5 August 2016
1QFY17 Results Update | Sector: Capital Goods
Cummins India
BSE SENSEX
28,078
S&P CNX
8,683
CMP: INR858
TP: INR865 (+1%)
Neutral
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Results disappoint; cutting estimates, maintain Neutral
Bloomberg
Equity Shares (m)
M.Cap.(INR b)/(USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, (INR m)
Free float (%)
KKC IN
277.2
229.0 / 3.4
1,247 / 747
-1/-25/-65
255
49.0
Financials & Valuations (INR b)
Y/E Mar
2016 2017E 2018E
Net Sales
47.0
50.8
58.2
EBITDA
7.7
8.6
10.0
Adj PAT
7.5
7.9
8.9
EPS (INR)
27.2
28.6
32.0
EPS Gr. (%)
(4.0)
5.2
11.8
BV/Sh. (INR)
114.4 125.9 138.7
RoE (%)
24.9
24.2
24.2
RoCE (%)
25.2
24.1
24.4
30.9
29.3
26.2
P/E (x)
P/BV (x)
7.3
6.7
6.1
Estimate change
TP change
Rating change
Quarterly Performance (Standalone)
Y/E March
Sales
Change (%)
EBITDA
Change (%)
As of % Sales
Depreciation
Interest
Other Income
PBT
Tax
Effective Tax Rate (%)
Adjusted PAT
Change (%)
Reported PAT
Change (%)
E: MOSL Estimates
1Q
13,101
25.3
2,217
23.3
16.9
203
24
595
2,585
472
18.2
2,114
(0.3)
2,114
(0.3)
Operating performance disappointing:
Cummins India’s (KKC) 1QFY17 revenue
declined 4% YoY to INR12.6b (below our estimate of INR13.6b). EBITDA
declined 7% YoY to INR2.1b (lower than our estimate of INR2.2b). EBITDA
margin shrank 50bp YoY to 16.4% (in line with our estimate of 16.5%). PAT
declined 14% YoY to INR1.8b (below our estimate of INR2.2b). Net profit miss
was also on account of lower dividend income from its JV, Valvoline Cummins
(INR140m v/s INR190m in 1QFY16).
Revenue de-growth led by sharp decline in export revenue:
KKC’s revenue
decline was primarily due to a 22% YoY decline in export revenue to INR4.1b.
Domestic revenue was up 9% YoY, aided by the industrial business (up 33%
YoY) and automotive revenue (up 15% YoY). Exports declined on account of
depressed demand for LHP/HHP gensets from key markets like LATAM, Africa,
the Middle East, China and Europe. KKC has maintained its FY17 guidance for
the export segment at flat to negative growth and has marginally raised its
domestic revenue growth guidance to 10-12% from earlier guidance of 8-12%.
Gross margin decline led by weak product mix and decline in exports:
Gross
margin declined 50bp YoY to 36.2%, led by adverse product mix and lower
exports. Exports contributed 34% of total revenue against 42% in 1QFY16.
Exports enjoy better margins than domestic sales.
Premium valuations; retain Neutral:
Given the weak 1QFY17 results, we are
lowering our EPS estimates by 3% for FY17 and by 4% for FY18. The stock
trades at 29.3x FY17E EPS of INR28.6 and at 26.2x FY18E EPS of INR32. Given
the stock’s premium valuations, we maintain
Neutral,
with a revised target
price of INR865 (27x FY18E EPS). Key risks to our rating are (a) faster than
expected revival in the domestic power generation market, and (b) sharp rise
in commodity prices, leading to pick-up in LHP exports.
