Cummins India Ltd:Annual Report 2023-24 Analysis

Cummins India Ltd: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History #

Cummins India Ltd. was established in 1962. It began as a joint venture between Cummins Inc. (USA) and Kirloskar Group (India).

Headquarters Location and Global Presence #

The headquarters of Cummins India Ltd. is located in Pune, Maharashtra, India. As a subsidiary of Cummins Inc., it benefits from a global presence spanning across numerous countries, with manufacturing, distribution, and service networks worldwide.

Company Vision and Mission #

While Cummins Inc. sets the global direction, Cummins India aligns with the overarching vision of “Innovating for a better world.” Their mission centers on making people’s lives better by powering a more prosperous world.

Key Milestones in Their Growth Journey #

• 1962: Incorporation of Cummins India Ltd.
• 1998: Cummins Inc. increased its stake.
• Significant expansion: Establishment of multiple manufacturing facilities and R&D centers across India.
• Diversification: Expansion into power generation, distribution, and related services.
• Adoption of BS VI (Bharat Stage VI) Emission Standards: Successfully transitioning product lines to meet stringent emission norms.

Stock Exchange Listing Details and Market Capitalization #

Cummins India Ltd. is listed on the National Stock Exchange of India (NSE) and the Bombay Stock Exchange (BSE) under the symbol CUMMINSIND. As of late 2023/early 2024, the market capitalization of the company is significant and subject to daily market fluctuations.

Recent Financial Performance Highlights #

Recent financial reports typically showcase key metrics like:

• Revenue Growth: Year-over-year revenue increases, often broken down by segment.
• Profitability: Net profit margins and earnings per share (EPS).
• Order Book: Analysis of order intake and backlog to gauge future performance.
• Debt Levels: Assessment of the company’s financial leverage and liquidity.

Management Team and Leadership Structure #

Cummins India is led by a board of directors and a senior management team. The leadership structure is based on functional areas, including manufacturing, engineering, finance, sales, and marketing.

Notable Awards or Recognitions #

Cummins India has received various awards for:

• Manufacturing Excellence
• Sustainability Practices
• Corporate Governance
• Innovation

Their Products #

Complete Product Portfolio with Categories #

Cummins India offers a comprehensive portfolio that includes:

• Engines: Diesel and natural gas engines for a wide range of applications.
• Power Generation: Generator sets, power systems, and related equipment.
• Filtration: Air, fuel, lube, and hydraulic filters.
• Turbo Technologies: Turbochargers and related components.
• Emission Solutions: Aftertreatment systems to reduce emissions.
• Distribution: Parts, service, and support for Cummins products.

Flagship or Signature Product Lines #

• High Horsepower Engines: Used in heavy-duty applications like mining, construction, and power generation.
• Generator Sets: Providing reliable power for commercial, industrial, and residential use.

Key Technological Innovations or Patents #

• Advanced Combustion Technologies: Improving fuel efficiency and reducing emissions.
• Digital Solutions: Telematics and remote monitoring systems for engine management.
• Alternative Fuel Technologies: Development of engines that run on natural gas and other alternative fuels.

Manufacturing Facilities and Production Capacity #

Cummins India has multiple manufacturing facilities across India.

Quality Certifications and Standards #

Cummins India adheres to international quality standards like ISO 9001, ISO 14001, and OHSAS 18001.

Unique Selling Propositions or Technological Advantages #

• Reliability and Durability: Cummins engines are known for their robust design and long lifespan.
• Fuel Efficiency: Continuously striving to improve fuel economy in its engines.
• Emission Compliance: Meeting or exceeding stringent emission regulations worldwide.
• Global Service Network: Extensive service and support network for its products.

Recent Product Launches or R&D Initiatives #

Recent activities may include:

• Launch of BS VI compliant engines.
• Development of hybrid and electric power solutions.
• Investment in R&D for alternative fuel technologies.

Primary Customers #

Target Industries and Sectors #

Cummins India serves a diverse range of industries, including:

• Automotive
• Power Generation
• Construction
• Mining
• Oil and Gas
• Marine
• Agriculture

Geographic Markets (Domestic vs. International) #

Cummins India primarily serves the domestic Indian market, but also exports its products to other countries.

Major Client Segments #

• Original Equipment Manufacturers (OEMs): Supplying engines and components to vehicle and equipment manufacturers.
• Industrial Customers: Providing power generation solutions for factories, data centers, and other industrial facilities.
• Government Agencies: Supplying engines and power systems for infrastructure projects.

Distribution Network and Sales Channels #

Cummins India utilizes a multi-channel distribution network:

• Direct Sales: Sales to large OEMs and key accounts.
• Authorized Dealers: Network of dealers across India and other countries.
• Service Centers: Providing service and support for Cummins products.

Major Competitors #

Direct Competitors in India and Globally #

• Caterpillar Inc.
• Volvo Penta
• MTU Friedrichshafen GmbH (Rolls-Royce Power Systems)
• Mahindra & Mahindra Ltd.
• Ashok Leyland

Competitive Advantages and Disadvantages #

Advantages:

• Strong brand reputation and global presence.
• Wide product portfolio and technological expertise.
• Extensive service network.

Disadvantages:

• Intense competition in the engine and power generation markets.
• Dependence on global economic conditions and commodity prices.

How They Differentiate from Competitors #

• Focus on Innovation: Continuously developing new technologies to improve performance and reduce emissions.
• Customer Service: Providing superior service and support to its customers.
• Sustainability: Commitment to environmentally friendly products and practices.

