In the course of declaring CY08 results, Cummins Inc. has guided to y-o-y drops – of 20% in sales in CY09 and 250bps in the EBIT margin. 30% of Cummins India’s FY08 sales arise from exports to Cummins, Inc.
Cummins Inc.’s sales of engines in 4QCY08 declined 10% y-o-y, to $1.9 billion, while the EBIT plunged 79% y-o-y, to $25 million. Sales in the power generation division too, grew only 6% y-o-y, to $887 million, while the EBIT slipped 13% y-o-y, to $75 million.
Profitability was affected by the rapid decline in volumes, higher material costs, warranty charges, unfavourable sales mix and volatile currency. About 20% of Cummins India’s exports are of gensets supplied for the power generation segment.
For CY09, Cummins Inc. has planned consolidated capital expenditure of $360-400 million. Cummins India has guided to $20 million in capex for FY10, about 5% of the parent’s consolidated capex.
Cummins India too in its 3QFY09 analyst call had guided to a fall in sales in 4QFY09, of nearly 20-30% q-o-q, and 15-20% y-o-y in FY10. The PBT margin is expected to drop 400bps y-o-y in FY10. Exports contributed ~48% of sales in 3QFY09.
We maintain a SELL rating on the stock.