(INR Million)
FY16
2Q
3Q
4Q
11,977 11,469 10,614
4.7
5.9
-6.4
2,007 1,550 1,773
5.7 -18.2
0.8
16.8
13.5
16.7
200
201
206
2
2
24
600
566
513
2,405 1,912 2,056
419
288
17.4
15.1
1,986 1,624
(1.9) (10.3)
1,986 1,624
(1.9) (10.3)
386
18.8
1,670
(12.3)
1,670
(12.3)
1Q
12,590
-3.9
2,063
-6.9
16.4
206
21
416
2,252
440
19.5
1,812
(14.3)
1,812
(14.3)
FY17
FY16
2QE
3QE
4QE
13,065 12,419 12,991 47,161
9.1
8.3
22.4
7.0
2,285 2,217 2,327 7,853
13.8
43.0
31.3
3.7
17.5
17.8
17.9
16.7
245
258
180
810
24
24
24
96
618
600
631 2,279
2,634 2,535 2,755 9,226
527
20.0
2,107
6.1
2,107
6.1
507
20.0
2,028
24.9
2,028
24.9
510
18.5
2,245
34.4
2,245
34.4
1,561
16.9
7,665
(2.5)
7,665
(2.5)
FY17 Vs Est.
Var.
1Q
(%)
50,811 13,555
-7.1%
7.7
3.1
8,638 2,237
-7.7%
23.5
2.6
17.0
16.5
-0.7%
889
230
96
2
2,265
619
9,919 2,623 -14.1%
1,984
20.0
7,935
3.5
7,935
3.5
472
18.0
2,151
2.1
2,151
2.1
-15.8%
-15.8%
Ankur Sharma
(ankur.vsharma@motilaloswal.com); +91 22 3982 5449
Amit Shah
(amit.shah@motilaloswal.com); +91 22 3029 5126
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Cummins India
1QFY17 operating performance below estimates; sluggish exports impacts
the results
Operating performance for 1QFY17 below estimates:
Cummins India’s revenue
at INR12.6b (-4% YoY) came in below our estimate of INR13.6b and EBITDA at
INR2.1b (-7% YoY) was also lower than our estimate of INR2.2b. EBIDTA margin
stood at 16.4% (down 50bp YoY) in line with our estimate of 16.5%. PAT came in
at INR1.8b (-14% YoY) as compared to our estimate of INR2.2b. Net profit miss
was also on account lower dividend income from its JV (INR140m vs INR190m in
1QFY16).
RM cost as % of revenues increased to 63.8% (vs 63.3% YoY), while staff cost
increased 4.6% YoY to INR1.0b. RM cost increase was on account of adverse
product mix and decline in export revenues. Export revenue decline 22% YoY.
Management expects operating margins (excluding other income) to remain
stable YoY going ahead.
Other income declined 30% YoY to INR416m, lower than estimates of INR619m.
Decline in other income was on account of lower dividend income from its JV
companies (INR140m vs INR285m in 1QFY16)
Net profit stood at INR1.8b (down 14.3% YoY) led by decline in other income
(down 30% YoY) and increase in tax rate (19.5% vs 18.2%). Tax rate increase was
primarily on account of increase in sales from domestic segment and decline in
exports revenue.
Exhibit 2: RM costs increase led by adverse product mix and
decline in exports
RM (% of sales)
Exhibit 1: 1QFY17 revenues down 4% YoY; impacted by
sharp decline in export revenue (down 22%)
74
32
11
0 -3 0
Net Sales (INR b)
Growth (YoY, %)
18
22
0
11
-17-14
23
-6
-16
0
6
17
26
5 6 -6
Source: Company, MOSL
Source: Company, MOSL
Revenue de-growth led by sharp decline in export revenues
KKC’s 1QFY17 revenue has registered decline of 4% YoY to INR12.6b impacted
by decline in the export revenue (-22% YoY). Exports revenue decline was
primarily on account weak global economic scenario. Exports demand from
Africa, Middle East, Latin America and China has been impacted significantly.
Domestic revenues were up 9% YoY supported by industrial business (up 33%
YoY) and automotive business (+15% YoY). Management has increased its FY17
guidance for domestic segment to 10-12% from 8-12% earlier.
Management sounded positive about the domestic market and expects growth
in power gen as well as the industrial segment to remain positive led by
economic cycle recovery. Sectors like mining, railways, infrastructure and data
center segment have started to pick up.
