Short Cummins for 20% return by 2022: Auro.Ai Stock Pitch
Dhruvesh does not expect FY22/23 for Cummins India to be any different from previous instances, and expect downgrades as:
Power genset segment ( 28% of the Revenue) is facing headwinds from weak Real estate & commercial demand
CPCB IV prebuying may not happen due to covid related uncertainty & buyers may opt to postpone their purchase
Exports segment even though recovering, will just achieve its FY18/19 absolute topline
Hydrogen technology is being developed & owned by Parent. Its availability/ commercial terms to Indian entity is not yet known. What if it’s housed under Unlisted entity ? Also, its commercialization also looks sometime away
We value Cummins India at 20xFY23E based on implied DCF ( Cost of capital 10.4%, 12% near term growth rate, 4.5% terminal growth) at Rs628. (20x is also its long-term median)
Cummins India at current market price of Rs780 is trading at 24.9x FY23E, which is +25% premium to its long-term historical median & just above its +1 standard deviation.
Given 1) Management’s increasing interests in unlisted entities 2) Expensive valuation on hope of commercializing Hydrogen technology & 3) History of downgrades, Cummins India can be a good short idea with the view to earn 20%.
Disclaimer: This video reflects the individual views of our users NOT the views of Auro.Ai. It is NOT intended to serve as Financial or Investment Advice.
Power genset segment ( 28% of the Revenue) is facing headwinds from weak Real estate & commercial demand
CPCB IV prebuying may not happen due to covid related uncertainty & buyers may opt to postpone their purchase
Exports segment even though recovering, will just achieve its FY18/19 absolute topline
Hydrogen technology is being developed & owned by Parent. Its availability/ commercial terms to Indian entity is not yet known. What if it’s housed under Unlisted entity ? Also, its commercialization also looks sometime away
We value Cummins India at 20xFY23E based on implied DCF ( Cost of capital 10.4%, 12% near term growth rate, 4.5% terminal growth) at Rs628. (20x is also its long-term median)
Cummins India at current market price of Rs780 is trading at 24.9x FY23E, which is +25% premium to its long-term historical median & just above its +1 standard deviation.
Given 1) Management’s increasing interests in unlisted entities 2) Expensive valuation on hope of commercializing Hydrogen technology & 3) History of downgrades, Cummins India can be a good short idea with the view to earn 20%.
Disclaimer: This video reflects the individual views of our users NOT the views of Auro.Ai. It is NOT intended to serve as Financial or Investment Advice.
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