Neutral Cummins India, target Rs 825: Phillip Capital
Cummins India is a largecap company, operating in engineering sector.
Phillip Capital (India) has a neutral view on Cummins India with a target price of Rs 825.
Shares of Cummins India traded at Rs 785.75 around 1:35 pm on 27 May, 2019. The brokerage has set a one-year horizon for the stock to hit the target price.
March quarter highlights:
Investment rationale:
"We maintain our Neutral rating with a target price of Rs 825 (Rs 790 earlier) based on 27 times PE FY21E (earlier 25 times June 2020)," said the brokerage.
The brokerage believes that expectations from Cummins post fourth quarter are at an all time low.
"FY19-20 earnings have been cut by 30 per cent in the past two years, this coupled with the stock’s 65 per cent underperformance to its peerset, BSE Capital Goods, in the past three years does make a compelling argument for a tactical value pick, which we also agree," said the brokerage.
A 9 per cent CAGR in FY19-22E earnings and a dividend yield of 2.5 per cent (FY19) imply a 12 per cent annual return FY19-22.
However, valuations at 25 times PE FY21E in context to earnings growth and structural concerns about demand for gensets in the long term leave little room for upside, unless growth in exports surprise us and the management in the medium term (FY20-21), low likelihood in our view, the brokerage added.
Shares of Cummins India traded at Rs 785.75 around 1:35 pm on 27 May, 2019. The brokerage has set a one-year horizon for the stock to hit the target price.
March quarter highlights:
Investment rationale:
"We maintain our Neutral rating with a target price of Rs 825 (Rs 790 earlier) based on 27 times PE FY21E (earlier 25 times June 2020)," said the brokerage.
The brokerage believes that expectations from Cummins post fourth quarter are at an all time low.
"FY19-20 earnings have been cut by 30 per cent in the past two years, this coupled with the stock’s 65 per cent underperformance to its peerset, BSE Capital Goods, in the past three years does make a compelling argument for a tactical value pick, which we also agree," said the brokerage.
A 9 per cent CAGR in FY19-22E earnings and a dividend yield of 2.5 per cent (FY19) imply a 12 per cent annual return FY19-22.
However, valuations at 25 times PE FY21E in context to earnings growth and structural concerns about demand for gensets in the long term leave little room for upside, unless growth in exports surprise us and the management in the medium term (FY20-21), low likelihood in our view, the brokerage added.
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