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Wednesday, Jun 12, 2002

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Cummins India: Exports play spoil-sport

Sowmya Krishnan

CUMMINS India's performance for the year ended March 2002 has been on expected lines.

The company reported a 20.77 per cent dip in net profit at Rs 86.3 crore and a 13.87 per cent drop in sales to Rs 740.91 crore compared to the previous year.

Other income at Rs 36 crore did provide some cushion to the bottom line.

However, on a quarter-on-quarter basis, the performance for the quarter ended March 2002 was much better than the previous quarters. Net sales stood at Rs 208.6 crore compared to Rs 167 crore, Rs 181 crore and Rs 184 crore in the previous three quarters. Net profit also showed substantial improvement on a quarter-on-quarter basis to Rs 31.6 crore, sending a positive signal.

Despite the cost-cutting measures, the operating profit margin (operating profit excludes other income) for the year dropped to 14 per cent from 17 per cent in the previous year. The net profit margin too was lower by 100 basis points at 16.9 per cent. Since the other parameters have been stable, the decrease in margin is primarily due to inventory pile-up and extraordinary expenses incurred on VRS settlement (Rs 4.87 crore). Low demand at the domestic and global levels resulted in piling up of inventory for the year.

What is worrisome is the drop in export sales, which according to Mr. Ravi Venkatesan, Chairman, Cummins India, is around Rs 260 crore. This is 8.77 per cent lower than exports for the previous year. This is primarily attributed to inventory pile-up at the global level as a result of the September 11 attacks. Exports have been a major growth driver for Cummins India in the last two years. They contributed around 33 per cent of the turnover in the year 2000-01. In this background, a noticeable dip in exports is a dampening factor.

One positive signal is the strong cash flow position. Free cash generated for the year is pegged at Rs 104 crore, substantially higher from the previous year's Rs 76 crore. As Cummins India does not have any major capex plans for the current year, the free cash might be used for further acquisitions.

Another significant development is the merger of its two subsidiaries — Power Systems India and Cummins Power Solutions — with itself. Both the subsidiaries have been functioning successfully and this would consolidate Cummins India's position in the power generation business.

On the whole, a slight pick-up in domestic demand and income from services may drive growth in the current year. Despite strong fundamentals, it might not be able to post robust growth rates as the topline would be stifled due to depressed exports.

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