Citi bearish on Cummins India

Citigroup has opened a negative catalyst watch on Cummins India. Citi believes there are downside risks to its estimates for the first quarter of FY20 in case exports are weaker than the 5 per cent year-on-year decline it has pencilled in. It is worth noting that given the relatively higher margin contribution of exports, weaker exports can hurt overall margins as well, said Citi. Further, resignation of managing director Sandeep Sinha could weigh on near-term stock performance, said Citi.

The brokerage had downgraded Cummins India to neutral after a weakerthan-expected performance in the March quarter on margin contraction due to export weakness. Export uncertainties are likely to persist through FY20, also reflected in management guidance of flattish to negative sales growth, said Citi. Margins will also get impacted as the share of exports dips, added Citi. However, the domestic business, in which the company enjoys a dominant market position and a high return on capital employed business, continues to remain strong, it added.