Industry Challenges and Opportunities #

Challenges:

• Fluctuations in commodity prices and raw material costs.
• Increasing competition from domestic and international players.
• Stricter environmental regulations.

Opportunities:

• Growth in infrastructure development and industrialization.
• Increasing demand for power generation and backup power solutions.
• Adoption of cleaner and more efficient technologies.

Market Positioning Strategy #

Cummins India positions itself as a leading provider of power solutions for a wide range of industries. They focus on providing reliable, durable, and fuel-efficient products supported by a strong service network.

Future Outlook #

Expansion Plans or Growth Strategy #

Cummins India is likely to focus on:

• Expanding its product portfolio to include alternative fuel technologies.
• Strengthening its presence in emerging markets.
• Investing in R&D to develop new and innovative products.

Upcoming Products or Innovations #

• Hybrid and electric power systems.
• Engines that run on natural gas, biogas, and other alternative fuels.
• Advanced digital solutions for engine management and remote monitoring.

Sustainability Initiatives or ESG Commitments #

Cummins India is committed to sustainability and ESG principles, including:

• Reducing emissions from its products and operations.
• Conserving resources and minimizing waste.
• Promoting diversity and inclusion in its workforce.
• Engaging with local communities.

Industry Trends Affecting Their Business #

• Shift towards cleaner and more efficient technologies.
• Increasing demand for power generation and backup power solutions.
• Growth in digitalization and connectivity.
• Focus on sustainability and ESG principles.

Long-Term Vision and Strategic Goals #

Cummins India’s long-term vision is to be a leading provider of power solutions for a more prosperous world. Their strategic goals include:

• Growing its revenue and profitability.
• Expanding its product portfolio and market share.
• Developing new and innovative technologies.
• Strengthening its customer relationships.
• Creating a sustainable and responsible business.

Comprehensive Performance Overview #

3-Year Trend Analysis of Key Financial Metrics (Standalone) #

• Revenue from Operations: Increased from ₹7,744.43 crore (FY2022-23) to ₹8,958.60 crore (FY2023-24), a 16% growth.
• Profit After Tax: Increased from ₹1,129.82 crore (FY2022-23) to ₹1,660.62 crore (FY2023-24), showing 47% growth.
• Operating Profit Margin: Increased to 28.8%(standalone), during FY 2023-2024, as compared to 22.2% during FY 2022-23.
• Net Profit Margin: Increased to 18.56% (FY2023-24) from 14.77% (FY2022-23).
• Return on Net Worth: Increased to 28.83%(standalone), during FY 2023-2024, as compared to 22.39%, during FY 2022-23.
• Debt Equity Ratio: Decreased from 0.07 (FY2022-23) to 0.02 (FY2023-24).
• Inventory Turnover: Slightly decreased from 6.48 during FY 2022-23 to 6.33 during FY 2023-24.
• Debtor Turnover: Decreased from 5.45 (FY2022-23) to 4.88 (FY2023-24).
• Foreign Exchange Earnings: Decreased from ₹2,276.87 crore (FY2022-23) to ₹1,810.90 crore (FY2023-24).
• Research & Development Expenditure: Decreased from 0.35% of total sales turnover (FY2022-23) to 0.11% (FY2023-24).

Business Segment Performance #

• Power Generation: CPCBIV+ compliant products launched across the range up to 800kW. Strong business activity and economic growth, especially in Datacentres, Real estate, Manufacturing, and Infrastructure sectors.
• Industrial: Growth in railways due to track electrification driving demand. Expansion into hotel load converters for rail. Coal production increases, benefitting the mining equipment segment.
• Distribution: Revenue growth driven by increased demand. Implementation for use of emission control devices, and launch of new service package.
• Exports: Moderation in demand from Europe and the Middle East.

Major Strategic Initiatives and Their Progress #

• New Product Development: Launch of CPCBIV+ products, development of Marine engine products, and exploration of alternative fuels.
• Operational Excellence: Cost optimization projects and Industry 4.0 strategy implementation to enhance operating efficiencies.
• Supply Chain Resilience: Enhanced planning systems and structured risk mitigation for high-risk suppliers.
• Material Cost Optimization: Focussed on driving down material costs for products.
• CSR Activities: Investment in projects focusing on Higher Education, Energy and Environment, and Equality of Opportunity.
• Sustainability: The launching of DATUM.
• Aftermarket: “Mitwa Mechanics Loyalty Program” boosting the sales.

Risk Landscape Changes #

• Increased Competition: Intensifying competition in the Powergen segment with domestic and international players.
• Supply Chain: Risk of cost escalation and supply constraints due to supply chain disruptions.
• Exports: Volatility in demand due to economic slowdown in key markets and geopolitical conflicts.
• Railways: Rail electrification work is expected to soften demand for DETC.

ESG Initiatives and Metrics #

• Environmental: Onsite solar installations generating 6,502,276 kWh of electricity. Other energy conservation initiatives resulting in savings of lakh units of electricity.
• Social: Focus on Diversity, Equity, and Inclusion (DE&I) with a female representation of 31%. Employee Resource Groups (ERGs) promoting inclusion.
• Governance: Compliance with the Code of Conduct and Cummins Code of Business Conduct, Vigil Mechanism Policy, and Internal Committee under the Sexual Harassment of Women at Workplace Act, 2013.

