Global investment banking firm, Goldman Sachs, has maintained its “Neutral” rating for Cummins India Ltd, one of the country’s largest engine manufacturers. Goldman analyst, Nikhil Gupta, notes that Cummins’ recent earnings have been below expectations and the company’s performance has been beaten by earnings of other big industrials in the Indian market.
This comes despite an overall positive outlook for the Indian industrial sector, which Gupta says is “relatively robust.” Cummins India is known for its engines that are used in heavy-duty trucks, construction vehicles and energy equipment, and is a major player in the country’s diesel generator market.
Despite its leadership position in the Indian market, Goldman Sachs maintains a neutral outlook for the stock. Gupta says that earnings could continue to be pressured due to headwinds in the industrial sector, and that the stock’s valuation is already near its peak. The analyst has also revised the company’s target price downwards from INR 740 to INR 700.
In its recent earnings report, Cummins India reported a net profit of INR 452.75 crore ($71 million) in the quarter ended 31 March 2017, up from INR 442.32 crore ($69 million) in the previous quarter. However, the company’s earnings per share of INR 20.33 fell short of market expectations, which analysts attribute to a decline in exports.
The Indian engine manufacturer has also faced challenges from the implementation of the Goods and Services Tax (GST) introduced earlier this month. In a statement to the Press Trust of India, Cummins India Managing Director Sandeep Sinha said that the company expected a decline in demand of up to 25% during the transition phase.
Overall, Goldman Sachs remains cautious about Cummins India’s outlook, given the slowdown in the country’s industrial sector and the company’s weak earnings. However, it notes that any recovery in the sector could lead to upside in the stock.