Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Cummins India Ltd (BOM:500480, Financial) reported a 4% increase in sales compared to the same quarter last year, reaching INR2,262 crore.
- Domestic sales grew by 12% year-over-year, indicating strong local demand.
- The industrial domestic business saw a significant 57% increase in sales over the previous year.
- The company maintained a high gross margin of 37.8%, the highest in five years.
- The distribution business experienced a 22% increase in sales over the previous year, contributing positively to overall performance.
Negative Points
- Export revenue declined by 22% year-over-year, indicating challenges in international markets.
- Profit before tax decreased by 21% compared to the previous quarter.
- Domestic power generation sales dropped by 8% year-over-year and 15% quarter-over-quarter.
- High horsepower export sales decreased by 17% year-over-year.
- The transition to CPCB-4 norms led to a depletion of CPCB-2 inventory, causing potential short-term disruptions.
Q & A Highlights
Highlights of Cummins India Ltd (BOM:500480) Q1 FY 2024-2025 Earnings Call
Q: Can you provide insights on what is driving the strength in the industrial segments?
A: The industrial segment saw robust performance across all areas, including construction, rail, mining, and marine. This is largely due to the ongoing infrastructure boom in India, which is expected to continue for the next few years. (Ashwath Ram, Managing Director)
Q: Is there any indication of market share gains in the industrial segment?
A: It is not apparent yet if there have been significant market share gains. However, the demand for our products remains strong. (Ashwath Ram, Managing Director)
Q: Can you share the breakup of domestic power generation sales?
A: Low horsepower was INR49 crore, mid-range was INR153 crore, heavy-duty was INR93 crore, and high horsepower was INR508 crore. Approximately 30%-40% of the sales in the quarter were with CPCB-4. (Ashwath Ram, Managing Director)
Q: What is the outlook for gross margins given the high levels recorded this quarter?
A: The high gross margins are due to a combination of pricing increases, favorable commodity prices, and cost reductions. However, these margins may face pressure as commodity prices rise and competitive pricing intensifies. (Ashwath Ram, Managing Director)
Q: How is the export market performing, and what are the trends in different geographies?
A: Exports grew this quarter, with significant recovery in the Middle East and Africa. Other regions like Europe remain flat. We maintain our guidance of growing at 2x the GDP, aiming for 13%-14% growth this year. (Ashwath Ram, Managing Director)
Q: What is the status of the GAIL hydrogen project?
A: The project is progressing well, with some portions already commissioned. The distribution business of Cummins India is handling the service and support for this project. (Ashwath Ram, Managing Director)
Q: Are there any supply chain issues that could impact deliveries?
A: While there are some spikes in certain products, overall, the supply chain is well-equipped to meet demand. Data centers, which contribute around 10% to our power generation business, are fully booked and capacity-constrained. (Ashwath Ram, Managing Director)
Q: What is the impact of the CPCB-4 transition on the market and inventory levels?
A: The transition has been smooth, with zero inventory of CPCB-2 products. Starting this quarter, only CPCB-4 products will be sold. The demand remains strong despite the price increases. (Ashwath Ram, Managing Director)
Q: How do you view the future growth of the distribution business?
A: The distribution business is growing well, driven by increased service, parts, and market penetration. We expect this growth to continue for at least a decade. (Ashwath Ram, Managing Director)
Q: What is the outlook for the industrial segment, particularly in construction, rail, and mining?
A: The construction segment is expected to continue booming due to infrastructure development. The rail segment is transitioning to electrification, and we see significant opportunities there. Mining will also continue to grow as the economy demands more resources. (Ashwath Ram, Managing Director)
Q: How do you see the competitive landscape affecting pricing and margins for CPCB-4 products?
A: While competition may lead to some price adjustments, we are confident in our product quality and competitive positioning. We expect to maintain our pricing structure and see CPCB-4 as a positive transition for our market position. (Ashwath Ram, Managing Director)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
