The shares of engineering company Cummins India Limited have seen a sharp jump in the last one year. Last week, the stock touched a new 52-week high of Rs. ₹1,064 on NSE. The price of this midcap stock has more than doubled in the last one year with returns of 120%. In the same period, sectoral index Nifty 500 has lagged behind with 57% returns.
The midcap has been a sweet spot in the stock market’s rally after the pandemic. This has partially benefited the stock. Analysts said the ongoing improvement in the demand outlook has also boosted investor sentiment towards the firm.
In a recent conversation with a few brokerages, the company’s management highlighted that with an increase in vaccination, it will be in demand in the industrial sector including infrastructure, data centers and real estate in domestic and global markets such as the US and UK. Seeing gradual improvement. Run. In addition, the management said that it has new product launches in FY22 which are spread across all sectors.
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“We believe that margins and business growth will be sustained by improved economic recovery, strong export momentum and improved capacity utilisation. We anticipate 19% / 27% revenue / profit after tax CAGR in FY 2011-24, analysts at JM Financial Institutional Securities Ltd said in a report on 13 September. CAGR is short for Compound Annual Growth Rate.
Sharing the optimism, PhilipCapital India Pvt. Ltd said Cummins India has the potential to surprise upside even beyond the recovery phase. Philips Capital’s September 10 report said, “FY 2020-24 core earnings from positive management commentary, market dynamics of global consolidation, strong tailwind for export growth beyond FY20 peak and multiple margin levers should grow at 18% CAGR.”
On the other hand, the firm expects supply chain concerns to continue as chip shortages and container availability persist until early 2022.
As far as commodity price inflation is concerned, the management said it is at its peak, but cost rationalization measures like price hikes are likely to ease the pressure on margins going forward. It should be noted that management aims to improve EBITDA margin by 100 basis points on a year-on-year basis in FY22 through increased sales of value-added products and improved cost efficiencies. Ebitda is short for earnings before interest, taxes, depreciation and amortization. One basis point is 0.01%. The company’s operating margin stood at 13.4% in FY21.
Meanwhile, the stock is trading roughly 35 times more expensive at a one-year forward price-to-earnings ratio, Bloomberg data shows. Analysts at PhillipCapital say further upside in the stock would depend on a meaningful earnings surprise, which is likely to happen after 2HFY22.
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