3 July 2013
Annual Report Update | Capital Goods
Cummins India
BSE SENSEX
S&P CNX
19,464
5,858
CMP: INR451
TP: INR570
Buy
Exports / Distribution: Key growth drivers
Important beneficiary of currency movements
Key takeaways from FY13 Annual Report:
Commissioning of Parts Distribution Centre and HHP Recon centre at Phaltan Megasite
has led to improved component exports and increased distribution revenues.
Commissioning of the HHP rebuild centre in the SEZ in end 2013 will enable
reconditioning of Cummins gensets in other regions.
During FY13, new line was added in the Consumer Business sector by offering
automotive, industrial and power generation batteries, which also supported growth.
Three new training facilities commissioned in FY13 will enable to strengthen the
channel network and also improve distribution business revenues.
Bloomberg
Equity Shares (m)
M.Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
KKC IN
277.2
125.0/2.1
550/419
0/-12/-11
Financials & Valuation (INR b)
Y/E March
Net Sales
EBITDA
Adj PAT
EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div Yield (%)
2013 2014E 2015E
45.9
8.3
6.6
23.8
20.1
87.3
29.7
29.8
58.9
18.9
5.2
13.9
2.7
49.7 56.2
9.1 10.5
7.0
8.1
25.3 29.3
6.2 15.6
97.4 109.7
27.4 28.3
27.6 28.4
60.1 58.0
17.8
4.6
12.9
2.9
15.4
4.1
11.1
3.2
Capacity addition at Megasite in Phaltan to drive business expansion:
Five
Cummins group facilities have been commissioned at the Megasite, while LHP
manufacturing facility / HHP rebuild centre in SEZ will be commissioned in 2013.
These have opened up interesting growth avenues in terms of components
exports and increased distribution revenues. Commissioning of LHP exports
facility in early 2013 is again important as this could potentially become an INR10b
business opportunity (v/s INR3.9b in FY13); while commissioning of the HHP
rebuild centre in the SEZ in end 2013 will enable reconditioning of Cummins
gensets in other regions.
Distribution business: emerging opportunities, strengthening channels:
During
FY13, new line was added in the Consumer Business sector by offering
automotive, industrial and power generation batteries, which also supported
growth. Three new training facilities - the Global Training Center at Greater
Noida, the Comprehensive Technical Training facility in Pune and the Chhindwara
Center of Excellence in Madhya Pradesh has been opened during FY13 and the
management expects additional revenue and profitability through improved
customer support and enhanced technical capabilities.
Exports: New geographies / New products / Components:
During FY13, KKC
identified new business opportunities for Heavy Duty and High Horsepower
Engines and Parts exports. The company started export of components to various
engine manufacturing facilities and after markets across regions. This helped
compensate part of the loss in revenue due to decline in volumes in global
engine demand. To add new geographies, KKC supplied its first engines to Latin
America which will help consolidate and diversify regional business risk.
Valuation and view:
We model EBITDA margins at 18.3% in FY14E/18.7% in FY15E
(v/s 16.8% in 4QFY13), and expect KKC to report an EPS of INR25.3 in FY14E/
INR29.3 in FY15E. Post 4Q results, the stock has corrected by ~13% and we believe
that this provides an opportunity to accumulate. Maintain
Buy.
Shareholding pattern %
As on
Mar-13 Dec-12 Mar-12
Promoter
51.0
51.0
51.0
Dom. Inst 19.8
21.7
21.0
Foreign
15.8
13.2
13.6
Others
13.4
14.2
14.5
Stock performance (1 year)
Satyam Agarwal
(AgarwalS@MotilalOswal.com) +91 22 3982 5410
Deepak Narnolia
(Deepak.Narnolia@MotilalOswal.com) \
Nirav Vasa
(Nirav.Vasa@MotilalOswal.com)
Investors are advised to refer through disclosures made at the end of the Research Report.
1

