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JMFL
Cummins India (Buy)
CMP: ₹753.8
Target: ₹960
Both global giants in diesel engine business, Cummins Inc and Caterpillar reported strong results as sales grew by 21 per cent and 31 per cent respectively and both companies increased their annual growth guidance. For Cummins Inc the growth in power generation business was driven by North America and Asian markets, while Caterpillar reported healthy growth in Europe, Africa and West Asia (EAME) region.
The improvement is largely driven by increased investments in data centres across geographies and a pick up in large projects. As Cummins Inc India power generation business grew by 6 per cent y-o-y (including currency impact), we do not expect any major surprises in the 4QFY18 result. However, we are buoyed by the fact that power generation sales are seeing sustained growth after many quarters and based on orders in hand, confidence remains high for next 90 days.
We maintain ‘buy’ rating on Cummins India with target price of ₹960, as we expect a sustained pick up in domestic business (8-10 per cent CAGR) and a positive surprise in exports due to 5 per cent year-to-date depreciation in rupee and improving sales outlook.
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