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Motilal Oswal Financial
Cummins India (Sell)
Target: ₹330
CMP: ₹411.30
The transition from CPCB-II to CPCB-IV (fourth phase of emission standards proposed by the Central Pollution Control Board) is touted to be beneficial for Cummins India, led by its access to technology as well as its first-mover advantage.
On account of this transition, price hikes are likely to be over 20 per cent and may even be higher for certain categories. However, we note that: technology access may not be as big a barrier to competitors (KOEL, Mahindra, and Perkins); end markets may not be strong enough to absorb such steep price hikes (similar learning from the earlier transition from CPCB-I to CPCB-II); and the implementation date is set as July 2021, which may be pushed by six to nine months, especially given Covid-19-led disruptions.
The shift to CPCB-IV would imply higher input cost, necessitating price hikes. However, the key end markets — manufacturing, real estate, retail, and hospitality — are likely to remain under pressure, with a sluggish growth outlook over the next two years. Private capex is expected to be weak given the low capacity utilisation witnessed even prior to the Covid-19 situation.
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