Management Outlook #

• Focus on enhancing current products and developing value-added offerings. Positioned as a pioneer in producing engines with cleaner technology and investing in offering locally built products.
• Power Generation: Positive outlook with continued focus on environmental norms and alternate energy power back-up solutions.
• Industrial: Investment in local products to support ‘Make in India’. Expansion in marine segment and continued focus on the construction segment.
• Distribution: Expansion of emission-controlling product portfolio and focus on the On-highway segment.
• Exports: Focus on increasing product exports and improving engagement with customers and consultants.

Detailed Analysis #

Financial Analysis: Balance Sheet Review #

2-Year Comparative Analysis (Consolidated Financials) #

(INR Crore)

Significant Changes in Major Line Items (>10% YoY) #

• Capital Work-in-Progress: Increased by 129.23%, indicating substantial ongoing investment in fixed assets.
• Intangible Assets: Increased by 243.07%, indicating significant investment in intangible assets like software.
• Investments (Non-current): An increase signifies increased investment activity.
• Income Tax Assets (Net): Increased by 62.79% reflecting higher advance tax payments or tax receivables.
• Trade Receivables: Increased by 30.57%, potentially indicating higher sales or longer collection periods.
• Other Bank Balances: Increased by 22.58%, reflecting higher amounts held in bank accounts other than cash and cash equivalents.
• Other Current Assets: Increased by 46.22%.
• Other Non-Current Financial Liabilities: Increased by 50.23% .
• Other Non-Current Liabilities: Increased by 265.44%.
• Borrowings: Decreased by 71.43%, reflecting reduced reliance on debt financing.
• Trade Payables (Others): Increased by 23.82%.
• Other Current Financial Liabilities: Increased by 46.14%
• Other Current Liabilities: Increased by 56.96%.

Working Capital Trends #

• Current Ratio: Increased from 2.70 in FY23 to 2.89 in FY24.
• Increase in Current Assets: Driven primarily by increase in Trade Receivables and Other Bank Balances.
• Increase in Current Liabilities: Notable increase primarily due to increases in Other Current Financial Liabilities and Other Current Liabilities.

Asset Quality Metrics #

• Impairment Loss Allowance on Trade Receivables: Decreased, indicating a slight improvement or write-back in the provision for doubtful debts.

Debt Structure and Maturity Profile #

• Borrowings: Decreased significantly, all of which are short-term (working capital loans).
• Lease Liabilities: Increased slightly.

Off-Balance Sheet Items #

• Contingent Liabilities: Increased, mainly related to various tax matters.
• Capital Commitments: ₹143.65 crore as on March 31, 2024.

Operating Performance #

Revenue Breakdown #

Segment/Geography Growth Rates: #

• Power Generation: Strong growth in FY 2023-24, driven by Datacenters, Real Estate, Manufacturing, and Infrastructure. CPCBIV+ product launches contributed.
• Industrial: Growth in Railways due to electrification and hotel load converters. Mining benefited from record coal production. Marine segment had record sales. Defence and Construction sectors offer opportunities.
• Distribution: Benefited from CAQM guidelines mandating Emission Control Devices (ECDs) on gensets. New On-highway product ranges launched. City Gas Distribution (CGD) expansion is expected to boost demand.
• Exports: Decline in FY 2023-24 due to decreased demand in Europe, the Middle East, and Asia Pacific. Revenue totaled ₹1,810.90 Crores in FY 2023-24 (standalone), down from ₹2,276.87 Crores in FY 2022-23.

Geographical Breakdown: #

Cummins India Standalone: #

• FY 2023-24 Revenue: ₹8,958.60 Crores
• FY 2022-23 Revenue: ₹7,744.43 Crores

Cummins India Consolidated: #

• FY 2023-24 Revenue: ₹9,000.20 Crores
• FY 2022-23 Revenue: ₹7,772.09 Crores

Cost Structure Analysis #

• Cost of materials consumed is the largest expense: 54.13% of FY 2023-24 standalone revenue and 53.48% of consolidated revenue.
• Other major components: Purchases of traded goods, Employee benefit expenses, and Other expenses.

Margin Analysis #

Standalone Operating Profit Margin: #

• Increased to 28.8% in FY 2023-24 from 22.2% in FY 2022-23, driven by higher revenue and cost efficiencies.

Standalone Net Profit Margin: #

• Improved to 18.56% in FY 2023-24 from 14.77% in FY 2022-23.

Non-Recurring Items #

• Exceptional Items: ₹ (1.70) Crores in FY 2023-24 related to voluntary retirement and separation programs, and ₹ (14.30) Crores in FY 2022-23 related to a Voluntary Retirement Scheme.

EPS Analysis #

Basic and Diluted EPS (Standalone): #

• Increased to ₹59.91 in FY 2023-24 from ₹40.76 in FY 2022-23.

Basic and Diluted EPS (Consolidated): #

• Increased to ₹62.07 from ₹44.31 in FY 2023-24.

Quarterly Trends #

• Quarterly results are not provided in this report. Transcripts of quarterly conference calls and presentations to shareholders are available on the website.

Cash Flow and Liquidity Analysis #

OCF, ICF, FCF Components (Consolidated) #

• OCF: Increased to ₹1,285.34 crore in FY 2023-24 from ₹819.66 crore in FY 2022-23.
• ICF: Net cash used in investing activities was ₹(268.23) crore in FY 2023-24, compared to a net cash from investing activity of 69.14 cr in FY2022-23.
• Sale/(Purchase) of short-term investments led to the outflow of funds.
• FCF: Can be inferred to have increased given the higher OCF, although offset by high Capex.

