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Mint
5 days ago
- Business
- Mint
PMI: India's services exports bump may lose steam amid global economic gloom
Business momentum in India's services sector was steady in May. The seasonally adjusted HSBC India Services PMI Business Activity Index rose to 58.8 last month from 58.7 in April. A reading above 50 indicates expansion. The key highlight of the survey was the solid growth in exports of services. The New Exports Orders sub-index rose to 57.6 in May from 55.4 in April. Survey participants reported one of the strongest improvements in international demand in 19-and-a-half years of data collection. Also Read | India services activity hits three-month high in May on strong export growth; employment rises by record For manufacturers as well, new export orders rose in May at one of the strongest rates recorded in three years. Panel members remarked on favourable demand from Asia, Europe, the Middle East and the US. But here's a catch. 'In H1 2025, Asian economies have been whipsawed by Trump tariffs; growth and inflation have moderated, even as export frontloading has provided some offset," Nomura Global Markets Research said in a report dated 2 June. According to Nomura, disinflationary forces are likely to permeate across Asia, and, unlike past export downturns, this is likely to be compounded by Asian currency strength against the US dollar. Thus, Asian central banks will likely continue to decouple from the US Federal Reserve and deliver more policy easing. In its meeting this week, the Reserve Bank of India is widely expected to cut repo rates by another 25 basis points (bps) to 5.75%. So far, the central bank has cut rates by 50 bps to boost growth amid easing inflation. Relatively immune The Indian economy is more domestically driven, with consumption seen as the mainstay for growth. This makes India relatively immune to global trade shocks than Asian peers, but the problem is that consumption demand, especially urban, has been languishing lately. Companies are struggling with subdued revenue and profit growth, household incomes are muted and latest high-frequency data such as automobile sales is uninspiring. Also Read | India's exports face geopolitical woes but trade deals offer relief: RBI report Meanwhile, business confidence of Indian service providers measured via the Future Output Index recovered to 60.4 in May from April's 23-month low of 59.7. Expanded workforces, larger client bases and ongoing marketing initiatives make service providers hopeful. According to Gaura Sengupta, economist at IDFC First Bank, India's services export growth outperformed merchandise export growth in FY25 also, growing in double-digits. While this outperformance is likely to continue in FY26, she said some moderation in services export growth is likely with the US economy expected to slow down. That said, the manufacturing sector will be impacted more by the tariff tensions and the global growth slowdown. Also Read | Services boost India's exports to an all-time high of $824.9 billion in FY25
Mint
6 days ago
- Business
- Mint
Cummins India is upbeat after exports boosted Q4. But competition's heating up.
Cummins India Ltd's standalone Ebitda of ₹520 crore for the March quarter (Q4FY25) represents a 7% year-on-year rise, excluding a one-off cost-saving of ₹60 crore. This growth is subdued when compared with the 27% increase in Ebitda for the nine months ended December (9MFY25). In fact, Cummins's reported Q4FY25 Ebitda is down 4.5% without adjusting for the one-off savings. Yet, the shares are up about 13% since the results were announced last week. Investors seem upbeat about the company's recovery in exports and robust growth outlook across key segments, further aided by cost efficiency. However, competition can dent a part of the margins for Cummins, a manufacturer of diesel and natural gas engines for the power generation, industrial, and automotive sectors. Cummins's FY25 revenue surpassed the milestone of ₹10,000 crore, growing 15% year-on-year. Lower raw material and staff costs meant 17% Ebitda growth to ₹2,100 crore. The management expects to maintain double-digit revenue growth rate in FY26, aided by positive domestic demand outlook and sustained margins (FY25 gross margin: 36%) thanks to cost savings. Strong growth is envisaged from key sectors such as residential realty, commercial reality, infra-related segments, data centers and emerging sectors like quick commerce for their warehousing needs. Further, the industrial segment is expected to benefit from railways ordering traction and momentum in construction. 'We raise our FY26/FY27F Ebitda estimates by 2% as we factor in management's gross margin guidance and focus on cost efficiencies," Nomura Global Markets Research said in a 30 May report. The brokerage estimates Cummins India to report a net profit CAGR of 15% over FY25-28. Also read | Apollo Hospitals' healthy capacity addition to drive future growth Cummins's pricing challenges Cummins' growth prospects are driven mainly by its largest segment—power generation, contributing almost 40% of FY25 sales, and comprising gensets and other similar products. The Central Pollution Control Board of India (CPCB) implemented a change in emission rules from July 2024 in the gensets market called CPCB IV+. Current sales are still at 80-85% of volumes sold under the older rules. This is expected to normalize from Q2/Q3FY26. While several companies have launched CPCB IV+ compliant products leading to stiffer competition, Cummins's management said the company has been able to largely hold on to its pricing. Cummins's FY25 power generation revenue grew by 14% even as it dropped 7% in Q4FY25 on a high base. Industrial segment revenue, contributing 16% of total, was up 29% in FY25, driven by sustained momentum in construction and railways orders. Overall, Cummins's Q4FY25 revenue stood at ₹2,450 crore, up a modest 6% year-on-year on a high base given the pre-buying of CPCB II products in Q4FY24, before the new norms kicked in. Q4FY25 domestic revenue was up just 1%, but exports jumped 39%, led by Latin American and European markets. Also read | Amara Raja's March quarter margin is an irritant. More trouble ahead? Exports, accounting for 17% of FY25 revenue, grew 41% in H2FY25, versus an 18% drop in H1FY25, signalling the worst is over. Exports are facing pressure due to price disruptions caused by dumping from other countries and muted demand due to general economic weakness. Cummins's fourth-quarter gross margin expanded 116 basis points year-on-year, thanks to lower commodity prices and a change in product mix. As things stand, the Cummins stock trades at about 44 times FY26 estimated earnings, showed Bloomberg data. To be sure, post the new CPCB upgrade, the pricing environment remains challenging, accompanied by stiffer competition. In view of this, some such as Motilal Oswal Financial Services reckon their estimates factor in a gross margin of 35% in FY26/27 versus 36% in FY25 as they expect some gross margin contraction after price levels for CPCB IV+ normalize. Increase in commodity prices and uneven exports recovery are other downside risks to watch out for. Also read | Prestige Estates makes room for a better FY26 as approval delays ease
Mint
23-05-2025
- Business
- Mint
A catalyst for Ramco Cements stock is set to play out. But is that enough?
