HDFC Securities has given Buy recommendation for Cummins with a target price of Rs. 810 in its research report issued on Feb 01, 2021

HDFC Securities’ research report on Cummins

At a consolidated level, CREDAG reported a net loss, on the back of a sharp rise in provisions. While disbursals saw a sharp uptick and the improvement in collection efficiency sustained (~91% excluding arrears in December), the manifestation of sticky back-book stress (implied PAR 60 of ~14% on the portfolio that is more than 6 months old) was also evident. However, at a consolidated level, CREDAG held an ECL cover of ~5.7% of loans, vs. overall GS-III of 6.1%, indicative of a fortified balance sheet. We believe current stress is not entirely unexpected, as is in fact, characteristic of the event-driven stress that micro-credit is associated with.

Outlook

We maintain BUY with a revised target price of INR 814. Our assigned multiple, we believe, is reflective of CREDAG’s high RoE potential, relatively conservative approach to the busines as well as inherent business risks.

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