Working Capital Management Efficiency #

• The documents presented a negative working capital cycle.

Dividend and Share Buyback Trends #

• Dividends paid increased to ₹859.32 crore in FY 2023-24 from ₹623.70 crore in FY 2022-23.

Debt Service Coverage #

• Interest Coverage Ratio improved to 79.09 in FY 2023-24 from 74.38 in FY 2022-23.

Liquidity Position #

• Current Ratio improved to 2.90 in FY 2023-24 from 2.70 in FY 2022-23.
• Cash and cash equivalents decreased to ₹299.89 crore from ₹396.69 crore.

Operational Metrics #

Key Performance Indicators #

Profitability Ratios (3-Year Trends) #

Return on Equity (ROE) #

• Consolidated: 2023-24: 27.84%, 2022-23: 22.79%, 2021-22 not directly available, an increasing trend.

Return on Assets (ROA) #

• Consolidated: 2023-24: 19%, 2022-23: 16%, Not available for FY 2021-22, increase between FY23 and FY24.

Margins #

Operating Profit Margin #

• Standalone: 2023-24: 28.8%, 2022-23: 22.2%, an increase of 6.6 percentage points.

Net Profit Margin #

• Standalone: 2023-24: 18.56%, 2022-23: 14.77%, an increase of 3.79 percentage points.

Liquidity Metrics #

Current Ratio #

• Standalone: 2023-24: 2.90, 2022-23: 2.70. Consistently above the generally accepted healthy threshold.

Efficiency Ratios #

Inventory Turnover #

• Standalone: 2023-24: 6.33, 2022-23: 6.48, slight decrease in FY24.

Receivables Turnover #

• Standalone: 2023-24: 4.88, 2022-23: 5.45, decreased in FY24.

Leverage Metrics #

Debt/Equity Ratio #

• Standalone: 2023-24: 0.02, 2022-23: 0.07. Decrease reflects lower reliance on debt financing.

Interest Coverage Ratio #

• Standalone: 2023-24: 79.09, 2022-23: 74.38. An increase indicates improved ability to cover interest expenses.

Working Capital Ratios #

Debtor Days #

• FY24: 75, FY23: 67

Creditor Days #

• FY24: 73, FY23: 67

Comparison with Industry Averages #

The document lacks specific industry benchmarks for direct comparison. Profitability ratios improved in both fiscal years, while inventory and receivables turnover slightly decreased. Leverage is very low, with strong interest coverage. These metrics need comparison with comparable companies in the engines and generator sets industry, but such information is not provided.

Cummins India Limited: FY2023-24 Segment Performance Analysis #

Revenue and Profitability #

• CIL’s consolidated revenue from operations for FY2023-24 was ₹9,000.20 Crores, a 16% increase from FY2022-23’s ₹7,772.09 Crores.
• Consolidated profit after tax for FY2023-24 rose to ₹1,720.58 Crores, reflecting 40% growth compared to ₹1,228.15 crores of FY 2022-23. Standalone profit margin improved.
• CIL sold 5,851 generator sets during FY23-24 in the Power Generation Segment.
• The Distribution Business Unit (DBU) segment expanded its product line, entered new markets and recorded sales growth during FY 2023-24.
• Exports revenue declined during the year, due to lower demand from Europe, the Middle East, and the Asia Pacific.

Market Share and Competitive Position #

• Power Generation: CIL has launched new products to meet new emission norms.
• Industrial - Construction: CIL is a leading engine supplier in this segment and is a key partner with OEMs.
• Distribution: CIL is strengthening its position.
• Railways: CIL secured orders as an approved source for Diesel Electric Tower Cars (DETCs).
• Exports: CIL saw moderation in demand from Europe and the Middle East due to economic slowdown and geopolitical issues. There is strong competitive activity in PowerGen.

Key Products/Services Performance #

• Power Generation: CPCBIV+ compliant products were launched and over 2000 units were installed and commissioned. 500+ HHP products were sold in FY 2023-24.
• Industrial:
  • Railways: Supply of complete DETC propulsion packages, CPCB IV+ compliant diesel alternator sets and Hotel Load Convertor (HLC) is ongoing.
  • Marine: Delivered the largest genset of 1.5 MW for INS Vikramaditya. Delivered 2.3 MW propulsion engines to L&T for multipurpose vessels of Indian Navy.
  • Defence: Production ramp-up of key applications of engines 400HP.
  • Construction: Completed certification of 4SB4.5 and 4SB6.7 to address CEV BS V.
• Distribution: Launched Ashwasan IV+; an extended warranty service package for CPCBIV+ gensets. Launched brake linings, clutches, Crankcase Ventilation Manager and Fuel Quality checking kits for On-highway segment. Strong market pull for Diesel Exhaust Fluid (DEF) and Intermediate Bulk Container (IBC) was noticed.
• Exports: Introduced 38L electronic engine to cater to North America and Central America markets.

Geographic Distribution and Market Penetration #

• Domestic: Strong growth in India, driven by demand in datacenters, real estate, manufacturing, and infrastructure.
• Exports: CIL is focusing on increasing exports of it’s products and is strongly positioned in the marketplace across key geographies, specifically focusing on segments like telecom, rental, healthcare, manufacturing, and marine. The GOEMs added 12 additional sales dealers across various geographies.

