Shares of Cummins India witnessed a notable decline of about 6% in intra-day trading on Friday, October 11. This downturn was primarily driven by a downgrade from global brokerage firm Goldman Sachs, which has adjusted its rating for the company’s stock to ‘sell.’ Furthermore, Goldman Sachs has lowered its target price for Cummins India to ₹2,900, suggesting a significant downside potential of more than 23% from the stock’s last closing price. This shift has raised concerns among investors regarding the future performance of Cummins India.
Factors Influencing the Downgrade
Goldman Sachs outlined three critical factors contributing to its grim outlook for Cummins India. First and foremost, the brokerage highlighted the rising adoption of Battery Energy Storage Systems (BESS) and other sustainable energy alternatives. As industries progressively transition towards eco-friendly energy solutions, the demand for diesel generators is projected to decrease significantly over the medium to long term. This ongoing trend presents a considerable threat to Cummins India, whose core business heavily relies on diesel-powered generators.
Macroeconomic Challenges
The second reason cited by Goldman Sachs pertains to a challenging macroeconomic environment that could adversely affect Cummins India’s export growth. Factors such as global economic uncertainty and fluctuating demand in international markets may restrict the company’s ability to expand its footprint beyond domestic borders. This aspect is particularly worrisome, considering Cummins India’s aspirations to grow in foreign markets.
Stricter Emission Norms
Lastly, Goldman Sachs pointed to the implications of increasingly stringent emission regulations being enforced globally. With governments implementing tougher standards to combat pollution and aid the transition to cleaner energy, Cummins India may encounter additional obstacles in sustaining its market share within the diesel generator segment. The confluence of these factors has led the brokerage to adopt a more cautious stance regarding the company’s stock, prompting investors to reassess their positions and consider the challenges that lie ahead for Cummins India.
Recent Stock Price Trends
The stock fell to its day’s low of ₹3,565.65, registering a decline of 5.7%. Following this drop, the stock is now 14.5% shy of its record high of ₹4,169.50, achieved in June 2024. Notably, it remains up 115% from its 52-week low of ₹1,658.65, which was recorded in November 2023.
Year-on-Year Performance
This multibagger stock has surged by 116% over the past year and has appreciated by 81.5% year-to-date, delivering positive returns in seven out of the ten months so far. However, it has lost around 6% in October alone after a modest gain of 1.6% in September. Prior to that, the stock experienced corrections, dropping roughly 3% in both August and July, while the first half of the year showed considerable growth.
Q1 Earnings Report
In its Q1 earnings call, management at Cummins India expressed concerns over sharply rising global metal prices, which pose challenges to maintaining gross margins. The company reported a standalone net profit of ₹419.8 crore for the quarter ending June 30, 2024, representing a 33% year-on-year increase from ₹315.7 crore in the previous year. Additionally, standalone revenue from operations increased by 4.3%, reaching ₹2,304.2 crore compared to ₹2,208.7 crore in the same quarter the year prior. Moreover, the company’s standalone EBITDA margin improved significantly to 20.3%, up from 15.4% year-on-year, indicating stronger operational efficiency.
Disclaimer: The views and recommendations expressed herein are those of individual analysts or brokerage firms and do not reflect the official stance of any organization. It is advisable for investors to consult certified experts before making any investment decisions.
