Cummins India: Leveraging growth

Power generation business clocks healthy growth across sectors like agriculture and infrastructure.

Cummins Inc has identified India as a key outsourcing destination for its global markets and keeping this in mind, it is increasing its capacity. The company supplies K and N series engines of displacements of 28, 38 and 50 litres, as well as gensets to its parent. Most of Cummins India’s exports are in the power generation space. Recently, Cummins Inc decided to source lower than 200 kVA diesel gensets from Cummins India for its global requirements, which will boost exports, believes Motilal Oswal.

The company has lined up capital expenditure plans to increase capacity. Analysts expect improved capacity to result in 20 per cent compound annual growth rate (CAGR) over the next three to five years. According to Religare, the management has guided for a capex rate of Rs 200-250 crore for FY12E/FY13E, lower than the previous guidance of Rs 400-500 crore for this period. However, the new facility, coming up in Pune, will essentially house the corporate headquarters of the company.

Analysts say the management believes that the company’s power generation business is being supported by a healthy growth in agriculture and infrastructure sectors, due to continued power outages. Other sectors contributing to the growth are residential realty, healthcare, education and mobile gensets.

Long-term prospects for industrial segment remains bright, believes Religare. The company’s industrial business segment, which caters to the requirements of highly customised engines that find application in construction, mining, railways, marine and oil & gas industries, can provide additional boost to the company’s growth. Of late, many global names have been establishing their construction/industrial equipment manufacturing units in India. Cummins expects to leverage its global relationship with these companies to jointly seek business opportunities in the domestic market.