Cummins India’s Product Businesses A Good Play: Kotak Report
Cummins India Ltd. is well-positioned as the nation embarks on the twin journey of infrastructure asset creation and net-zero carbon, according to Kotak Institutional Equities.
The growing spending on infrastructure/construction in China, the large infrastructure gap India has with China and the need and intention of the government to cover up such a gap to boost case for China+1 makes the designer of future technologies for turbos, emissions, fuel systems a “good play”, according to the brokerage’s March 29 report.
“With the global market for power generation coming out of its deepest correction in the past few decades, the company’s export business is also well-placed,” the report said. “Over the past few years, it has corrected the issue of its single product offering in exports by introducing fit-for-market products and thus reversed the share it had lost to local suppliers.”
The shift towards stringent emission standards will add to the growth impetus from infrastructure asset creation for Cummins India, the brokerage said. It will enable the company to:
Improve market share and pricing in the domestic market.
Grow its distribution business as the shift towards electronic engines gains momentum.
Benefit from opportunities to co-work on new diesel engines with original equipment makers that shift attention to electrification of products.
Benefit from enhanced requirement of back-up power for critical applications as the country’s power mix moves toward renewable.
Enter leading-emission geographies (North America, parts of Europe) through its electronic range of engines.
Besides, parent Cummins Inc. continues to broaden scope of its offering beyond conventional engines through investments in acquisitions and IP in hydrogen, battery storage and more recently in powertrain components and electrified power solutions, the report said. Cummins India, it said, the distribution network and will get its “fair share of the pie of new products/technologies”.
That prompted the brokerage to retain its near-term estimates. It increased its fair value by 9% to Rs 1,270 apiece on a higher 29x earnings multiple.
Shares of Cummins India closed 0.93% higher on Tuesday compared with 0.6% gain in the benchmark Nifty 50. Of the 31 analysts tracking the company, 22 maintain a ‘buy’, six recommend a ‘hold’ and three suggest a ‘sell’, according to Bloomberg data. The 12-month consensus price target implies a downside of 2.9%.