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Informist, Monday, Nov. 4, 2024

By Aman Aryan

MUMBAI – Strong execution of existing orders and price hikes of generator sets after the implementation of Central Pollution Control Board IV+ emission norms are likely to have driven the Jul-Sept earnings of diesel and natural gas engines and generator sets manufacturer Cummins India Ltd., analysts said. While some analysts expect volumes of generator set-making companies to be muted in the latest quarter, some said Cummins India's revenue is expected to post strong growth on the back of strong domestic sales.

The company's net profit for the September quarter is seen up 26% on year but down 1.2% sequentially at INR 4.15 billion, according to an average of estimates from 11 brokerage firms. While Antique Stock Broking gave the lowest estimate for the company's net profit at INR 3.70 billion, Kotak Institutional Equities had the highest estimate for Cummins India's net profit at INR 4.54 billion.    

Cummins India is expected to report an 18.9% on-year increase in its revenue to INR 22.58 billion, down 2% sequentially, according to an average of estimates from 11 brokerage firms. Elara Securities gave the lowest estimate for the company's revenue for the September quarter at INR 20.75 billion whereas Nomura Equity Research estimated the revenue to be INR 24.33 billion, the highest among the 11 brokerages.

Volumes for generator set manufacturers are expected to be moderate due to strong pre-buying during Apr-Jun, analysts said. While the companies' volumes are likely to fall 10-15% sequentially, price hikes will drive the growth in their revenue, Motilal Oswal said. The 40-50% price hike in Central Pollution Control Board IV+ generator sets will likely mitigate the impact of volume decline to a large extent, IDBI Capital said.

Although the company's exports are expected to fall on year, they are expected to have risen sequentially. The past few quarters have seen muted export demand due to geopolitical concerns, sluggish macroeconomic conditions, and economic slowdown in some countries, Motilal Oswal said. However, demand from select geographies such as the Middle East, Africa, and Latin America, has started improving sequentially, the brokerage said.  

On the segment front, the company's power generation segment is expected to grow 85% on year and the distribution segment is expected to grow 24% on year in the latest quarter, Nomura said, and added that the company's newly-launched retrofit after-treatment system will aid the growth in the company's distribution segment. The power generation segment is expected to grow due to a low base in the year-ago quarter, and it will be mainly driven by improved realisations, Motilal Oswal said.  

The company is expected to report earnings before interest, tax, depreciation, and amortisation of INR 4.43 billion for the September quarter, according to an average of estimates from nine brokerage firms, up 31% from the year-ago quarter. High pricing, improved product mix, strong distribution, and high horsepower generator set segments, and cost reduction measures would have aided the company's resilience in keeping margins above 19%, Nomura said. Motilal Oswal, on the other hand, expects the company's EBITDA margin to rise 210 basis points on year but fall 40 bps sequentially. 

Analysts advise investors to monitor the company's demand outlook across segments for both domestic and export markets, the pricing trajectory, sales, and the competition among makers of the Central Pollution Control Board IV+ generator sets. The Central Pollution Control Board IV norms may give medium term hiccups on the margins front, Nuvama said.

On Monday, shares of Cummins India closed at INR 3,475.75 on the National Stock Exchange, down 0.7%. The company is scheduled to report its earnings for the September quarter on Thursday.

Following are the Jul-Sept earnings estimates of Cummins India Ltd. based on reports compiled by Informist from 11 brokerages:

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Edited by Vidhi Verma

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