Nomura downgrades Cummins India to ‘reduce’

Foreign brokerage Nomura has downgraded Cummins India to ‘reduce’ from ‘neutral’ citing an expensive valuation. The brokerage has also cut FY20 and FY21 EPS estimates by 6 per cent and 1 per cent, respectively, on weaker than earlier estimated EBITDA margins. Cummins stock has rallied 9 per cent in the last two months despite not so impressive March quarter results, largely after the new government was re-elected, leading to infra-related optimism. The rally, according to Nomura has moved ahead of the fundamentals and resulting in a case for a significant correction. “We value Cummins at a reduced PE of 22.5x (vs 25x) due to weak outlook on FY21 estimated EPS to arrive at a target price of Rs 700, -10 per cent downside and downgrade to reduce from neutral,” said a note by Nomura.