Cummins India says domestic demand, infrastructure spend led strong Q3 growth

Cummins India shares closed higher at ₹2,605.15 apiece, up 0.75% on BSE, on Friday, continuing the rally for the second straight day after the company reported strong growth in net profit and revenue in the December quarter. The stock also closed more than 7% higher on Thursday, February 8, after the company released its quarterly results for Q3FY24.

After the stellar performance in the quarter ending December 31, 2023, Cummins India Managing Director Ashwath Ram told CNBC-TV18 that the company has outpaced margin guidance of a 100 bps increase and further expects to hold margin at current levels.

The company's revenue increased 16.2% year-on-year to ₹2,534.1 crore in the December quarter, of which domestic sales contributed ₹2,177 crore. Its net profit grew 26.4% year-on-year (YoY) to ₹454.9 crore for the third quarter of the current financial year.

Commenting on the impressive quarterly numbers, Ram suggested that the rise in domestic demand with the government's push for infrastructural development had led to the company's strong performance in the quarter.

"The demand has been very robust especially domestically, and the demand has been very strong in the power generation sector, especially in areas like data centres, realty, commercial realty, manufacturing and infrastructure. We believe this will continue till India continues to build its infrastructure out and continues to make an investment in building roads, bridges, ports just the whole infrastructure play is very positive from a Cummins perspective," Ram said in an exclusive interview with CNBC-TV18.

Cummin India reported a 36% YoY growth in domestic demand, and Ram seemed confident about maintaining a similar trend in the medium to long term. However, he pointed out that the numbers depend heavily on the infrastructural push and could see a temporary drop due to the softening push because of the upcoming general elections.

Commenting on the company's margins, Ram said, “We guided we would grow 100 basis points YoY and so far, we have stayed ahead of that. As a matter of fact, we have grown a little over 250 basis points. We did get a trifecta of an advantage this year and this quarter as well in that the commodity prices continue to remain soft, the price increases that we had taken in the previous quarter, we continue to hold on them, and the cost reduction actions that we have been pursuing continue to yield us benefits. Moving forward, not all of these variables are going to remain positive all the time, so there will be more pressure on margins, but it is management's endeavour striving to grow the margin YoY."

He added that with the nature of Cummins India's business, the margin achieved by the company is among the sector's best. While the management expects to hold on to it or maybe do a little better, it's not going to be as straightforward to get the growth in the margin as the company has managed in the last year or two.

Cummins India's distribution business has been up by 26% in the first half of FY 2024 despite a drop in the number from export earnings. Ram suggested that it was possible due to the strong domestic demand across sectors.

The company, however, expects that export earnings are likely to go up soon.

Ram added that the exports seemed to have bottomed out and are expected to go up. "Some markets are beginning to come back because they are coming back from a low base and it looks like we have bottomed out," he said.

Ram did not comment on when the exports were likely to stabilise but suggested that the market space could get better for the company in the medium to long term.