Cummins India’s 1QFY27 earnings were below expectations because higher raw material prices and a lag in passing those costs to customers weakened margins.
The company believes that the price increases it has applied across its power‑generation product range will start to show in the coming quarters.
Revenue growth was largely driven by the power‑generation segment, with data‑center revenue – both co‑location and hyperscaler projects – leading the rise. The momentum from hyperscaler‑led project bookings continues.
Growth in the distribution and industrial businesses was slower. Analysts expect power‑generation to benefit from strong data‑center demand, while the distribution segment should see gains from higher penetration and warranty renewals.
Industrial growth may be hampered by weakness in construction and compressor sales, but exports are already showing a sequential rebound.
Key factors that could lift margins over the next two years include price hikes, higher distribution revenue, and a potential improvement in exports.
Revised estimates now incorporate the 1QFY27 margin performance and anticipate slightly lower margins. The BUY rating is maintained with a target price of ₹6,500 (down from ₹6,600) based on an average 45x P/E and two‑year forward DCF.
The company is projected to achieve a CAGR of 18% for revenue, 19% for EBITDA, and 20% for PAT over FY26‑FY29. Cummins India trades at 52.4x, 42.2x, and 35.8x on FY27, FY28, and FY29 EPS respectively. The BUY recommendation remains unchanged.