Discounted Cash Flow Calculation for BSE:500480 using 2 Stage Free Cash Flow to Equity Model
The calculations below outline how an intrinsic value for
is arrived at by discounting future cash flows to their present value using the 2 stage method.
We try to start with analysts estimates of free cash flow, however if these are not available we use the most recent financial results. In the 1st stage we continue to grow the free cash flow over a 10 year period, with the growth rate trending towards the perpetual growth rate used in the 2nd stage. The 2nd stage assumes the company grows at a stable rate into perpetuity.
BSE:500480 DCF 1st Stage: Next 10 year cash flow forecast
The current share price of
is above its future cash flow value.
Often investors are willing to pay a
for a company that has a high dividend or the potential for future growth.
PRICE RELATIVE TO MARKET
We can also value a company based on what the stock market is willing to pay for
it. This is similar to the price of fruit (e.g. Mangoes or Avocados) increasing
when they are out of season, or how much your home is worth.
The amount the stock market is willing to pay for
is considered below, and whether this is a fair price.
Price based on past earnings
Cummins India's earnings available for a low price, and how does
this compare to other companies in the same industry?
Cummins India's earnings are expected to grow by 9.5% yearly, however this is not considered high growth (20% yearly).
Cummins India's revenue is expected to grow by 10% yearly, however this is not considered high growth (20% yearly).
Past and Future Earnings per Share
The accuracy of the analysts who estimate the future performance data can
be gauged below. We look back 3 years and see if they were any good at
predicting what actually occurred. We also show the highest and lowest estimates
looking forward to see if there is a wide range.
Cummins India's performance over the past 5 years by checking for:
Has earnings increased in past 5 years? (1 check)
Has the earnings growth in the last year exceeded that of the
industry? (1 check)
Is the recent earnings growth over the last year higher than the average annual growth over the
past 5 years? (1 check)
Is the Return on Equity (ROE) higher than 20%? (1 check)
Is the Return on Assets (ROA) above industry average? (1 check)
Has the Return on Capital Employed (ROCE) increased from 3 years ago? (1 check)
The above checks will fail if the company has reported a loss in the most recent
earnings report. Some checks require at least 3 or 5 years worth of data.
has a total score of
2/6, see the detailed checks below.
Note: We use GAAP Net Income excluding extraordinary items in all our calculations.
Management is one of the most important areas of a company. We look at
unreasonable CEO compensation, how long the team and board of directors have
been around for and insider trading.
TENURE AS CEO
Mr. Sandeep Sinha has been Managing Director and Additional Director of Cummins India Limited since February 1, 2018 and served as its Chief Operating Officer since January 2015 to January 31, 2018. Mr. Sinha served as Vice President of India ABO (Area Business Organization) at Cummins India Limited since 2018. Prior to this, Mr. Sinha was the Vice President of the Industrial Engine Business in India, where he focused on several key areas like safety, quality, operational and supply-chain excellence. He played a key role in the start-up of multiple plants at the Cummins Megasite in Phaltan, India. With more than 15 years of experience with Cummins, Mr. Sinha has assumed various leadership roles across entities, including the New and ReCon Parts business in India and Corporate Strategy in the U.S. After graduating as an Engineer from the Manipal Institute of Technology, he joined Saint Gobain India for 6 years and became the National Sales Manager. He then pursued his graduate degree in Business Administration from the Kelley School of Business, Indiana University.
Sandeep's compensation has been consistent with company performance over the past year.
Sandeep's remuneration is lower than average for companies of similar size in India.
Management Team Tenure
Average tenure and age of the
management team in years:
The average tenure for the Cummins India management team is less than 2 years, this suggests a new team.
MD & Additional Director
CFO and Head of Internal Audit
Head of Human Resources
Head of Information Technology
Head of Components Business
Head of Distribution Business
Head of Engineering
Chief of Staff
Head of Engine Business
Board of Directors Tenure
Average tenure and age of the
board of directors in years:
The tenure for the Cummins India board of directors is about average.
How Cummins India Limited (BOM:500480) Delivered A Better ROE Than Its Industry
and want a simplistic look at the return on Cummins India Limited (BOM:500480) stock. … Cummins India Limited (BOM:500480) delivered an ROE of 17.28% over the past 12 months, which is an impressive feat relative to its industry average of 10.80% during the same period. … However, ROE only measures returns against equity, not debt.
Cummins India Limited designs, manufactures, distributes, and services engines and related technologies in India. The company operates through three business units: Engine Business, Power Systems Business, and Distribution Business. The Engine Business manufactures and markets diesel and natural gas engines ranging from 65 HP to 400 HP for the low, medium, and heavy-duty on-highway commercial vehicle markets, as well as the off-highway commercial equipment industry comprising construction and compressor. The Power Systems Business provides power generation systems in standby power and distributed power generation for individual and institutional customers in various segments, such as infrastructure, IT/ITES, data centers, realty, healthcare, and hospitality; and high horsepower engines for mining, marine, railways, oil and gas, and defense applications, as well as manufactures and exports open and enclosed low kilowatt generator sets. The Distribution Business offers products, services, and solutions for equipment and engines; and provides after-market support services to customers in India, Nepal, and Bhutan. The company also exports its products to the United States, the United Kingdom, Mexico, Singapore, and China. Cummins India Limited was founded in 1962 and is based in Pune, India. Cummins India Limited is a subsidiary of Cummins Inc.
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