Cummins India, a leading manufacturer of diesel and natural gas engines and power generators, started the week with a decline of over 2 percent in trade after BoFA Securities downgraded the stock to ‘Underperform’ from ‘Buy’. The brokerage also cut the target price on the Cummins India stock to Rs 1,434 from Rs 1,758 earlier.
Citing the rationale behind the downgrade, BoFA Securities said that an expected 50 percent price hike in the prices of generators after updated power generation emission norms CPCB IV+ (to come into effect from July 1, 2023) is expected to adversely impact Cummins India’s sales after Q1 FY24. CPCB refers to the Central Pollution Control Board.
The report further adds that exports which contribute around one-third to Cummins India’s sales, could also disappoint due to the global slowdown, thereby weighing on the stock price.
BoFA Securities noted that the risk-reward ratio for the stock is limited at present as the current valuation leaves little scope for upside. However, it remained constructive on the stock in the long run on the back of the ongoing capex upcycle in the country.
Cummins India had reported nearly 50 percent year-on-year growth in net profit at Rs 360 crore for the December 2022 ended quarter, beating the CNBC-TV18 poll estimates of Rs 268 crore.
Its revenue at Rs 2,181 crore in Q3 FY23 stood 26 percent higher against Rs 1,735 crore of revenue seen in the year-ago quarter and 11.8 percent higher than the poll estimate of Rs 1,950 crore. On a year to date basis, the stock trades nearly 9 percent higher.
