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Cummins India: A commendable show

Anup Menon

THE performance of Cummins India Ltd (CIL) for the year 2000-2001 has been in line with expectations. Given the state of the economy, the company was expected to post a modest growth rate. While it managed to hold its ground in the first three quarters o f the current fiscal, growth rates in the fourth quarter seems to have slowed down, which has had an impact on the overall performance of the company.

However, for the year, the company has managed to improve over its previous year, if only marginally.

On a year-on-year basis, the net sales for the company has improved by around 4.17 per cent to Rs 860.26 crore as against Rs 825.82 crore recorded in the previous fiscal.

Cummins India is one of the major players in the diesel engine industry. The performance of the industry as a whole in the previous year has not been very impressive. Hence, on a relative basis, the performance of CIL is commendable. A prime factor which helped the company improve on its topline growth has been its exports.

During the fiscal, growth in export earnings kept pace with net sales. Exports improved by around 4.07 per cent to Rs 288.82 crore. As a percentage of net sales, export earnings were stable at around 34 per cent as compared to the previous year. The depr eciation of the rupee over the last year would have also helped improve realisations for the company.

CIL is considered to be among the most efficient players in the industry. The good management of expenses during the year gives us evidence to this effect. During fiscal 2000-2001, total expenditure rose by around 3 per cent to Rs 710.30 crore.

Since the rate of growth of expenses was lower than that of sales, operating profits (based on net sales and not including other income) improved by around 10 per cent to Rs 149.96 crore. Operating margins also improved by around 95 basis points to 17.43 per cent in 2000-2001 from 16.48 per cent in 1999-2000.

The company's bottomline growth has also been fairly impressive. For instance, post-tax earnings (adjusted for the changes in the basis of valuation of inventories) has risen by around 7 per cent to Rs 108.93 crore as compared to Rs 102.13 crore in the p revious year. The drop in financial expenses (interest) by around 45 per cent to Rs 1.92 crore has helped the bottomline.

On an equity base of Rs 39.60 crore, the earnings per share based on a face value of Rs 2 works out to around Rs 5.50 per share. This works out to an improvement of around 7 per cent over the adjusted per share earnings for 1999-00. The company has also recommended a dividend of Rs 1.30 per equity share. At a face value of Rs 2, this represents a dividend rate of 65 per cent.

Looking ahead, the performance of the company over the next couple of quarters is not likely to show significant improvement.

Being a cyclical industry, any improvements in the broad economy should have a positive impact on the performance of the company. This apart, since the revenue stream for the company is diversified, the volatility of the earnings is likely to be lower.

This apart, the company is also entering into other businesses such as information technology among others. In this backdrop, the future trend in cash flows over the next few quarters is expected to be positive.