CUMMINSINDNSEQ1 FY2022-23August 17, 2022

Cummins India Limited

6,955words
78turns
10analyst exchanges
2executives
Management on call
Ashwath Ram
MANAGING DIRECTOR, CUMMINS INDIA LIMITED
Ajay Patil
CHIEF FINANCIAL OFFICER, CUMMINS INDIA LIMITED
Key numbers — 40 extracted
Rs. 1,657 crore
ll. For the quarter ended June 30, 2022, with respect to the same quarter last year, our sales at Rs. 1,657 crores is higher by 42% compared to Rs. 1,167 crores recorded in the same quarter last year. Domestic
42%
30, 2022, with respect to the same quarter last year, our sales at Rs. 1,657 crores is higher by 42% compared to Rs. 1,167 crores recorded in the same quarter last year. Domestic sales at Rs. 1,172
Rs. 1,167 crore
respect to the same quarter last year, our sales at Rs. 1,657 crores is higher by 42% compared to Rs. 1,167 crores recorded in the same quarter last year. Domestic sales at Rs. 1,172 crores is higher by 36%. Exp
Rs. 1,172 crore
her by 42% compared to Rs. 1,167 crores recorded in the same quarter last year. Domestic sales at Rs. 1,172 crores is higher by 36%. Exports at Rs. 485 crores is higher by 58%. Profit before tax and exceptional
36%
67 crores recorded in the same quarter last year. Domestic sales at Rs. 1,172 crores is higher by 36%. Exports at Rs. 485 crores is higher by 58%. Profit before tax and exceptional items at Rs. 278 c
Rs. 485 crore
ed in the same quarter last year. Domestic sales at Rs. 1,172 crores is higher by 36%. Exports at Rs. 485 crores is higher by 58%. Profit before tax and exceptional items at Rs. 278 crores is higher by 63% com
58%
year. Domestic sales at Rs. 1,172 crores is higher by 36%. Exports at Rs. 485 crores is higher by 58%. Profit before tax and exceptional items at Rs. 278 crores is higher by 63% compared to Rs. 171
Rs. 278 crore
er by 36%. Exports at Rs. 485 crores is higher by 58%. Profit before tax and exceptional items at Rs. 278 crores is higher by 63% compared to Rs. 171 crores recorded in the same quarter last year. For the qu
63%
5 crores is higher by 58%. Profit before tax and exceptional items at Rs. 278 crores is higher by 63% compared to Rs. 171 crores recorded in the same quarter last year. For the quarter ended June 3
Rs. 171 crore
er by 58%. Profit before tax and exceptional items at Rs. 278 crores is higher by 63% compared to Rs. 171 crores recorded in the same quarter last year. For the quarter ended June 30, 2022, with respect to the
Rs. 1,657 crore
ast year. For the quarter ended June 30, 2022, with respect to the previous quarter, our sales at Rs. 1,657 crores are higher by 13% compared to Rs. 1,468 crores recorded in the last quarter. Domestic sales at R
13%
June 30, 2022, with respect to the previous quarter, our sales at Rs. 1,657 crores are higher by 13% compared to Rs. 1,468 crores recorded in the last quarter. Domestic sales at Rs. 1,172 cores are
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Guidance — 20 items
Ashwath Ram
qa
“So the combination of both those two actions, we should see us catching up in the medium term as far as profitability is concerned.”
Parikshit Kandpal
qa
“Sir, just the last question on, I think, 2 or 3 quarters back, you guys mentioned about running from hydrogen prototype, Leh or Ladakh will be running some bus, with the electrolyzer, small electrolyzer to take on for railways and since it is a small steel plant.”
Ashwath Ram
qa
“So we think we will be able to balance that out and help ourselves in improving the margin over the medium term.”
Ravi Swaminathan
qa
“Question number two, similarly, with respect to exports also, across different geographies, if you can give a commentary on growth, that will be really great, sir?”
Ashwath Ram
qa
“So as of today, we have pretty strong forecast and outlook for demand.”
Ashwath Ram
qa
“We think that, that segment is going to start bouncing back pretty strongly from the next quarter once the monsoons are over and people get back to full-scale building roads and infrastructure, we think construction is going to start to bounce back, but it has underperformed our own expectations of where that segment needs to be.”
Ashwath Ram
qa
“We expect that segment to keep growing multifold.”
Sandeep Tulsiyan
qa
“And subsequently, going forward in next year, we are likely to see CPCB norms getting implemented.”
Sandeep Tulsiyan
qa
“And going forward over the next 2 years, how these prices are likely to behave?”
Sandeep Tulsiyan
qa
“If you could just give that context will be very helpful.”
Risks & concerns — 9 flagged
We continue to remain focused in our efforts on cost control and pricing actions to mitigate impact of high commodity inflation.