Cummins India
Quotes from the Annual Report
As part of our Customer Support Excellence (CSE)
efforts, significant investments have been made
towards continuously enhancing end-user experience.
As a result, the year saw opening of three new training
facilities - Global Training Center at Greater Noida,
Comprehensive Technical Training facility in Pune and
Chhindwara Center of Excellence in Madhya Pradesh.
Improved service capability owing to these new
facilities will further the dependability quotient of the
Company.
The three facilities are enhancing the
technical capability of the Company and are expected
to pave the way for additional revenue and profitability
through improved customer support.
Ground work on producer gas genset done in
FY2012 seems to be yielding results with major orders
from gasifier manufacturers.
Capacity addition at Megasite in Phaltan to drive business expansion
The Phaltan Megasite had witnessed commissioning of three facilities for Cummins
Group in early 2011. In 2012, India Parts Distribution Center (PDC) became fully
operational and has since been able to achieve strong levels of spare parts fill rates.
Key facilities commissioned / under construction in FY13 at Megasite include:
Phaltan Midrange Upfit Center:
The Upfit Center will assemble, upfit, test and
paint diesel and natural gas engines (both mechanical and electronic) ranging
from 2.8L to 8.9L in power generation, industrial and on highway applications. The
facility has been designed to manufacture 80 engines per day (in two shifts) which
can be expanded with minimal investment.
LHP Exports:
Manufacturing facility for generator sets and G-drives for exports in
the low and medium horsepower range will commence production in early FY14.
HHP Exports:
The second factory on the SEZ, for manufacturing high horsepower
engines in the 19L to 60L range, is in progress and is expected to be ready to
commence operations later in 2013.
Tata Cummins third plant:
Construction of the third plant of Tata Cummins at the
Megasite begun in FY13. This plant will manufacture B5.9 mechanical, ISB and
QSB5.9, ISB and QSB6.7, ISL and QSL8.9 engines in addition to being the only plant
in India to manufacture the various L series engines, to be used in automotive and
power.
3 July 2013
,,
,,
,,
,,
,,
,,
The Company has identified significant new
business opportunities for Heavy Duty and High
Horsepower Engines and Parts exports. The company
started export of components to various engine
manufacturing facilities and after markets across
regions. This helped compensate part of the loss in
revenue due to decline in volumes in global engine
demand. As part of the initiative to add new
geographies, your Company supplied its first engines
to Latin America which will help consolidate and
diversify regional business risk.
We propose to start moving to the new India
Office Campus (IOC) in early 2014. The total capital
expenditure for IOC is about INR7.3b.
,,
,,
2

Cummins India
Facilities commissioned at Phaltan Megasite
Capacity
Domestic Tariff Area
B series 110-230HP truck and bus engines
Upfit Centre for mid range engines (B 5.9, ISB 6.7 and ISLe 8.9)
ReCon for low cost sales
HHP rebuild centre from 19 litres to 60 litres
Parts Distribution Centre (PDC)
Diesel / Gas gensets for on/off highway, CV, industrial
Special Economic Zone
ReCon for low cost sales
HHP rebuild centre from 19 litres to 60 litres
Diesel engines for less than 200kva for exports
HHP Facility (QSK 60, etc)
Year
Cummins Group Company
Tata Cummins
Tata Cummins
CTIL
KKC
KKC
KKC
CTIL
KKC
KKC
CTIL
Source: Company, MOSL
24000 engines pa
900 engines pa
CY13
CY11
CY12
900 engines pa
Start with 18000-20000
and then 50000
CY11
CY13
CY13
India Office Campus ready for occupation beginning 2014
Capex driven by Phaltan megasite in FY13; FY14/15 to be driven
by IOC/ CTC
Total capex for IOC at Balewadi in Pune is INR7.3b, and can house 6,000 employees. Cummins Technical Center India (CTC) will
house 2,500 engineers and is expected to become fully operational over next two years.
Source: Company, MOSL
Distribution business: emerging opportunities, strengthening channels
During FY13, the distribution business reported revenue growth of 18.4%, with major
growth coming from new engines and reconditioned parts and engine offerings.
Emission regulations (CPCB II norms) and migration to electronic engines is likely to
improve the opportunities through increased sales for rebuilt engines and electronic
parts. During FY13, new line was added in the Consumer Business sector by offering
automotive, industrial and power generation batteries, which also supported growth.
3 July 2013
3