2
5 August 2016

Cummins India
Exports decline 22% YoY to INR3.2b led by depressed demand for LHP/HHP
gensets from key markets like LATAM, Africa, Middle East, China, and Europe.
On the back of weak end markets, it expects exports revenue to remain flat to
negative. Management has maintained its guidance for FY17.
Exhibit 3: RM cost as well as staff cost increase YoY whereas other expenses were under control
INR M
Raw Materials
Staff Costs
Other Expenses
Total
% of Revenues
Raw Materials
Staff Costs
Other Expenses
% YoY
Raw Materials
Staff Costs
Other Expenses
1QFY15
6,382
903
1,417
8,702
60.6
8.6
13.6
-1.6
8.7
3.9
2QFY15
7,060
1,017
1,467
9,544
61.7
8.9
12.8
28.1
16.1
11.0
3QFY15
6,666
1,018
1,244
8,927
61.6
9.4
11.5
8.3
16.6
0.1
4QFY15
7,159
998
1,419
9,567
63.2
8.8
12.5
20.2
22.2
14.9
1QFY16
8,342
1,027
1,595
10,964
63.5
7.8
12.1
31.7
13.7
12.5
2QFY16
7,470
1,085
1,416
9,970
62.4
9.1
11.8
5.8
6.6
(3.5)
3QFY16
7,351
1,091
1,317
9,759
64.1
9.5
11.5
10.1
7..3
5.8
4QFY16
6,545
1,039
1,362
8,945
61.4
9.8
12.8
6.5
4.1
-4.1
1QFY17
8,030
1,040
1,457
10,527
61.8
9.0
12.7
3.2
4.6
-8.4
Source: Company, MOSL
Valuation and view
Over the past few years, KKC has seeded various growth levers (like LHP gensets
for domestic / exports, Reconditioning and Refurbishment, etc). We expect the
revenue contribution of these segments to increase from 11% of in FY14 to 27%
in FY19E.
Key triggers are:
i) incremental success in LHP genset (both domestic and
exports), which contributed INR5.3b to revenues in FY16 / INR8b in FY17;
internal targets are ~INR15-20b over the next 3-5 years ii) pick-up in the recon
business with CPCB-II implementation (facilities have been recently established
in Phaltan) and iii) accelerated indigenization of CPCB-2 compliant products
supporting margins.
Given weak 1QFY17, we are lowering our EPS estimates marginally by 3/4% for
FY17/. At CMP, the stock trades at 29.3x/26.2x its FY17E/FY18E EPS of
INR28.6/INR32.0. Given the stock’s premium valuation, we maintain
Neutral
with a revised target price of INR865 (27x FY18E EPS).
Key Highlights of the concall
Rail is a big opportunity from the QSK50 series engine which will add INR0.5b in
sales each year and also exploring other options with rail.
Expect industrial segment growth to be much faster than power generation
growth over the medium term
Domestic power gen demand is being driven by Data centers, Infra (road, ports),
residential realty (not much in commercial), hospital and Pharma
While Q117 was a weak quarter(-4% YoY), do expect growth to revive in the
coming quarters
Not seeing any sign of improvement overseas markets - QoQ growth was driven
by supply chain initiatives and not reflective of the overall market
HHP engines exports will remain flat over the medium term as globally capex
remains quite weak.
