Analyst Concall
Generator ops pricing to take time to settle -Cummins India
This story was originally published at 14:38 IST on 7 February 2025
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--Cummins India: Domestic power-gen pricing to take 1-2 qtrs to settle
--Context: Comments by Cummins India's mgmt in post-earnings analyst call
--Cummins India: Post-dealership arm sale to rely on only independent dealers
--Cummins India: Future capex under evaluation, to be determined as per needs
--Cummins India: Saw strong demand from construction customers Apr-Dec
--Cummins India: Saw good demand from railways segment Apr-Dec
--Cummins India: Expect mining segment activity to pick up this year
--Cummins India: Pick-up in mining segment activity to depend on tenders
--Cummins India: See velocity in mining segment tenders this year
--Cummins India: Evaluating impact of US tariffs for our business there
--Cummins India: Cost-cut effort on, but unsure if EBITDA margin will sustain
--Cummins India: Very hard to give exports demand view amid US tariff impact
By Noopur Bhandiwad
MUMBAI – Pricing in the domestic power generator business will take another one or two quarters to settle, Shveta Arya, regional leader and managing director of Cummins India Ltd., said in a post-earnings conference call with analysts on Friday. The inventory of products compliant with Central Pollution Control Board II norms is extinguished and only products compliant with Central Pollution Control Board IV norms will see demand from the market, she said.
Providing a break-up of INR 12.89 billion sales from the company's industrial sub-segments for the nine months ended December, the management said INR 4.55 billion came from the construction segment, INR 3.57 billion was generated from the railway segment, and INR 1.70 billion came from the mining segment. The other segments contributed to the remaining sub-segment revenue, the management said. The company attributed the growth in the industrial segment to strong demand from customers and better execution, particularly in the construction and railways segments.
On Wednesday, Cummins India posted the slowest on-year growth in net profit in 10 quarters as the rise in its total expenses almost outpaced the increase in revenue for the December quarter. The Oct-Dec quarter is also the 10th consecutive one that the company has booked an on-year growth in its earnings. The diesel and natural gas engine and generator sets manufacturer's net profit grew 13% on year to INR 5.14 billion, beating analysts' estimate of INR 4.78 billion. This is the company's second-best quarterly net profit in at least 10 years, only next to the INR 5.62 billion profit in the March quarter of the previous financial year.
Growth in the railways segment is largely linked to the capital expenditure by the government, which the company sees picking up, the management said. It expects mining, which is a largely tender-based business, to see a pick-up this year and anticipates tender velocity in mining to be better.
Earlier in the day, the company approved the sale of its wholly-owned subsidiary, Cummins Sales & Service Pvt. Ltd., to PAL SVAM Power Solutions Pvt. Ltd. for INR 565 million, it said in a filing. The management clarified that the subsidiary was a dealership entity, and relying on independent dealers across the country helps serve its customers well. Going forward, the company expects the adoption of such a strategy of divesting in dealership entities to continue.
While there is scope for improvement in the earnings before interest, taxes, depreciation and amortisation margin due to efforts towards cost reduction, Arya said she cannot say whether the EBITDA margin would sustain as a result of these efforts. The dip in the company's gross margin for the December quarter was largely a result of the one-time benefit it had in the year-ago quarter, which it lacked this year, and the overall mix of products, she said.
The company said it has been continuously adding capital expenditure steadily over the last few years. While the company did not announce a number for capital expenditure, the management said it is continuously evaluating its capital expenditure requirements and enhancing its products as per the needs of its customers and the domestic market.
On the imposition of tariffs by the US on countries, the management said it is still evaluating the impact on its business since these have been announced recently. The company has made efforts to increase exports to each of the markets it operates in from a product portfolio perspective to counter these moves, the management said.
At 1428 IST, shares of the company were down 3.4% at INR 2,865.50 on the National Stock Exchange. End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Ashish Shirke
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