Cummins India
Distribution business reporting strong growth
Revenue composition
Source: Company, MOSL
Initiatives for Customer Support Excellence, to drive growth in 'distribution'
business
Cummins
SVAM Sales and Service Limited
(JV with existing dealer, SVAM Power
Plants Private Limited formed in early 2012) has been successful in providing
improved customer experience and loyalty. The service arm spanning areas of
NCR and parts of Western Uttar Pradesh also provides a greater understanding of
market dynamics and help drive improvement in the dealership network to better
serve customers.
Three new training facilities - the Global Training Center at Greater Noida, the
Comprehensive Technical Training facility in Pune and the Chhindwara Center of
Excellence in Madhya Pradesh has been opened during FY13. The company expects
additional revenue and profitability through improved customer support and
enhanced technical capabilities.
The
Global Training Center,
in partnership with OEM, Jakson Power Solutions, has
been set up to bridge the technology divide by providing comprehensive training
to technicians working at distributor network. This Center will provide training to
approximately 1,000 engineers and technicians annually, on a broad range of
Cummins manufactured products.
The new
Cummins Comprehensive Technical Training
facility in Pune encompasses
the entire range of products, manufactured and supported by the Cummins Group
in India. Built with the objective of providing both theoretical training, as well as
practical experience, this facility encompasses an exclusive station for filters and
a lube station from Valvoline Cummins Limited, a joint venture between Ashland
Inc. and Cummins India.
The
Chhindwara Center of Excellence in Madhya Pradesh
(in collaboration with
the Confederation of Indian Industry (CII)) has been designed to impart in-depth
knowledge and understanding of latest technologies and products to people from
rural areas, so as to subsequently absorb them in dealerships across the country.
The Common Dealer Operating System (CDOS), a Customer Relationship
Management (CRM) platform which will integrate all the aspects of dealer
operations and information systems with Cummins internal information systems,
thereby improving interface with the customers. This platform is designed to
deliver a paradigm shift in the overall customer service experience.
4
3 July 2013

Cummins India
Exports: New geographies / New products / Parts - Growth Drivers
During FY13, KKC has identified new business opportunities for Heavy Duty and High
Horsepower Engines and Parts exports. The company started export of components
to various engine manufacturing facilities and after markets across regions. This helped
compensate part of the loss in revenue due to decline in volumes in global engine
demand. As part of the initiative to add new geographies, KKC supplied its first engines
to Latin America which will help consolidate and diversify regional business risk.
Increased contribution of exports
Exports composition
Source: Company, MOSL
Industry: FY13 impacted by sharp decline in marine and mining
Industry growth rates (%)
Compressor
Marine
Mining
Construction
16
-49
-44
Flat
Revenue in the Industrial business dropped 9% YoY in FY13 mainly due to the sales
decline in Marine and Mining segments. Sales of engines into the Compressor segment
grew 16% due to the sustained demand in the water well rigs post deficient monsoon
and a shift towards higher capacity node compressors. Marine engine sales dropped
49% on account of postponement / deferment of projects due to a financial crunch at
shipyards resulting from higher interest rates, currency devaluation and ban in mining
activities in Karnataka & Goa. Sales to the mining sector declined 44% propelled by
the drop in demand for the dump truck market. Construction sector sales remained
flat YoY due to sharp decline in demand for construction equipment impacted by high
interest rates and liquidity crunch. However, the impact on sales was curtailed on the
back of increased market share and development of new applications / business
relationships.
Maintaining R&D efforts (INR m)
Cost reduction initiatives: ACE, TRIMS, etc
Source: Company, MOSL
3 July 2013
5

Cummins India
Components and finished goods in RM basket
Imports of materials vs domestic
Source: Company, MOSL
Purchases from Cummins Inc / Tata Cummins (INR m)
Royalty payments to Cummins Inc stable (INR m)
Source: Company, MOSL
3 July 2013
6

Cummins India
Financials and Valuation
Income Statement
Y/E March
Total Revenues
Change (%)
Raw Materials
Staff Cost
Other Expenses
EBITDA
% of Total Revenues
Depreciation
Other Income
Interest
PBT
Tax
Rate (%)
Adjusted PAT
Extra-ordinary Income (net)
Reported PAT
Change (%)
Adj. Consolidated PAT
Change (%)
2010
28,973
-13.5
18,003
1,983
3,189
5,798
20.0
361
694
21
6,111
1,670
27.3
4,440
0
4,440
2.4
4,440
0.0
2011
40,425
39.5
25,803
2,546
4,441
7,635
18.9
366
804
48
8,025
2,114
26.3
5,911
0
5,911
33.1
5,911
33.1
2012
41,172
1.8
26,454
3,039
4,706
6,972
16.9
420
1,233
54
7,732
2,334
30.2
5,501
514
5,913
0.0
5,501
-6.9
2013
45,894
11.5
28,874
3,386
5,285
8,349
18.2
473
2,067
46
9,898
2,872
29.0
6,606
616
7,641
29.2
6,606
20.1
(INR Million)
2014E
49,718
8.3
30,825
3,725
6,090
9,078
18.3
575
1,300
60
9,743
2,728
28.0
7,015
0
7,015
-8.2
7,015
6.2
2015E
56,247
13.1
34,873
4,097
6,750
10,527
18.7
650
1,295
60
11,112
3,000
27.0
8,112
0
8,112
15.6
8,112
15.6
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Loans
Deferred Tax Liability
Capital Employed
Gross Fixed Assets
Less: Depreciation
Net Fixed Assets
Investments
Curr. Assets
Inventory
Debtors
Cash & Bank Balance
Loans & Advances
Other Assets
Current Liab. & Prov.
Creditors
Other Liabilities
Provisions
Net Current Assets
Application of Funds
E: MOSL Estimates
2010
396
15,214
15,610
87
-170
15,527
7,776
4,440
3,337
7,329
12,673
4,097
5,229
559
2,695
93
7,669
3,768
1,266
2,634
4,301
15,526
2011
396
17,667
18,063
183
-187
18,058
9,144
4,734
4,411
7,255
16,804
5,190
7,182
1,037
3,297
98
10,325
6,129
894
3,302
5,356
18,058
2012
554
19,877
20,432
0
-70
20,362
9,703
5,054
4,649
5,976
19,826
5,676
6,783
2,235
5,082
50
10,509
5,186
1,587
3,736
7,006
20,362
2013
554
23,313
23,867
0
328
24,195
10,415
5,480
4,934
6,276
24,279
5,304
8,550
3,547
6,788
90
12,442
5,765
1,895
4,783
8,230
24,195
(INR Million)
2014E
554
26,111
26,666
0
328
26,994
12,915
6,055
6,859
6,276
25,492
6,811
9,535
2,327
6,770
50
12,525
6,266
1,739
4,519
10,532
26,994
2015E
554
29,520
30,075
0
328
30,403
15,415
6,705
8,709
6,276
28,478
7,705
11,558
2,128
7,038
50
13,938
7,089
1,969
4,880
12,289
30,403
3 July 2013
7