Operational Efficiency #

• Material cost Optimization: Focused was maintained on driving down material cost.
• Improved Supply Chain Resilience and Accuracy: Planning systems were enhanced, improving forecast accuracy and capacity planning.
• Operations Centre of Excellence: Megasite set high standards for supply chain.

Growth Initiatives and Challenges #

• Growth Initiatives:
  • Power Generation: Focus on enhancing current products (especially HHP range) and developing value-added offerings.
  • Industrial: Offer locally built products.
  • Distribution: Expanding emission-controlling product portfolio; establishing channels in key regions.
  • Exports: Introduced low kVA Gensets for unregulated markets. Low kVA emissionized products were released for specific markets.
• Challenges:
  • Power Generation: Intensifying competition and pricing pressure.
  • Industrial: Potential softening of DETC demand (Railways) due to electrification targets.
  • Exports: Volatility in demand, economic slowdown in key markets, supply chain disruptions, and strong competition.

Sustainability #

• India added 18 GW of renewable energy capacity in F< 2023-24.

Risk Assessment: Segment-Wise Financial Analysis #

Power Generation Segment #

Strategic Risks #

• Severity: High. Emission norms (CPCBIV+) require product adaptation.
• Likelihood: High. Regulatory changes are definite.
• Trend: Increasing. Emission norms are becoming stricter.
• Mitigation Strategies: Launch CPCBIV+ compliant products; develop technology for products !800kW.
• Control Effectiveness: Partially effective. Market adoption and competition are factors.
• Potential Financial Impact: Negative. Increased competition and pricing pressure impact profit margin.

Operational Risks #

• Severity: Medium. Supply chain disruptions and raw material shortages impact production.
• Likelihood: Medium. Global supply chain issues persist.
• Trend: Stable. Actively managed.
• Mitigation Strategies: Dual sourcing, adjusted payment terms, price revisions, supplier agreements, and inventory building.
• Control Effectiveness: Partially effective. External factors are influential.
• Potential Financial Impact: Cost escalation and supply constraints.

Financial Risks #

• Severity: High.
• Likelihood: Likely, related to intensify price pressure.
• Trend: Increasing.
• Mitigation Strategies: Cost reduction programs (ACE V, AMaZE, ASCENT).
• Control Effectiveness: Partially Effective.

Compliance/Regulatory Risks #

• Severity: High. Non-compliance with emission norms leads to penalties.
• Likelihood: Low. Strong compliance record.
• Trend: Stable. Continuous monitoring required.
• Mitigation Strategies: Product development for new emission norms, continuous monitoring of legal compliance.
• Control Effectiveness: Effective.

Emerging Risks #

• Severity: Medium. Alternate energy sources entering the power generation landscape.
• Likelihood: Medium. Technology is developing.
• Trend: Increasing. Adoption of alternate energy is growing.
• Mitigation Strategies: Exploring alternate fuel technologies and hydrogen fuel cell.
• Control Effectiveness: Early stages.

Industrial Segment #

Strategic Risks #

• Severity: Medium. Dependency on government infrastructure projects and specific sectors (railways, mining).
• Likelihood: Medium. Policy changes and project delays impact demand.
• Trend: Mixed. Growth in some sectors (mining), potential softening in others (railways).
• Mitigation Strategies: Diversification into new product ranges (Hotel Load Convertor), partnerships with OEMs.
• Control Effectiveness: Partially effective. Dependent on external factors.
• Potential Financial Impact: Delay in notification of CEMM norms delays adoption, impacts financials.

Operational Risks #

• Severity: Medium. Timely allocation of coal blocks to private players is critical.
• Likelihood: Medium. Depends on government policy and execution.
• Trend: Uncertain.
• Mitigation Strategies: Not directly addressed.
• Control Effectiveness: Not applicable.

Financial Risks #

• Severity: Medium.
• Likelihood: Medium.
• Trend: Stable.

Compliance/Regulatory Risks #

• Severity: High, related to emission regulations in construction segment.
• Likelihood: Medium.
• Trend: Increasing
• Mitigation Strategies: Product readiness for CEV BS V emission norms.
• Control Effectiveness: Effective, but dependent on regulatory timelines.
• Potential Financial Impact: Delay in CEMM norms delays adoption of clean diesel technology.

Emerging Risks #

• Severity: Medium. Indian Railway evaluating hydrogen fuel cells solutions.
• Likelihood: Medium.
• Trend: Increasing.
• Mitigation Strategies: Exploring partnership with Indian Railways.
• Control Effectiveness: Early stages.

Distribution Segment #

Strategic Risks #

• Severity: Medium. Reliance on regulatory changes (CAQM mandates).
• Likelihood: High. Regulations are in place.
• Trend: Stable.
• Mitigation Strategies: Launch of RECDs and DF Kits.
• Control Effectiveness: Effective.
• Potential financial impact: Expansion of City Gas Distribution (CGD) will increase demand and usage for gas compressor engines and parts.

Operational Risks #

• Severity: Medium. Competition in the LHP and MHP segments is increasing.
• Likelihood: High. Competitive market.
• Trend: Increasing.
• Mitigation Strategies: New product launches (Ashwasan IV+), partnerships (Repos Energy), enhanced customer support (Command Centre).
• Control Effectiveness: Partially effective.
• Potential Financial Impact: Eroding margins, limits the scope for participation.

Financial Risks #

• Severity: Medium.
• Likelihood: Medium.
• Trend: Increasing.
• Mitigation Strategies: Contract renewals (Coal India), loyalty programs.
• Control Effectiveness: Partially effective.

