The recovery of margins also hinges on the early voluntary retirement scheme announced for employees aged 45 and above, with 10 years or more experience. In other words, cost-cutting measures in the organisation should help improve margins, though the gains are not a result of increase in operational productivity.
Therefore, valuations aside, Cummins India
could well be a value trap for investors, considering how fundamentals stack up. Analysts at Prabhudas Lilladher say they remain cautious on the stock, considering weak financials so far in FY20, a deepening slowdown in the export markets, and delay in domestic recovery. Among listed genset (electricity generator) makers, Cummins India’s dependence on exports is the highest, at over 30 per cent of revenues. While these are near-to-medium term concerns, what may favour the company in two years is its preparedness to adopt new emission norms for diesel generators.
Likely to be effective from 2022, analysts at IIFL say Cummins India is ahead of the curve to cater to these products. “Given its access to the global portfolio, Cummins India has been ahead of peers with regard to preparedness on compliance with the new emission standards for diesel gensets in 2022. It not only provides opportunities to further consolidate the domestic market share, but also to open up export potential for electronic product lines,” the analysts note. For the stock to hold up and not suffer more correction, improvement in underlying demand and financials is critical.