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An in depth qualitative and quantitative analysis of Cummins India Ltd to ascertain its stock movement in long and medium term.

An in depth qualitative and quantitative analysis of Cummins India Ltd to ascertain its stock movement in long and medium term.

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    • 1. Equity Research – Cummins India
    • 2. History of Cummins India History 2011 2002 1998 Market leader Launched – with more Cummins than 50% 1997 Infotech Ltd. market share . The name of the And Cummins Company was Power (merged changed from later)1962 KOEL exited Kirloskar Cummins Ltd. to `Cummins India Ltd. Incorporation by Cummins Inc and KOEL
    • 3. About Cummins IndiaSector Diesel EnginesMarket Cap (Rs. bn) 97 Shareholding Pattern Others, 15.No. of Shares O/s 270 million 90%CMP 34752 Week (High – 549/ 323Low) Promoters, DIIs, 21.90 51% %Beta .48P/E 16.13 FIIs, 11.20EPS 21.24 % Competitive Advantage: Operational Efficiency, Brand Leadership Source: Company Data
    • 4. Product Portfolio Cummins Energy Other Business (services) UnitPower Industrial Auto Distribution Exports
    • 5. Industry Overview Major Driving Factors: Total Market Size: Rs. 135 Billion Porters Five Force Model Bargaining Bargaining Threat of Intensity ofpower of the power of the Barriers to Entry Substitution Competition suppliers Customers
    • 6. Competitors Analysis Parameter Cummins Greaves Mcap Rs. 97 bn Rs. 19 bn Profit Margin 15% 9.9% RONW 35.1% 36% P/E 16.13 11.5 Source: Reuters, Company Data
    • 7. Competitors Analysis Competitive AdvantageFY 2008 FY 2009 FY 2010 FY 2011 CUMM GRVS Exposure to Cummins KOEL Greaves Competitive Segment Market Share Brand Strength 20% Diversified P/f Technological Capability 53.00% 27% Cummins KOEL Greaves
    • 8. 5 year Stock Chart All time High: 566 (Oct 10’) P/E: 16.23 Current: 346 P/E: 16.135 year low: 108 (March 09’) P/E: 6.09 Source: Reuters
    • 9. Company Analysis - Revenue5000 1004000 803000 602000 401000 20 0 0 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 Sales Domestic Sales (%) Export Sales (%)
    • 10. Company Analysis - Revenue Spares/ Sales Distribution Distribution, 1 7% Exports, 27% Automotive, 6 % Industrial, 15 % Power generation, 35 %8000 45.00%7000 40.00%6000 35.00% 30.00%5000 25.00%4000 20.00%3000 15.00%2000 10.00%1000 5.00% 0 0.00% FY 2011 FY 2012 E FY 2013 E FY 2014 E FY 2015 E Sales (Rs. Cr.) % Growth
    • 11. Company Analysis - Ratios Profitability Ratios5000 20.00% 18.50%4500 16.80% 18.00%4000 15% 15.30% 16.00% 14.40% 14.30% 13.80%3500 12.60% 14.00%3000 12.00%2500 10.00%2000 8.00%1500 6.00%1000 4.00%500 2.00% 0 0.00% FY 2009 FY 2010 FY 2011 FY 2012 (P) Sales EBITDA PAT Operating Margin Net Margin
    • 12. Company Analysis - Ratios Dividend Payout Ratio70605040302010 0 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 Div Payout (Net Profit) Div Payout (Cash Profits)2000 0.03 0.0251500 0.021000 0.015 0.01 500 0.005 0 0 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 Debt Equity Debt to Equity
    • 13. Company Analysis - Ratios 25 40 20 30 15 20 10 5 10 0 0 FY 09 FY 10 FY 11 EPS P/E RONW2.5 21.5 10.5 0 FY 09 FY 10 FY 11 FY 12 E FY 13 E RONW/ PE PEG
    • 14. Investment Rationale – The Positives… Power storages:• 35% of revenues from power Power Shortages (%) 12 10• Expected to grow by 8.4% 8 6• However demand also expected to grow by 4 27-8% 0 FY 00 FY 01 FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11• Power shortage remains as an impopportunity for Cummins Leadership position: Robust Financials: • Top line growth 21.7% over last five years• Total generator set expected market grow:10.1% (CAGR) from 2009 to 2015 • Debt free company – Negligible debt• 1/3rd market share by revenue • Last three years, it has maintained a ROE of more than 30%• Superior technology - All diesel enginesused for power generation have to comply • Low cost producer (11th year of Six Sigmawith new emission norms by July 2013 Programme)
    • 15. Investment Rationale – The Positives… Expansion on track: CAPEX (Rs. Cr.)• Setting up a power generation plant on the 400Cummins Mega site in Phaltan 350 300• Over the next 5 years it is expected to build 10 250more units on this site 200 150• Total capacity expected to grow by 20% (CAGR) 100 50over the next five years 0 FY 2010 FY 2011 FY 2012• CAPEX financed through internal accruals Demand Potential: • The small commercial vehicle (mini-truck) market is estimated at around 300,000 units, growing by 15-18% per annum • Generators required for backup power supply for development projects of any industry • Cummins derives around 25% revenue from exports mainly to parent Cummins Inc
    • 16. Investment Rationale – The Concerns… Rising Commodity prices: Pig Iron Prices ($)• Rising raw material cost: Pig Iron, steel, copper 600 500 400• The increase in fuel and crude price will result 300in increased shift towards stand by application 200for generator sets 100 0 Jan 10 April July 10 Oct 10 Jan 11 April July 11 Oct 11•Limited ability to pass on commodity price hike 10 11 Dependency on exports: Proxy to cycles of the economy:• Roughly 30% of total revenue comes from • Demand from sectors like manufacturingexports and construction• Global turmoil to hamper growth– U.S. and • IIP growth low/ Mining sector sluggishEurope • Continued anti- inflationary measures• Rising rupee
    • 17. Valuation – Discounted Cash Flow Approach Expected Rate of return - r 13% Rf 8.80% Growth - 5 years (G1) 20% Rm 18% Growth - Terminal period (G2) 6% Beta 0.48 Current EPS Rs. 21 Re 13% 2012 2013 2014 2015 2016 TotalEPS (G1) 25.2 30.24 36.29 43.55 52.25 187.53PV (@13%) 22.32 23.72 25.22 26.80 28.49 126.55 Primary Value 126.55 EPS (6th yr, G2) 55.39 Terminal Value 802.75 Intrinsic Value 514.18 PV of TV 387.63
    • 18. Recommendation… Increasing Interest rates toPower Demand go down Margin of Safety: 46% Market Capital Leadership Investment BUY!
    • 19. Thank You! Credits: Deepika Mishra Karishma JindalKartikey Bhargava Rachit Singhal Sidhansh Kakkar Vipul Garg

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