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

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 India
Sector Diesel Engines
Market Cap (Rs. bn) 97 Shareholding Pattern
Others, 15.
No. of Shares O/s 270 million 90%
CMP 347
52 Week (High – 549/ 323
Low) Promoters,
DII's, 21.90
51%
%
Beta .48
P/E 16.13
FII's, 11.20
EPS 21.24 %
Competitive Advantage:
Operational
Efficiency, Brand
Leadership
Source: Company Data

4. Product Portfolio
Cummins
Energy
Other
Business
(services)
Unit
Power 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 of
power 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 Advantage
FY 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: 16.13
5 year low: 108 (March 09’)
P/E: 6.09
Source: Reuters

9. Company Analysis - Revenue
5000 100
4000 80
3000 60
2000 40
1000 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 Ratios
5000 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 Ratio
70
60
50
40
30
20
10
0
FY 2007 FY 2008 FY 2009 FY 2010 FY 2011
Div Payout (Net Profit) Div Payout (Cash Profits)
2000 0.03
0.025
1500
0.02
1000 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 RONW
2.5
2
1.5
1
0.5
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
2
7-8% 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 imp
opportunity 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 engines
used for power generation have to comply • Low cost producer (11th year of Six Sigma
with 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
400
Cummins Mega site in Phaltan 350
300
• Over the next 5 years it is expected to build 10 250
more units on this site 200
150
• Total capacity expected to grow by 20% (CAGR) 100
50
over 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 300
in increased shift towards stand by application 200
for 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 manufacturing
exports and construction
• Global turmoil to hamper growth– U.S. and • IIP growth low/ Mining sector sluggish
Europe
• 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 Total
EPS (G1) 25.2 30.24 36.29 43.55 52.25 187.53
PV (@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 to
Power Demand go down
Margin of Safety: 46%
Market Capital
Leadership Investment
BUY!

19. Thank You!
Credits:
Deepika Mishra
Karishma Jindal
Kartikey Bhargava
Rachit Singhal
Sidhansh Kakkar
Vipul Garg