3
5 August 2016

Cummins India
To be at INR4b in FY17 as they complete the India Technical center and will
come down to INR2b thereafter
Rental income from the India Office Campus to start at INR0.10-12b each
Cummins Technical Centre - this is being set up jointly with CIL and Cummins
Inc. with an investment of INR10b and to be operational from Jan17; will
positively impact CIL on margins
Exhibit 4: Change in estimates (INR m)
New estimates
FY18E
FY16E
FY17E
47,043
50,811
58,249
7,736
8,638
10,006
16.4%
17.0%
17.2%
7,543
7,935
8,871
27.2
28.6
32.0
Old Estimate
FY17E
FY18E
51,332
59,541
8,631
10,244
16.8%
17.2%
8,153
9235
29.4
33.3
% Change in Estimate
FY17E
FY18E
-1%
-2%
0%
-2%
0.2%
0.0%
-3%
-4%
-3%
-4%
Source: Company, MOSL
Sales
EBITDA
Margin (%)
PAT
EPS (INR)
Exhibit 5: Segmental Revenue (INR m)
Power
- MHP / HHP
- LHP
Industrial
Auto
Distribution
- Spare Parts
- Recon
Domestic
Exports
- HH / HHP
- MHP / LHP
Net Sales
Growth (%)
Existing Business
% YoY
New Businesses (LHP, Recon)
% YoY
RM Costs (%)
Contribution Margins (%)
EBITDA margin (%)
Net Working Capital (Days)
Net Cash / (Debt), INR M
FY12
12,562
12,562
5,673
2,837
7,699
7,699
28,800
11,720
9,520
2,200
41,172
2%
38,322
-3.0%
2,200
64.3%
35.7%
16.9%
63.4
2,088
FY13
16,065
16,065
nm
5,060
1,659
9,080
9,080
nm
32,400
12,690
8,810
3,880
45,894
11%
41,210
7.5%
3,880
62.9%
37.1%
18.2%
65.5
3,547
FY14
11,150
10,550
600
5,248
1,162
9,090
9,090
nm
27,001
11,990
8,190
3,800
39,767
-13%
34,591
-16.1%
4,400
13.4%
61.0%
39.0%
17.5%
81.0
865
FY15
10,550
9,800
750
5,070
1,100
9,050
8,800
250
25,990
17,253
9,003
8,250
44,058
11%
33,961
-1.8%
9,250
110.2%
61.8%
38.2%
16.7%
82.9
799
FY16
12,500
11,250
1,250
5,600
700
10,000
9,600
400
28,800
16,670
7,770
8,900
47,043
7%
36,493
4.8%
10,550
14.1%
62.9%
37.1%
16.4%
79.1
897
FY17E
13,500
11,000
2,500
7,280
1,050
10,800
10,000
800
32,630
16,765
6,685
10,080
50,811
8%
37,431
2.6%
13,380
26.8%
62.8%
37.2%
17.0%
79.1
1,459
FY18E
15,525
13,024
2,501
8,736
1,575
12,420
11,619
801
38,256
18,517
7,317
11,200
58,249
15%
43,747
16.9%
14,502
8.4%
62.8%
37.2%
17.2%
79.1
2,950
Source: MOSL, Company
5 August 2016
4

Cummins India
Financials and valuations
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 (%)
2011
40,425
39.5
25,804
2,546
4,441
7,634
18.9
366
804
48
8,024
2,114
26.3
5,910
0
5,910
33.1
2012
41,172
1.8
26,454
3,039
4,706
6,972
16.9
420
1,234
54
7,732
2,334
30.2
5,398
514
5,913
0.0
2013
45,894
11.5
28,874
3,386
5,285
8,349
18.2
473
1,577
46
9,407
2,774
29.5
6,633
1,008
7,641
29.2
2014
39,767
-13.4
24,241
3,396
5,162
6,968
17.5
528
1,777
42
8,175
2,175
26.6
6,000
0
6,000
-21.5
2015
44,058
10.8
27,225
3,936
5,547
7,351
16.7
797
2,866
45
9,374
1,515
16.2
7,859
0
7,859
31.0
2016
47,043
6.8
29,592
4,156
5,559
7,736
16.4
810
2,274
96
9,104
1,561
17.1
7,543
0
7,543
-4.0
(INR Million)
2017E
50,811
8.0
31,911
4,344
5,917
8,638
17.0
889
2,265
96
9,919
1,984
20.0
7,935
0
7,935
5.2
2018E
58,249
14.6
36,583
5,190
6,471
10,006
17.2
1,031
2,351
96
11,230
2,358
21.0
8,871
0
8,871
11.8
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Loans
Deferred Tax Liability
Capital Employed
Gross Fixed Assets
Less: Depreciation
Net Fixed Assets
Capital WIP
Investments
Curr. Assets
Inventory
Debtors
Cash & Bank Balance
Loans & Advances
Other Assets
Current Liab. & Prov.
