Shares of Cummins India Ltd. jumped as much as 8.9 percent, the most since August 2015, after Morgan Stanley upgraded its rating on the stock to “Overweight”.
Trading volume was 13.4 times the 20-day average as of 11:16 a.m., while its implied three-month volatility climbed to 33.1 versus 26.8 daily average over the past year.
The international brokerage house expects the engineering company to post a recovery in both the domestic and the export markets. "Margin recovery, from nine-year lows, should follow with improved growth," it said in a note.
We estimate 130 basis points margin improvement over FY17-FY19 to 15.9 percent.Morgan Stanley's Note To Clients
Moreover, Morgan Stanley said that the support from the parent company and a strong balance sheet will help the company perform better compared to its peers.
The broking firm saw more room on the upside for the stock, as it expects the current multiples to sustain. Cummins India trades at 41.1 times trailing 12-month earnings per share and 40 times its estimates for the coming year.
Morgan Stanley estimates a 22 percent earnings compound annual growth rate over the FY17-19 period. It has upped its target price on the stock to Rs 1,192, which is over 10 percent above its current market price.
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