Compliance/Regulatory Risks #

• Severity: Medium, related to emission control device mandates.
• Likelihood: High.
• Trend: Stable.
• Mitigation Strategies: RECD development and pilot installations.
• Control Effectiveness: Effective, market penetration needed.
• Potential Financial Impact: CAQM guidelines for use of power gensets.

Exports Segment #

Strategic Risks #

• Severity: High. Volatility in demand due to economic slowdown in key markets.
• Likelihood: High. Global economic uncertainty.
• Trend: Increasing.
• Mitigation Strategies: Focus on unregulated markets, channel synergy.
• Control Effectiveness: Partially effective. Dependent on global economic conditions.
• Potential Financial Impact: Geopolitical conflicts, and supply chain disruptions, has caused decline in Exports revenue.

Operational Risks #

• Severity: Medium. Competition from global OEMs and genset assemblers.
• Likelihood: High. Competitive market.
• Trend: Increasing.
• Mitigation Strategies: Product improvements, leveraging channel synergy.
• Control Effectiveness: Partially effective.

Financial Risks #

• Severity: Medium. Foreign currency exchange rate risks.
• Likelihood: High. Inherent to international business.
• Trend: Stable.
• Mitigation Strategies: Hedging to the extent considered necessary, forward contracts.
• Control Effectiveness: Effective, based on past performance as a net foreign exchange earner.

Compliance/Regulatory Risks #

• Severity: Medium. Compliance with varying emission requirements in different export markets.
• Likelihood: Medium.
• Trend: Stable.
• Mitigation Strategies: Developing ‘fit-for-market’ solutions.
• Control Effectiveness: Ongoing.

Strategic and Management Analysis of Cummins India Limited #

Long-Term Strategic Goals and Progress #

• Power Generation: Enhance current products, particularly in the high horsepower range, and develop value-added offerings. Progress is evident in the launch of CPCBIV+ compliant products and the development of technology for stricter emission norms. Developing cleaner technology.
• Industrial: Progressing toward local manufacturing in India. Supplying components to Indian Railways and securing orders from defense OEMs.
• Distribution: Expanding the emission-controlling product portfolio to new segments and applications and strengthening position in the on-highway segment. Multiple product and service launches.
• Exports: Growth through product and process improvements and channel synergies. Increased product exports and is positioned strongly in the marketplace.

Competitive Advantages and Market Positioning #

• Power Generation: Holds a strong position, delivering 6,700 MW of power in FY2023-24. Maintained cost leadership in the domestic market.
• Industrial: Market leader in the excavator segment. Strong partnerships with OEMs.
• Distribution: DBU achieved Net Promoter Score (NPS) of 90%.
• Exports: Introduced low kVA Gensets for unregulated markets.

Innovation Initiatives and R&D Effectiveness #

• Power Generation: Developing technology for products that comply with new emission standards.
• Industrial: Focused on local product development for export emission requirements, and technological innovation in alternate fuels, fuel cells, power electronics, hybrid engines, and recycling. Certification of 4SB4.5 and 4SB6.7 for CEV BS V, ahead of product launch.
• Distribution: Launched Ashwasan IV+ extended warranty for CPCBIV+ gensets. Collaboration with Repos Energy to launch loT-enabled fuel storage device, DATUM.
• Overall: R&D spend was 0.11% of total sales turnover in FY2023-24.

Management’s Track Record in Execution #

• Power Generation: Successful installation and commissioning of 2000+ units of CPCBIV+ gensets across India.
• Industrial: Successful delivery of the largest genset of 1.5 MW for INS Vikramaditya of Indian Navy.
• Distribution: Successful sales of DF .its and RECD in the year. Successful contract with Coal India for part supplies.

Capital Allocation Strategy #

• Power Generation: Investment in enhancing current products, particularly in the high horsepower range.
• Industrial: Investment to offer locally built products.
• Overall: Capital expenditure was made towards investment in a test cell infrastructure and Hotel Load Convertor for Rail Application. Investment in technologies to enhance operating efficiencies, with a focus on operational excellence. Investment in release of Low kVA emissionized products for specific markets globally.

Organizational Changes and their Impact #

• Overall: At Cummins Megasite, Phaltan, the company is actively working on implementing a broad plan to ensure retention & engagement of employees.

ESG Framework at Cummins India #

Environmental Metrics and Targets #

• Generated 6,502,276 kWh of electricity from onsite solar installations.
• Achieved savings of 462,000 units of electricity through various initiatives.
• CPG Phaltan plant conserved around 78,500 kWh units by replacing AHUs and achieved an additional energy saving of 45,000 kWh units annually by changing shop floor lamps.
• Registered office saved around 35,100 kWh by replacing tube lights with LED.
• Goal to reduce absolute greenhouse gas (GHG) emissions from facilities and operations by 50% by 2030.
• Aim for 25% less waste in facilities and operations as a percentage of revenue by 2030.
• Target to reduce absolute water consumption in facilities and operations by 30%.

