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Cummins: Counting on the Indian story
Jun 1, 2009

Performance summary
  • Standalone net sales grow by 40% YoY during FY09. Performance led by the engine business where sales increased by 35% YoY.
  • Operating margins expand by 1.4% YoY during the fiscal on the back of lower costs of goods purchased for trading and lower other expenditure (both as percentage of sales).
  • Standalone net profits grow by 54% YoY, helped by the expansion in operating margins as also an extraordinary income of Rs 192 m. On a consolidated basis, profits increase by around 37% YoY.
  • Board recommends a dividend of Rs 9 per share, a dividend yield of 3.3%.


Standalone Performance snapshot
(Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
Sales 6,700 10,277 53.4% 23,308 32,741 40.5%
Expenditure 5,964 8,893 49.1% 20,239 27,968 38.2%
Operating profit (EBDITA) 736 1,384 87.9% 3,069 4,772 55.5%
Operating profit margin (%) 11.0% 13.5%   13.2% 14.6%  
Other income 464 445 -4.1% 1,227 1,508 22.9%
Interest 4 19 361.0% 7 26 289.6%
Depreciation 90 147 63.5% 330 456 38.2%
Profit before tax 1,106 1,663 50.3% 3,960 5,798 46.4%
Extraordinary income/(expense) - -   - 192  
Tax 350 481 37.3% 1,153 1,654 43.4%
Profit after tax/(loss) 756 1,182 56.3% 2,807 4,337 54.5%
Net profit margin (%) 11.3% 11.5%   12.0% 13.2%  
No. of shares       198.0 198.0  
Diluted earnings per share (Rs)         21.9  
P/E ratio (x)         12.4  
* On a trailing 12-month basis

What has driven performance in FY09?
  • Cummins recorded a 40% YoY growth in net sales during FY09, led by a 35% YoY growth in the engine business. This segment contributed to about 94% of the total topline during the year. The topline growth also looks higher due to the amalgamation of subsidiaries – Cummins Sales and Service and Cummins Auto Services – during the year.

  • During the year, the engine segment witnessed a marginal expansion in PBIT margins as compared to the previous year. Its margins were higher by 0.2% YoY, while the other business’ margins expanded by 3.8% YoY. The company’s operating margins expand by 1.4% YoY during the fiscal on the back of lower costs of goods purchased for trading and lower other expenditure (both as percentage of sales).

    Segment wise performance
    (Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
    Engine Business
    Revenue 6,691 8,762 31.0% 22,867 30,866 35.0%
    % share 98.7% 85.3%   98.1% 94.3%  
    PBIT margin 13.6% 10.4%   14.6% 14.8%  
    Others            
    Revenue 89 1,515 1599.9% 441 1,874 325.5%
    % share 1.3% 14.7%   1.9% 5.7%  
    PBIT margin 7.1% 31.1%   11.6% 27.5%  
    Total            
    Revenue 6,780 10,277 51.6% 23,308 32,741 40.5%
    PBIT margin 13.5% 13.4%   14.6% 15.5%  
    * Excluding inter-segment adjustments

  • Cummins’ bottomline grew at 54% YoY during the year. This growth was helped by an extraordinary income of Rs 192 m during FY09, which is the profit the company made on the sale of its power generation rental power business. Excluding this one off item, the company’s bottomline saw a 48% increase during FY09.

What to expect?
At the current price of Rs 271, the stock is trading at a multiple of 12.4 times its trailing twelve months earnings. The management of Cummins has indicated that though things were bad in the months before that, it has seen things improve in the months of March, April and May. Though the company originally intended to have a 70:30 mix of domestic versus export sales, it has seen that ratio become 50:50 due to its parent company Cummins Inc. increasingly sourcing from Cummins India.

Exports, going forward, have a dismal outlook to the extent that the management expects a decline in the same in FY10. Thus the company’s focus is mostly going to be on the domestic market as sales are expected to go back to the 70:30 domestic export ratio in the short to medium term. While the management expects the company’s domestic revenues to grow in the ‘high teens’ in the long term, it expects its exports to see a growth rate in the ‘low teens’. The management has a positive outlook as far as the domestic business is concerned and is quite upbeat about the same.

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