Release Date: May 30, 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) recorded the highest annual revenue and profit during the year ended March 31, 2024.
- Domestic sales increased by 38% year-over-year, indicating strong local demand.
- Profit before tax for Q4 FY24 was higher by 70% compared to the same quarter last year.
- The company expects double-digit growth over the fiscal year 2023-'24.
- Significant growth in the industrial domestic business, with sales 60% higher compared to last year.
Negative Points
- Exports decreased by 30% year-over-year, indicating challenges in international markets.
- Sales for Q4 FY24 were lower by 9% compared to the previous quarter.
- High horsepower exports were 17% lower compared to last year.
- LHP exports were 42% lower compared to last year.
- The company anticipates continued pressure on material margins due to rising commodity prices.
Q & A Highlights
Q: Congratulations on a great quarter and the year, sir. Sir, my first question is on this quarter. So we have seen exceptional margins, EBITDA margin is at 23.5%. So was there any one off during the quarter? Because if we see the numbers, other operating expenses seems to be at INR100 crores, which is like all-time low. So if you can highlight any key reason for this outperformance in margin?
A: Yeah. I think it's a combination of multiple things why the margins are better for this quarter. One is, we got a one-time true down benefit of a little over INR60 crores from management cross charges. Second is we have some advantages on rates and taxes. We also had some nifty benefits so the combined other expenses came in a lot lower. Like you said, it's a one-time gain that we had this year and this quarter. Similarly, we also saw that profit was better because mix was better. We were able to contain our costs reasonably well. We were able to hold on to some of the commodity gains even though commodities have started to inch up and we had some mixed advantages that were favorable to us.
Q: Sir, secondly on -- if I see that traditionally, we have seen the existing growth drivers for the company, right? So data centers, hospitality, real estate and -- put together. So if you see over the next two to three years, do you think emergence of any new demand drivers for our business given next six to seven years, we will have a big push on the clean energy theme. So allied to that do you think what could be potentially the new growth drivers? And based on that, do you think -- incrementally we have been guiding about 2x GDP growth. So do you think that number can get revised higher over the next two, three years?
A: First, I don't think the numbers can get revised to very much higher. Our GDP -- the aspirational GDP of our country is to grow between 6% to 8% for the next 8 to 10 years. So proportionately, our growth can be 12% to 16%. So that's a pretty broad and ambitious growth rate for a company when you compare it to the historicals of the company. So we would continue with that kind of guidance. As far as markets are concerned, we think that at least for the next five years or so, the existing infrastructure-linked investments will continue pretty strongly. So if India wants to become a $7 trillion economy, which means doubling from where we are currently, it has to be driven by investments in core infrastructure, in social schemes, which also requires infrastructure. And the combination of all of that requires Cummins' product to be used in those. So I don't see any new market segments emerging, but I think the existing strong market segments will continue to do well over a long period.
Q: Just the last question, sir, you did allude that you will grow maybe at 2%, 12% to 16% is a broad range. So that means even for FY25, despite taking price hikes on CPCB IV+ power gen and implementation from July 1. So you don't -- looks like you don't see any major volume impact of the same. So given the prices will go up for these and last quarter, I think the contribution was about 25% of the power gen sales from CPCB IV+. So if you give some more color on do you think the margins at current -- approximately 20%. So if the growth is sustained, there's no major volume declines, do you think that margins can improve? There's a case for margin improvement from here also?
A: So that's always been what we've been striving for if you heard me talk over the last four or five years, we are continuously working on improving the margin of the business, managing costs, and trying to get growth. So trying to not just get growth for the sake of growth, but to get profitable growth. So that will always be our endeavor. Of course, there will be more pressure as CPCB IV+ becomes a full stream and then everyone tries to do a market share grab. But we will stick to our principles of how we've operated in this market, and we think the opportunities are there for us to continue to grow at the 2x GDP level we are aspiring to grow at.
Q: Sir, thanks for taking my questions and congrats on a good set of numbers. First, with respect to the power gen business, I have two questions. One is what has been the volume growth that you had seen this year vis-Ã -vis last year? Just to get a sense on what is the volume growth and value growth mix that we had seen. And secondly, what is the share of data centers, was there any large orders which were there this quarter? Or do you expect anything -- any large orders coming in over the next 12 months?
A: So to first answer the volume question, we have seen overall volume has grown by roughly about 30% compared to last year. It's different by different nodes, et cetera. So it's very difficult to say exactly by which node much it's grown. But overall, I would say it's a pretty significant growth, a 30% year is I would consider one of the better years of growth. As far as the major segments in the market are concerned, they continue to remain the same. There hasn't been a very significant shift is those data centers continue to grow well, infrastructure-related growth and investments in power gen continue, as the commercial realty, as the residential realty, as the manufacturing. So across the board, we are seeing reasonably strong demand as far as power gen market segments are concerned.
Q: And there has been a sharp up-move in the industrial business revenue this time. 60% growth, yeah, there was a slight base effect which was there in the corresponding quarter last year. But even adjusted for that, the number would have been really strong. Which are the segments which are driving this growth, sir?
A: Biggest is the construction. Construction, which has been lagging considering that the country is spending so much money on infrastructure, construction was lagging quite a bit for the last few years, that has bounced back pretty significantly. The other segments all related to compressor, marine, all have started to bounce back pretty strongly, and that's what is leading to this level of growth in industrial business.
Q: And my final question is with respect to the distribution business, consistently, we have been growing at 25% growth in this particular segment. What is the mix which is coming from power gen and what is the mix which is coming from industrial? And what's driving this growth?
A: Yeah. So typically, it's very difficult for us to say how much is power gen and how much is industrial. But what I can tell you is that over the last three or four
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
