>CUMMINS INC: Buoyant demand boosts performance

Cummins Inc’s Q4CY11 revenue jumped 19% YoY driven by higher demand in truck, construction, power generation and oil & gas markets in North America. Strong growth is witnessed in the global mining markets. Margin surged 130bps to 14.1% on back of strong performance in energy segment. PAT grew a sharp 47% YoY due to robust operating performance. Based on the current forecast, Cummins Inc anticipates revenue to jump ~10% in 2012, with EBIT in the 14.5‐15.0% of sales range.


Strong revenue growth, margins improve
Cummins Inc posted strong revenue growth of 19% YoY in Q4CY11 driven by higher demand in truck, construction, power generation and oil & gas markets in North America. It also registered strong growth in global mining markets. All the segments viz., engine components distribution clocked ~20% revenue growth, barring power generation which posted muted revenue growth. The company stated that demand was weak in China’s construction market and India’s power generation market during the quarter. Margin surged 130bps to 14.1% due to strong performance of its energy segment (EBIT margin up 170bps YoY). However, power generation & distribution segment recorded a margin decline. Operating cash flows improved due to better working capital management and higher operating margin. PAT grew a sharp 47% YoY on back of strong operating performance.


Key takeaways for Cummins India
(1) Volumes in power generation business in the December quarter were subdued, which is likely to impact Cummins India’s revenue growth. However, volumes are expected to pick up incrementally owing to an overall pick up in infra spending. (2) For CY12, Cummins India’s power generation business is likely to grow at ~10% YoY driven by strong government spending on infrastructure, especially roads.