Caterpillar: Expands in India at a Difficult Time for the Mining Sector

Caterpillar’s (NYSE:CAT) stock increased almost 12 percent since the beginning of the week. This week, Caterpillar focused its growth efforts in India through a $150 million investment for a new engine manufacturing facility as well as another $62 million investment to expand its existing off- highway truck manufacturing facility in the country. ^[1] Caterpillar’s machinery and engines business competes globally with Deere and Co. (NYSE:DE), Komatsu (TYO:6301) and JCB amongst others.

Our $100 price estimate for Caterpillar stock is slightly above the current market price.

See our complete analysis for Caterpillar stock here

But these investments come at a time when India’s growth last quarter slowed to its lowest levels since 2009, as Reserve Bank of India (RBI) yanked up Interest rates to control runaway inflation. The mining sector growth in India fell by 2.9 percent year-over-year. ^[2]

With India’s wholesales-price inflation at 9.73%, RBI is unlikely to cut rates to stimulate the economy in the near-medium term. ^[3] Moreover several recent alleged corruption cases in the Indian mining sector threaten the sector’s growth in the medium-term. ^[4] Thus, we believe that Caterpillar’s growth potential in India in the near-medium term will be limited, but these investments will likely yield handsome dividends in the long-term as expanding economy drives India’s need for resources.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Caterpillar Expanding Operations in India [↩]
2. India’s Economy Expands Least Since 2009 [↩]
3. India Wholesale Price Index All Commodities [↩]
4. After Karnataka, mining scam in Goa [↩]