33 percent from Rs 316 crore to Rs 420 crore.
Segment Performance:
Domestic power generation sales reached ₹803 crores, reflecting an 8% YoY and 15% QoQ decline. In contrast, distribution sales increased by 22% YoY and 8% QoQ to ₹651 crores, while industrial domestic sales surged 57% YoY to ₹372 crores, up 7% QoQ.
Export performance showed mixed results, with high horsepower exports at ₹202 crores, down 17% YoY but up 18% QoQ. Low horsepower exports totaled ₹155 crores, a 23% YoY decline, though they rose 9% QoQ, indicating some recovery in the export segment.
Management guidance:-
Management expects double-digit growth for fiscal year 2024-25, targeting growth at twice the GDP rate. The company remains optimistic about sustaining strong domestic demand, bolstered by ongoing infrastructure development, which is expected to support its ambitious growth objectives in the upcoming fiscal year.
Margin Insight & Export Challenges:-
Gross margins have hit a five-year high of 37.8%, driven by a favorable product mix with increased sales of CPCB-IV+ products, along with effective pricing strategies and cost reduction efforts. However, management warns that rising commodity prices could pressure margins moving forward.
Export markets are showing recovery signs, particularly in the Middle East and Africa, but remain flat in Europe and other regions. The company is also facing geopolitical uncertainties that are impacting global demand, posing challenges to its export performance and overall market stability in the near term.
New Developments:
The company is actively participating in a major GAIL project for hydrogen power generation, with several phases already commissioned. Additionally, the distribution business is experiencing growth driven by service and parts revenue, emphasizing efforts to increase market penetration and expand its customer base.
Competitor landscape:-
Management recognizes the growing competition in the CPCB-IV market, which could result in price adjustments. Despite this, Cummins India is focused on maintaining a premium position based on product quality and features, which may help sustain its margins amidst the intensifying competitive landscape.
Company profile:-
Cummins India Ltd. designs, produces, sells, and maintains diesel and alternative fuel engines ranging in size from 2.8 to 100 liters, as well as diesel and alternative-fueled power generating sets with outputs of up to 3000 kW (3750 kVA), and related components and technologies. The company also manufactures engines for Buses.
Written by:- Abhishek Singh
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