Friday, August 7, 2009

Buy Cummins India

Cummins India

Cummins India -- a leading manufacturer of diesel and gas engines -- has reported healthy figures in FY09 in spite of an overall slowdown in the industry it operates. The company's net sales, on y-o-y basis, went up by 22.75 per cent and the net profit grew at an even higher pace of 36.45 per cent.

Going ahead, in a globally challenging economic environment, the company does face certain risks. A major one would be a drop in export revenue, which forms around half of the company's total revenue.

On the other hand, Cummins has traction in the domestic market, which, to a large extent, will make up for fall in export revenues. All segments of its domestic business -- power, industrial, automobile and spares -- should see a higher growth in sales in the months to come.

Revenues from the automobile industry are slated for high growth. Under the Jawaharlal Nehru National Urban Renewal Mission, the Union government has incentivised state transport corporations to upgrade their buses to fuel-efficient ones.

This will turn out to be large potential market for Cummins' diesel engines. Recently, it has won the tender in Delhi for upgradation of buses in the period leading up to the Commonwealth Games around October 2010.

Also, the government is now looking forward to investments in infrastructure. Construction and mining are seeing signs of revival. The power sector, which contributes 30-35 per cent to its revenues, will always be the focus of any infrastructure development initiative.

And Cummins' products, being very closely related to infrastructure development, will see a rise in demand.

So, these factors bode well for long-term growth of Cummins, even if its growth falls in the coming quarters. Furthermore, at a PE of 12, the company's shares seem to have already discounted the near-term risk. At the current market price, Cummins is a good stock to add to your portfolio.

Image: Cummins India
Photographs: Courtesy, Outlook Money