Q1FY25 Concall Summary
Business Updates
Participants
Macquarie
HDFC Securities
PL Capital
LIC Mutual Fund
Axis Mutual Fund
Nomura
360 One Asset Management
Goldman Sachs
Birla Mutual Fund
Kotak Securities
QnA
- All segments of industrial business viz construction, mining, marine etc have done well during the quarter gone by and this is broadly correlated to infrastructure growth in the country which continues to do well
- There have been benefits of a better product mix with CPCB IV plus becoming a part of the product portfolio and with commodity prices easing off the gross margins have benefitted but this trend should not sustain and if commodity prices come up there could be a normalization of margins
- The export market seems to have bottomed out and that is why there was growth in exports in Q1 and the growth has come from Middle East and Africa while rest continues to remain flat
- Globally data centre contributes around 10% of the parent organization’s revenue and that is what is expected in the domestic market as well
- The domestic operations continue to aspire for growth of 12-14% and the parent entity guided lower because of global slowdowns and not looking at India market
- The channel inventory is zero and the inventory of CPCB II gensets is now over and the overall level of inventory within the system too is very low
- India was a power deficit market earlier, which has kept reducing gradually, but still the demand has continued to grow. As the country becomes affluent the non availability of power becomes a big deterrent as backup power becomes critical which is happening in India
- Construction is directly related to infrastructure where engines are supplied to all earth moving equipment’s and that is in a multi decade up cycle as it is needed in all aspects of infrastructure
- The railways business since it migrated from diesel to electric saw a business downturn but the company continues to work on the electrification side and there are orders from that segment now as well
- The channel inventory remains low and the order book continues to swell and now the expectation is that the demand is agnostic to the price hike that CPCB IV calls for
- From a 10 year window the growth opportunity looks good which will face challenges in short term due to product related transitions and that turbulence will cause short term challenges but overall situation looks better
- Historically the company has always been the weakest in the lower HP ranges because in the last two decades the lower HP segment has become a commoditized product and thus the company allowed competition to take a larger share of this segment
- CPCB IV Plus is a game changes because it forces the industry to turn towards a better technology product which is not a capability for every company and thus this transition should lead to a higher market share for Cummins
- The management feels the industry is at an inflection point and a high growth rate can sustain for many more years and if the economy grows to $10 trillion and more as envisaged the demand for power and power gen. equipment will be very high