Cummins India
Financials and Valuation
Ratios
Y/E March
Basic (INR)
Adj EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation (x)
P/E
Cash P/E
EV/EBITDA
EV/Sales
Price/Book Value
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios
Debtors (Days)
Inventory (Days)
Creditors. (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity (x)
2010
16.0
17.3
55.7
8.6
62.5
2011
21.3
22.6
64.5
15.0
82.3
2012
19.8
21.4
73.5
11.0
64.2
2013
23.8
25.5
87.3
12.0
58.9
2014E
25.3
27.4
97.4
13.0
60.1
2015E
29.3
31.6
109.7
14.5
58.0
18.9
17.7
13.9
2.5
5.2
2.7
17.8
16.5
12.9
2.4
4.6
2.9
15.4
14.3
11.1
2.1
4.1
3.2
30.5
30.2
35.5
35.4
28.8
28.8
29.7
29.8
27.4
27.6
28.3
28.4
66
52
47
1.8
65
47
55
2.2
60
50
46
2.0
68
42
46
1.9
70
50
46
1.8
75
50
46
1.8
0.0
0.0
0.0
0.0
0.0
0.0
Cash Flow Statement
Y/E March
PBT before EO Items
Add : Depreciation
Interest
Less : Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
EO Income
CF from Oper. Incl. EO Items
2010
6,111
361
21
1,670
1,455
6,276
0
6,276
2011
8,025
366
48
2,114
(1,253)
5,072
0
5,072
(1,440)
0
75
-1,366
1,389
96
48
4,666
(3,228)
478
559
1,037
2012
7,732
420
54
2,334
(1,072)
4,800
514
5,314
(2,082)
(108)
1,761
-429
(225)
-183
54
3,185
(3,647)
1,237
1,037
2,275
2013
9,898
473
46
2,872
(1,509)
6,035
616
6,651
(1,469)
182
(522)
-1,809
84
0
46
3,607
(3,570)
1,273
2,275
3,547
2014E
9,743
575
60
2,728
(2,084)
5,566
0
5,566
(2,292)
0
0
-2,292
0
0
60
4,434
(4,494)
(1,220)
3,547
2,327
(INR Million)
2015E
11,112
650
60
3,000
(1,958)
6,864
0
6,864
(2,500)
0
0
-2,500
(0)
0
60
4,503
(4,563)
(199)
2,327
2,128
(Inc)/Dec in FA
(623)
Investment in subsidiaries
26
Investment in liquid assets (3,363)
CF from Investments
-3,960
(Inc)/Dec in Networth
(Inc)/Dec in Debt
Less : Interest Paid
Dividend Paid
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
E: MOSL Estimates
3 July 2013
59
-126
21
1,992
(2,080)
236
323
559
8

Capital Goods
Gallery

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Cummins India
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Contact: (+65) 68189232
Contact: (+65) 68189233 / 65249115
Office address: 21 (Suite 31), 16 Collyer Quay, Singapore 049318
Motilal Oswal Securities Ltd
Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com