Current Liabilities
Provisions
Net Current Assets
Application of Funds
E: MOSL Estimates
2011
396
17,667
18,063
183
-187
18,058
9,144
4,734
4,411
0
7,255
16,804
5,190
7,182
1,037
3,297
98
10,411
7,109
3,302
6,393
18,058
2012
554
19,877
20,432
147
-70
20,509
9,703
5,054
4,649
497
5,976
19,826
5,676
6,783
2,235
5,082
50
10,438
6,702
3,736
9,388
20,509
2013
554
23,313
23,867
0
328
24,195
10,415
5,480
4,934
1,208
6,276
24,278
5,304
8,550
3,547
6,788
90
12,501
7,719
4,782
11,777
24,195
2014
554
25,097
25,652
0
465
26,117
15,120
5,928
9,192
958
4,954
22,625
5,513
7,820
865
8,405
22
11,611
6,910
4,701
11,014
26,117
2015
554
28,311
28,865
0
631
29,496
18,830
6,491
12,340
1,706
4,650
24,521
6,823
9,355
799
7,472
73
13,721
8,520
5,202
10,800
29,496
2016
554
31,159
31,713
0
817
32,530
19,917
7,301
12,616
5,470
3,354
24,327
6,003
9,506
897
7,363
559
13,238
8,294
4,944
11,090
32,530
(INR Million)
2017E
554
34,341
34,895
0
817
35,712
23,917
8,189
15,728
5,470
2,354
26,061
6,303
9,981
1,459
7,731
587
13,900
8,708
5,191
12,161
35,713
2018E
554
37,899
38,454
0
817
39,271
25,417
9,221
16,196
5,470
2,354
31,226
7,244
11,472
2,950
8,886
674
15,976
10,009
5,967
15,250
39,271
5 August 2016
5

Cummins India
Financials and valuations
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
RoIC
Turnover Ratios
Debtors (Days)
Inventory (Days)
Creditors. (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity (x)
2011
21.3
22.6
65.2
10.7
50.3
2012
19.5
21.0
73.7
10.7
50.0
2013
23.9
25.6
86.1
13.0
47.2
2014
21.6
23.5
92.5
13.0
60.1
2015
28.3
31.2
104.1
14.0
49.4
2016
27.2
30.1
114.4
14.0
51.5
2017E
28.6
31.8
125.9
14.7
51.5
2018E
32.0
35.7
138.7
16.5
51.5
37.3
34.3
32.0
5.7
8.7
1.6
28.5
25.9
30.4
5.2
7.8
1.7
30.9
27.9
30.0
5.1
7.3
1.7
29.3
26.4
26.8
4.7
6.7
1.8
26.2
23.5
23.0
4.0
6.1
2.0
35.1
35.0
58.0
65
47
64
2.2
30.7
28.0
41.2
60
50
46
2.0
34.7
30.0
44.4
68
42
46
1.9
24.2
24.4
29.1
72
51
45
1.5
28.8
29.0
26.4
78
57
51
1.5
24.9
25.2
25.4
74
47
44
1.4
24.2
24.1
25.2
74
47
44
1.4
24.2
24.4
25.8
74
47
44
1.5
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Cash Flow Statement
Y/E March
PBT before EO Items
Depreciation
Interest
Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
EO Income
CF from Oper. Incl. EO Items
(Inc)/Dec in FA
Free Cash Flow
Investment & Others
CF from Investments
(Inc)/Dec in Networth
(Inc)/Dec in Debt
Interest Paid
Dividend Paid
Others
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
2011
8,024
366
-76
-2,181
(1,356)
4,777
-485
4,293
(1,486)
2,807
1,041
-445
0
0
-48
-3,002
0
(3,049)
798
239
1,037
2012
7,732
420
-126
-2,155
(825)
5,046
-621
4,425
(2,288)
2,137
3,448
1,160
0
0
-54
-3,452
0
(3,506)
2,079
156
2,235
2013
9,407
473
46
-2,377
(1,562)
5,987
0
5,987
(1,469)
4,518
138
-1,331
998
0
0
-4,195