Social Responsibility Programs #

• Cummins India Foundation (CIF) focuses on Higher Education, Energy and Environment, and Equality of Opportunity.
• ‘Cummins Scholarship: Nurturing Brilliance’ supported 229 students in FY 2023-24.
• Technical Education for Communities (TEC) trained 544 students in FY 2023-24.
• Cummins College of Engineering for Women (CCEW) received support benefiting more than 750 girls.
• ‘Zero Waste Slum Project’ impacted more than 4,000 residents.
• ‘Wings’ and ‘India Pride’ ERGs focus on Persons with Disabilities and LGBTQ+ inclusivity, respectively.
• Rural Development programs impacted over 38,000 lives in 17 villages.
• ‘Monsoon Resilient Maharashtra’ project impacted over 59,970 lives, with construction of 247 gabions and planting 7,910 trees, among other projects.
• ‘Cleaner Air Better Life’ (CABL) initiative expanded to 216 villages.
• Supports projects across education, rural development, water management and clean technology.

Governance Structure and Effectiveness #

• The Board of Directors comprises 9 members, with a mix of Promoter, Non-Executive, and Independent Directors, including women representation.
• Board Committees include Audit and Compliance, Stakeholders Relationship, Nomination and Remuneration, Corporate Social Responsibility, and Risk Management.
• In compliance with applicable Secretarial Standards.

Sustainability Investments and ROI #

• Invested in a 121 kWp solar power plant at the CPG plant, with annual expected savings of around 140400 kWh units.
• Spent on CSR initiatives totaling 163.351 Crores for FY 2023-24, surpassing legal requirements.
• R&D spending included investments in developing CPCBIV+ compliant products and technologies for alternate fuels.
• Total R&D expenditure as a percentage of total sales turnover was 0.11%.

Regulatory Compliance and Future Preparations #

• Transferred unclaimed dividend and corresponding shares to the Investor Education and Protection Fund (IEPF) as required by Sections 124 and 125 of the Companies Act, 2013.
• Complies with the provisions relating to the constitution of an Internal Committee under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013.
• Complies with CPCBIV+ emission norms for power backup industry and CPCBIV+ compliant products.
• Prepared for CEMM (Tracked/Excavator) Emission norms.

Financial Outlook #

Power Generation Segment #

Management Guidance and Assumptions #

• Enhancing current products, particularly in the high horsepower range.
• Developing value-added offerings.
• Positioning for cleaner technology engines due to stricter environmental norms.

Market Growth Forecasts #

• Datacenters, Real estate, manufacturing and infrastructure segments are key drivers.

Planned Strategic Initiatives #

• Improving product power density to reduce total cost of ownership, lower maintenance costs, and offer a smaller installation footprint.
• Developing technology for products complying with new emission standards for gensets above 800kW.

Capital Expenditure Plans #

• Investments planned in new technologies, launch of CPCBIV+ compliant products, and development for stricter emission norms.

Efficiency Improvement Targets #

• Improving power density to reduce maintenance expenses.

Potential Challenges and Opportunities #

• Intensifying competition from domestic and international players presents pricing pressure.
• Risk of cost escalation and supply constraint exists.
• Opportunities in alternative energy power back-up solutions.

Scenario Analysis and Sensitivity #

• Upside Scenario: Higher demand from datacenters, strong CPCBIV+ genset adoption, and expansion in alternative fuel solutions.
• Downside Scenario: Slowdown in key markets (Europe, Middle East) due to economic or geopolitical issues; increased competition leading to pricing pressures.
  • Emission Norm Changes: Success depends on timely development and adoption of CPCBIV+ and future emission-compliant products.
  • Market Demand Volatility: Revenue is sensitive to demand fluctuations in key customer segments.

Industrial Segment #

Management Guidance and Assumptions #

• Growth expected in engine requirements from OEMs.
• Continued development of ‘fit-for-market’ products.
• Emphasis on indigenization and supporting the Government of India’s ‘Make in India’ and ‘Atmanirbhar Bharat’ initiatives.

Market Growth Forecasts #

• Railways, Mining, Marine, Oil & Gas, Defence and Construction are stated areas for growth.
• Growth is fueled by infrastructure development and government regulations.

Planned Strategic Initiatives #

• Railways: Focus on electrified propulsion system solutions.
• Marine: Offer integrated propulsion and genset packages.
• Mining: Invest in new technologies for higher capacity equipment and future emission regulations (CEMM).
• Construction: Expansion of product portfolio and focus on electronic engines, as well as fuel-agnostic platforms.

Capital Expenditure Plans #

• Investment in local product development to support ‘Make in India’ initiative.

Efficiency Improvement Targets #

• Material Cost Optimization.

Potential Challenges and Opportunities #

• Softening demand for DETCs due to rail electrification.
• Timely allocation of coal blocks is critical for mining equipment demand.
• Opportunities in electrified propulsion systems in Railways and from Government of India’s focus on domestic defence manufacturing.

Scenario Analysis and Sensitivity #

• Upside Scenario: Accelerated infrastructure project implementation, robust growth in domestic coal production, strong order book in commercial marine, increase defence manufacturing and growth in engine requirements.
• Downside Scenario: Delayed rail electrification, delays in coal block allocation, delay in notification of CEMM emission norms.
  • Government Policy: The segment is highly sensitive to government policies related to infrastructure, rail electrification, and defense manufacturing.
  • Commodity Prices: Mining segment is sensitive to coal production and prices.

Distribution Segment #

Management Guidance and Assumptions #

• Focus on expanding the emission-controlling product portfolio and reconditioning engines for sustainability.
• Proactive establishment of channels in key regions globally.

Market Growth Forecasts #

• Growth expected in On-highway Aftermarket, with emphasis on Loyalty programs and fleet engagement programs.
• Increasing use of Emission Control Devices (ECDs).
• Growth in powergen business.