— Ashwath Ram
We think we have enough of those increases in place, and we are starting to see commodities soften in certain areas.
— Ashwath Ram
The global supply chain is still quite broken and still continue to challenge.
— Ashwath Ram
So it is very difficult to predict the quarter-on-quarter impact of those segments doing well.
— Ashwath Ram
We do price hikes depending on the impact of commodities on different products.
— Ashwath Ram
So this year, of course, price hikes have been higher than they have been in the past because the impact of commodities is significantly more.
— Ashwath Ram
So even if you look at construction, it has not really recovered from the impact of COVID as of now.
— Ashwath Ram
So there are many specialist parts, it could be forged items, it could be some cast items, machined items, where suppliers have gone out of business or gotten out of this industry due to stress, et cetera.
— Ashwath Ram
I think both exports and domestic have been doing quite well, and it is very difficult for us to say which one is doing better.
— Ashwath Ram
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Q&A — 10 exchanges
Q
So my first question is on the gross margin. So in earlier calls, you have been highlighting that we have been taking calibrated price actions to mitigate the commodity inflation. So despite that, in this quarter, despite a strong revenue and the strongest probability of high exports in the mix, the mix was in the favor, still we have seen a 300 basis point drop in gross margin. So if you can just explain why did this happened? And whether the price hikes are now adequately covering the gross margins in the ensuing quarter to the extent of 35%, 36%?
Ashwath Ram
Yes. Good question, Parikshit. The biggest factors which are leading to a reduction in material margin are because of significant material cost increases due to commodities. And as you rightly said, we have put in price increases. We are putting multiple price increases into the system. The last tranche of those actually went into effect on 1st of July. There is a lagging effect, almost now a couple of quarters growth of lagging effects until the commodity increases, which went up very, very aggressively and the price increases, which happened in a more controlled and periodic manner until tho
Q
My first question is with respect to the growth outlook in the domestic market for the Powergen and the steel business, if you can touch upon that, what kind of volume growth can we see for both these segments over the next couple of years? And your commentary on certain large orders from data centers, et cetera, what are there in the pipeline? So basically, this is question number one. Question number two, similarly, with respect to exports also, across different geographies, if you can give a commentary on growth, that will be really great, sir?
Ashwath Ram
Sure. So we are seeing an unprecedented amount of demand, which is partially curtailed by the ability of our supply chain to meet the demand. So as of today, we have pretty strong forecast and outlook for demand. Most of the demand is coming in from infrastructure, residential, realty, rental, data centers, pharma and biotech. And that is for the domestic space. We continue to be constrained by all the challenges in supply chain, despite herculean efforts by our teams to keep doing better every quarter. The global supply chain is still quite broken and still continue to challenge. So from a de
Q
Sir, first question is pertaining to the industrial sector where you just shared a breakup. If you could also share an outlook to some of the larger pieces within this that is railways and construction followed by how do you see because the share of compressor segment has also gone down, was in mining, how it used to be historically? So if you could give a brief outlook on some of these individual items based on the new products that you launched?
Ashwath Ram
Sure. So I will start off with construction. See, construction, even though it has grown in this quarter, is underperforming, where we thought the market needs to be in the sense that there has been in the last 2 quarters, a slight downtick in the amount of roads, et cetera, being constructed all across the country. We think that, that segment is going to start bouncing back pretty strongly from the next quarter once the monsoons are over and people get back to full-scale building roads and infrastructure, we think construction is going to start to bounce back, but it has underperformed our ow
Q
Just two questions from my side. The first is from the CPCB norms perspective, when it becomes effective and considering there were the notification by the different governments on the ban of the kind of a DG. How do you see the picture evolving? Are there any more clarity on this? That is the first question. And second question is in terms of supply chain, you said that there are still globally supply chain are broken. But as that improves, what is the potential basically you see over next short to medium term?
Ashwath Ram
CPCB-4 Plus the draft has already been released, and the target is for the transition to happen in July 2023. All our interactions with the ministries in the government tells us that there is nothing to prevent that date from getting postponed at this time. So we are going whole hog with the assumption that this will happen that we will need to plan the transition for the last 2 quarters of this financial year, we are planning for the effects of some levels of pre-buy, et cetera, to happen. So we remain positive that the dates are not going to change from what has already been announced in the
Q
Just first on the domestic piece, and you did mention that the industrial business was slightly kind of hurt because of lower orders on the road side because the road construction being soft. But on the other hand, you also said that on the domestic Power Generation side, infra seems to be doing fairly good. So is it more of metros, airports? Just trying to understand what exactly is driving growth on the domestic Powergen and the infra side?
