Cummins India remains a beneficiary of the strong rebound in domestic industrial activity given its presence across most user segments such as infrastructure, construction, data centers, healthcare, mining railways etc. Demand environment remains encouraging in the domestic market both in power generation and industrial segment on account of a recovery in infrastructure construction activity with a push from the government providing strong outlook ahead too.Cummins India share price today is Rs 863, up Rs 5.5 or 0.6%. 

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Further, macro-economic indicators have remained positive such as Index of Industrial Production (IIP), GST collections, core sectors broad based recovery (cement, fertilisers) manufacturing PMI with sequential m-o-m pick-up. Construction activities such as real estate have recovered post the lockdown and expected to be strong, providing a multi-year growth rate. Mining too has rebounded strongly with trends seen for higher mechanised inputs (higher tonnage dumpers) and demand being seen for the same.

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Cummins India remains best suited in these segments from a technological perspective with different solutions for varied customers. Cummins India domestic powergen business have seen faster recovery indicative from the last quarter results fueled by stronger recovery in data centres, industrial business and rental segment with slower recovery seen across hospitality, tourism entertainment and education division.

Cummins India distribution business has grown steadily over the years (having an installed base of over 600,000 engines and handles similar quantum of service request) supported by higher aftermarket sales distribution and is expected to get well leveraged over time. The exports business too has started reviving and demand across Africa and the Middle East is starting to improve.

Cummins India continues to look at end markets where growth is decent and Indian being one of the most cost-effective manufacturing hubs (apart from China and US) and Cummins looking at all options to use India as an export base wherever possible remains positive.

Further, Cummins India is expected to benefit 5G mobile network roll out across many markets, which would lead to resumption of the high horsepower as well as low horsepower products for Cummins India. With respect to rising commodity prices, the company has structured a program to mitigate inflationary pressures and hopes to tide over the impact without significant impact.

Cummins India is trading at valuations of 39.1x and 33.6x its FY2022E and FY2023E earnings, respectively and with AatmaNirbhar Bharat and domestic procurement, the entire sector is getting rerated which augurs well for Cummins which is trading at a discount to the peak 5-year average multiple. Sharekhan maintains Buy rating on Cummins India with modestly increasing target PE to factor overall rerating in the space along with strong growth potential in end-user industries, robust balance sheet, and steady cash flow generation to arrive at a revised price target of Rs 1030

Cummins India Key Risks:

Slowdown in the domestic macro-environment and higher loss funding in roads can negatively affect business outlook and earnings growth