Cummins India posted below-expected Q4FY16 results (PAT -14% y-o-y to `1.6 billion) on account of a 30% y-o-y decline in exports as demand remained sluggish amid global volatility. Domestic sales however grew 13% y-o-y driven by industrial and distribution business units. Management has guided to domestic/exports sales growth of 8-12%/0% in FY17. We pare our FY17/FY18 estimates by 4%6% to build in lower Q4 exports. Maintain buy; March 2017 TP `1,000 (exit PE 30x).
The key highlight for Q4FY16 was the 30% y-o-y decline in exports, which in turn was seen across the US, West Asia, and Europe markets. Management attributed the same to global volatility in commodities, and the resultant forex volatility, particularly in Africa and Latin America. The product-wise breakup of FY16 exports was as follows- LHP 24%, mid-HP 29%, and HHP 36%. Management expects exports to post flat-to-negative y-o-y growth in FY17. While we are largely in sync with management estimates, we remain cautious of the current volatility which has historically compromised the guidance in terms of accuracy.
Domestic sales grew 13%/18% in Q4FY16/FY16, which was in turn driven by power generation and industrial segments. Management was more sanguine of the domestic prospects for FY17E compared to exports.