Ashwath Ram
Yes. So if you look at the big segment for Power Generation, certainly, from an infrastructure perspective, yes, it is those data centers, it is those, the infrastructure is related to telecom, the more towers are being built, 5G rollout is being planned, fiber is being rolled out to more people, residential realty is doing well. And so of course, there is a certain overlap between construction and Power Generation, but not as much. So in the infrastructure segment, the market segment, which we track like stone crushers et cetera, those are slightly down for Powergen because they have not been
Q
Sir, to understand a little more on the supply chain, is it a fair understanding that it is largely because of the electronics components are not available? And looking, I mean, demand scenario, how do we really plan to resolve this situation from a long, medium-term perspective?
Ashwath Ram
Biggest chunk is related to electronics, but it is not just, it used to be the base for core silicon. Now it has gone beyond the core silicon, it is sensors, it is wiring elements, it is other parts in the electrical subsystems that are the biggest bottlenecks. But it is not limited to that. There have been many small and medium suppliers around the world which have gone bankrupt during the COVID cycle. So there are many specialist parts, it could be forged items, it could be some cast items, machined items, where suppliers have gone out of business or gotten out of this industry due to stress
Q
A couple of questions on my side. So firstly, if you look at the export run rate that we have given in this quarter, it is about Rs. 485 crores. It is the highest since, I think, maybe 2016. So first point, (a) given the visibility that you have, do you believe that at least this run rate for the year can be managed on a quarterly basis at a quarterly run rate basis, one? Second, sir, we were looking to launch the CPCB-4 engines and trying to sort of export them to North America, where in the process are we in terms of the certifications, et cetera? And given that does the new alternative ener
Ashwath Ram
Right. So we do believe that demand from global markets is strong. We also believe that unless some unforeseen further events happen in the geopolitical space, et cetera, which can cause disruption, notwithstanding that, we think demand can be sustained for this whole year. As far as exporting and the stage at which CPCB-4 Plus projects are, there are dozens of products that are being developed for CPCB-4 Plus. So they are in the final stages of testing and getting approval in the testing cycle. And certainly, there are good products will then become leading emission products. And they will be
Q
I actually missed the segment-wise breakup. Can you provide that, please?
Ashwath Ram
Sure. So in the domestic market, Power Generation was Rs. 496 crores, industrial business was Rs. 237 crores, distribution was Rs. 416 crores and others was Rs. 23 crores. In the exports market, High Horsepower was Rs. 232 crores, Low Horsepower was Rs. 202 crores and others was Rs. 48 crores.
Q
I have two quick questions. First is, in the last 3 to 4 quarters of Rs. 4 billion-plus export run rate, is there any share of new mandate that you may have won? That is question number one. And second, between domestic and export revenues, have we seen a shrinkage in profitability on export revenue? Or any color on gap vis-a-vis how export and domestic profitability is for Cummins?
Ashwath Ram
I think both exports and domestic have been doing quite well, and it is very difficult for us to say which one is doing better. All I can say is Powergen has been on an up cycle for the last 3 or 4 quarters. And we continue to see strong demand there. And we do continue to prioritize exports because if those customers do not consistently receive products from India, they then look to other markets to start to supply products. So reliability, dependability and timely deliveries are absolutely key in the export market, whereas, of course, they are key in the domestic market as well, but we have
Q
So thank you, everyone, for your participation today. Cummins India certainly believes that demand in various end markets will sustain. Supply chain disruptions, though will take some time to recover, considering the complexity of the geopolitical situations, the high rate of inflation, likely impact on demand as Central Banks around the world take monetary policy measures to counter inflation. We continue to remain optimistic though cautiously about economic activities and growth to sustain in the short to medium term. We are well positioned, considering our on-ground manufacturing infrastruc
Management
Speaking time
Ashwath Ram
34
Moderator
12
Ravi Swaminathan
5
Sandeep Tulsiyan
5
Parikshit Kandpal
4
Rajesh Kothari
4
Ankur Sharma
4
Bharat Sheth
4
Jonas Bhutta
3
Amit Mahawar
2
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Opening remarks
Ashwath Ram
Thank you. Good morning, ladies and gentlemen. Thank you all for joining us on this call today. I am Ashwath Ram, Managing Director of Cummins India Limited. I have Ajay Patil, our CFO for Cummins India Limited with me. As we report first quarterly results for fiscal year 2022-23, we are happy to share strong quarterly results on the back of sustained demand from domestic and exports end markets. We continue to observe strong business activity which is corroborated by steady GST collections and other economic activity indicators. The revenue growth and profitability however, is moderated to some extent by high inflation, supply chain disruptions caused by geopolitical events and many other factors. Despite these challenges, Cummins India is effectively able to manage the demand due to its strong and globally integrated supply chains. We continue to remain focused in our efforts on cost control and pricing actions to mitigate impact of high commodity inflation. Now I would like to share
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