South India-focused The Ramco Cements Ltd had a tough March quarter (Q4FY25). Cement sales volume declined more than expected by around 4% year-on-year to 5.29 million tonnes. The region has seen an increased pace of consolidation lately, and elevated competition for market share gains has kept cement prices under pressure. In fact, according to Nomura Global Markets Research, Ramco is the only major cement producer in its coverage to report a decline in year-on-year volumes in Q4FY25; Ramco's decline was as against 5% year-on-year growth for the industry. 'Blended realization (at ₹4,522 per tonne) came in 4% below our estimate and was flat quarter-on-quarter, as against a 3% improvement quarter-on-quarter for the industry," added the Nomura report. The Ramco management said that at the start of FY26, price hikes of ₹30-35/bag in the trade segment and ₹60-70 per bag in the non-trade segment were implemented in the south. If these sustain, there is a scope of Ramco's realisations to mend. Plus, increased thrust on green energy should help the company manage operating costs better. Here, it is worth noting that the government of Tamil Nadu imposed a new levy – the mineral bearing land tax of Rs160 per tonne of limestone with effect from 4 April 2025. The management expects this to result in additional cost implication of around Rs200 per tonne of cement produced in Tamil Nadu, where Ramco has significant exposure. Cement manufacturers in Tamil Nadu, through industry association, have represented to the government seeking relief, which is under consideration, it added. Also Read: UltraTech Cement set for higher volumes, tighter grip on costs Reducing debt A company-specific monitorable for Ramco is the pace of debt reduction. It is comforting that Ramco is deleveraging by paring non-core assets. Net debt declined sequentially to ₹4,481 crore as of March 2025, aided by proceeds from the disposal of non-core assets. The company has monetized ₹460 crore so far out of its targeted ₹1,000 crore. The management said that it is on track to achieve the target of monetizing non-core assets before July as committed earlier. It expects the key net debt-to-Ebitda ratio to ease to 2.50-2.75x in FY26 from 3.51x in FY25. 'We believe that recent price hikes and ongoing balance sheet deleveraging are key near-term catalysts that could support the stocks' performance," said Motilal Oswal Financial Services Ltd report dated 23 May. However, sustained profitability, disciplined capital allocation, and meaningful market share gains will be critical structural drivers for a more durable re-rating, it added. In this calendar year so far, the Ramco shares have given mere 3% returns. While efforts to reduce debt are encouraging, Ramco's capital expenditure intensity is likely to remain elevated as it adds more capacity. In FY25 Ramco's capex stood at ₹1,024 crore and the management guided for ₹1,200 crore capex for FY26. Ramco is expanding its clinker and grinding capacity by 3.2mtpa and 1.5mtpa respectively at Kolimigundla Line 2 in Andhra Pradesh. Mtpa is million tonnes per annum. It also plans debottlenecking and adding grinding units at existing facilities with minimal capital expenditure. Ramco aims to reach its capacity target of 30 mtpa by March 2026 from 24 mtpa currently. An Antique Stock Broking report dated 23 March points out that Ramco's net debt is likely to remain greater than ₹4,000 crore over FY25–27E even after factoring in the sale of non-core assets worth ₹1,000 crore. 'The Ramco Cements currently trades at around 11.9x FY27 estimated EV/Ebitda and $105 EV/ton. The stock may continue to trade below its historical valuation given lower than historical profitability and higher leverage," added the Antique report. EV is enterprise value. Also Read | Best cement stocks 2025: Demand revival, pricing trends and growth prospects