-147
(3,344)
1,312
2,235
3,547
2014
8,175
528
-432
-2,308
(1,607)
4,356
-746
3,611
(4,678)
-1,068
5,528
850
0
0
-42
-4,216
0
(4,258)
203
662
865
2015E
9,374
797
-172
-1,853
(815)
7,331
-1,993
5,338
(3,304)
2,035
2,458
-846
0
0
-45
-4,216
(4,261)
231
568
799
2016
9,104
810
96
-1,561
(287)
8,162
0
8,162
(5,500)
2,662
2,132
-3,368
(178)
0
0
-4,518
0
(4,695)
99
799
898
(INR Million)
2017E
9,919
889
96
-1,984
(605)
8,314
0
8,314
(4,000)
4,314
1,000
-3,000
0
0
0
-4,752
0
(4,752)
562
898
1,459
2018E
11,230
1,031
96
-2,358
(1,694)
8,304
0
8,304
(1,500)
6,804
0
-1,500
0
0
0
-5,313
0
(5,313)
1,491
1,459
2,950
5 August 2016
6

Cummins India
Corporate profile
Company description
Cummins India is a 51 % subsidiary of Cummins Inc.
USA. Cummins India is the country's leading
manufacturer of diesel and natural gas engines for
power generation, industrial and automotive
markets. Cummins in India is a group of eight legal
entities (including Cummins India) across 200
locations in the country with a combined turnover of
USD1.5b in 2013 and employing close to 9,000
individuals.
Source: MOSL/Bloomberg
Exhibit 1: Sensex rebased
Exhibit 2: Shareholding pattern (%)
Promoter
DII
FII
Others
Jun-16
51.0
19.4
16.3
13.3
Mar-16
51.0
18.3
16.5
14.2
Jun-15
51.0
18.2
16.9
13.9
Exhibit 3: Top holders
Holder Name
Life Insurance Corporation Of India
Franklin Templeton Investment Funds
PineBridge Investments GF Mauritius
Limited
Reliance Capital trustee Co. Ltd A/C
Relianceequity Opportunities Fund
General Insurance Corporation Of India
% Holding
4.3
2.5
1.4
1.4
1.0
Source: Capitaline
Note: FII Includes depository receipts
Source: Capitaline
Exhibit 4: Top management
Name
Anant J Talaulicar
K Venkata Ramana
Designation
Chairman & Managing Director
Company Secretary
Exhibit 5: Directors
Name
Antonio Leitao
Mark Smith
P S Dasgupta
Rajeev Bakshi
Venu Srinivasan
Pradeep Kumar Bhargava*
Name
Edward Phillip Pence*
Nasser Munjee*
Prakash M Telang*
Suzanne Wells*
Nicole McDonald
Source: Capitaline
*Independent
Exhibit 6: Auditors
Name
Price Waterhouse
Type
Statutory
Exhibit 7: MOSL forecast v/s consensus
EPS
(INR)
FY17
FY18
MOSL
forecast
28.6
32.0
Consensus
forecast
28.3
33.5
Variation
(%)
1.1
-4.5
Source: Bloomberg
Source: Capitaline
5 August 2016
7

PRODUCT GALLERY
Our recent reports on Cummins India
Our recent reports on Capital Goods
Our recent reports on other Capital Goods companies

Cummins India
NOTES
5 August 2016
9

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Cummins India
Analyst Certification
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Disclosure of Interest Statement
Analyst ownership of the stock
Served as an officer, director or employee
CUMMINS INDIA
No
No
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