Planned Strategic Initiatives #

• Launch of Ashwasan IV+ extended warranty service package.
• Partnership with Repos Energy for DATUM range of products.
• Establishment of Command Centre for Telematics.
• Introduction of OPTIMUS sales and service application.
• Reinforcement of ‘MITWA Mechanics Loyalty Program’.

Capital Expenditure Plans #

• Investments in digital tools (OPTIMUS) and service infrastructure (Command Centre) are noted.

Efficiency Improvement Targets #

• Improvement of processes through technology.

Potential Challenges and Opportunities #

• Aggressive pricing and intense competition in LHP and MHP segments.
• Opportunities include growth in aftermarket services, spare parts supply and training.
• Regulatory push for emission control devices.

Scenario Analysis and Sensitivity #

• Upside Scenario: Strong demand for emission control devices and dual fuel kits, successful adoption of new service offerings, and robust growth in on-highway aftermarket.
• Downside Scenario: Intense competition and pricing pressure, limited scope for participation in Manning Contracts for railways.
  • Customer Adoption: Success of new service offerings depends on customer adoption and willingness to pay for extended warranty.
  • Competition: Ability to compete on price and service in a competitive market.

Exports Segment #

Management Guidance and Assumptions #

• Focus on increasing exports and strengthening market position across key geographies.

Market Growth Forecasts #

• Caution is expressed due to economic uncertainty and the after-effects of the pandemic in partner countries.
• Focus on low kVA Gensets and emissionized products for specific markets.

Planned Strategic Initiatives #

• Introduction of low kVA Gensets for unregulated markets.
• Improvements in products and processes, and leveraging channel synergy.

Capital Expenditure Plans #

• Investment in the release of Low kVA emissionized products for specific markets.

Potential Challenges and Opportunities #

• Volatility in demand due to economic slowdown in key markets, geopolitical conflicts, and supply chain disruptions.
• Intense competition in the Powergen segment.

Scenario Analysis and Sensitivity #

• Upside Scenario: Growth if demand increases, fit-for-market products gain traction, and channel synergy improves.
• Downside Scenario: Demand declines due to economic slowdown, geopolitical conflict, or increased competition.
  • Global Economic Conditions: Highly sensitive to economic conditions in key export markets.
  • Currency Risk: Exposed to foreign currency exchange rate risks.
  • Competition: Vulnerable to increased competition from global OEMs and Genset assemblers.

Audit & Compliance #

Audit and Regulatory Analysis #

Auditor’s Opinion and Qualifications #

• The Independent Auditor’s Report by Price Waterhouse & Co Chartered Accountants LLP provides an unqualified (clean) opinion on the standalone and consolidated financial statements.
• Exceptions:
  • Referred to that “audit trail feature did not operate throughout the year”.
  • Included reporting under Rule 11 (g) of the Companies(Audit and Auditors) Rules, 2014.

Key Accounting Policies and Changes #

• The financial statements are prepared in accordance with Indian Accounting Standards (Ind AS) and presentation requirements of Schedule III of the Companies Act, 2013.
• Revenue Recognition for Power generation: Power Generation segment exhibited strong growth.
  • Warranty obligations: Warranty cost accruals in the past have aligned with actual expenses. The Company recognizes warranty obligations in accordance with Ind AS 37, taking into consideration factors like past failure rates and future expectations.

Internal Control Effectiveness #

• The auditors have issued a separate report (Annexure A) stating that, in their opinion, the Company has, in all material respects, an adequate internal financial controls system with reference to financial statements, and that these controls were operating effectively as of March 31, 2024.

Regulatory Compliance Status #

• The Company has complied with the Accounting Standards specified under Section 133 of the Act. The auditor’s report confirms compliance with the information requirements of the Companies Act, 2013.
• The company is in compliance with applicable Secretarial Standards.

Legal Proceedings and Their Potential Impact #

• The Company has disclosed the impact of pending litigations on its financial position, as per Note 36 of the standalone financial statements.
• The Company reports contingent liabilities related to income tax, central excise duty/service tax, duty drawback, sales tax, and civil liability/secondary civil liability.

Related Party Transactions #

• The Company has disclosed related party transactions as required under Indian Accounting Standard 24 and Section 188 of the Companies Act, 2013.
• Material related party transactions were reviewed for arm’s length testing.
• The Company entered into material related party transactions with Cummins Limited, U.K., Tata Cummins Private Limited, Cummins Technologies India Private Limited, and Cummins Inc., USA, exceeding the threshold. Shareholder approval was obtained for these transactions.

Subsequent Events #

• The Board of Directors has recommended a final dividend of ₹20 per share.
• CRTI: The final order of dissolution (Voluntary liquidation) has been passed by NCLT on December 13,2023.

Analysis of Accounting Quality and Regulatory Risk Assessment #

Accounting Quality #

• The use of an external, independent auditor (Price Waterhouse & Co Chartered Accountants LLP) and adherence to Ind AS suggest a commitment to high-quality financial reporting.
• The warranty provision estimation process, involving historical data and management judgment, indicates a detailed approach.

Regulatory Risk Assessment #

• The Company is subject to standard regulatory oversight, including compliance with the Companies Act, SEBI Listing Regulations, and tax laws.
• The Company also has adequate and effective system to ensure compliance with SEBI’s regulation 9A(4).
• Pending litigations represent a potential, but quantified, regulatory risk.
• The transfer of unclaimed dividends and shares to the IEPF demonstrates ongoing compliance with statutory requirements.