Over the last year, local investors have shunned stocks of capital goods companies given the slowdown in the economy and the lack of fresh investments in projects.
The exception has been Cummins India, which has been riding on the success of its advanced technical know-how and parentage. That is reflected in the higher shareholding of foreign portfolio investors which has risen from 11.48% in March 2011 to 15.51% in March 2013. Over the past year, while the ET Capital Goods index returned a negative 7.6%, the stock price of Cummins India has been more or less stable, at close to Rs 450, marking it out as one of the better performing stocks in this industry segment.
This stability is thanks to the reasonable financial performance by the company despite adversities. For FY13, the company reported an 11.5% rise in revenues over the past years while its earnings before interest tax and depreciation, or EBDITA, margins improved by 130 basis points for the year to a little over 18%. Going forward, the management has guided for EBITDA margins in the range of 16.5% to 17.5% and revenue growth of about 10% in the domestic business and 3-5% in the export segment for FY14.
Again, while many other companies in this industry have cut down their capital expenditure in lieu of under-utilisation of existing capacities, Cummins has continued to build its capacities through FY13. Its upcoming facility in the special economic zone at its mega site in Phaltan, Maharashtra, for manufacturing low and medium horsepower gensets is expected to start production soon and, being a special economic zone, will be eligible for a tax holiday on earnings from this facility for the next five years. This will boost the company's overall profitability.
Cummins is also commissioning its second factory, again in the
SEZ to manufacture high power engine, which is expected to commence production towards the end of FY14.
Source : conomictimes.indiatimes.com