Recommendation from Automobile & Ancillaries Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.[EasyDNNnews:PaidContentStart]

Cummins India Ltd : POWERING INDIA’S ENERGY BACKBONE

HERE IS WHY
✓  Strong Return Ratios
✓  Robust Balance Sheet
✓  Sustained Demand Visibility

The India Industrial Engines Market continues to benefit from structural tailwinds driven by infrastructure expansion, data centre investments, and rising power reliability needs. With increasing electrification and backup power requirements across sectors such as manufacturing, healthcare, Real Estate, and digital infrastructure, demand for reliable power solutions remains strong. Against this backdrop, we recommend Cummins India as our Choice Scrip.

Cummins India is a subsidiary of the global Cummins Group and is among the country’s leading manufacturers of engines and power solutions. The company operates across four key segments: Engines, Power Systems, Components, and Distribution. Its engines cater to a wide range of industries including Railways, marine, Construction, mining, oil and gas, Defence, and industrial applications. The company designs and manufactures diesel and alternative fuel engines ranging from 2.8 to 95 litres, along with generator sets of up to 3,000 kW, supported by a strong distribution and service network.

The Engine business continues to remain the dominant contributor, while the lubricants business operates through its joint venture with Valvoline. The company also benefits from a diversified geographical mix with a strong domestic presence and a growing export footprint.

For Q3FY26, the company reported revenue of around ₹3,006 crore, broadly stable year-on-year, while maintaining strong profitability. Net profit stood at ₹453 crore with margins remaining healthy at around 15 per cent. While domestic demand continues to remain resilient, export markets have shown some moderation due to geopolitical uncertainties and uneven global demand. However, management expects exports to stabilise over the medium term, while domestic growth is likely to remain the key driver.

On the financial front, the company stands out with a debt-free balance sheet. Return ratios remain robust, with ROCE at 36.3 per cent and ROE at 28.2 per cent. Over the last three years, the company has delivered a sales CAGR of 19 per cent and profit CAGR of 34.9 per cent.

From a valuation perspective, the stock is currently trading at a P/E of 59.4x, which is higher than the industry average of 38.8x and above its three-year median P/E of 48.8x. The PEG ratio of 1.70 suggests that the stock is trading at a premium to its growth, reflecting strong investor confidence in its long-term earnings visibility and business quality. Despite the premium valuation, the company’s strong balance sheet, high return ratios, leadership in the power solutions space, and visibility of demand across key sectors justify a structural re-rating. The company also continues to reward shareholders with consistent dividend payouts, with a payout ratio of over 70 per cent.

Going forward, key triggers include continued growth in data centre demand, government infrastructure spending, expansion in distribution and aftermarket services, and gradual recovery in exports. Additionally, new energy solutions such as battery energy storage systems (BESS) could open up incremental growth opportunities over the medium to long term. Cummins India combines strong fundamentals, high return ratios, and long-term demand visibility driven by structural growth in power solutions. While valuations remain elevated, the company’s consistent execution, debt-free balance sheet, and leadership positioning make it a compelling play on India’s infrastructure and energy growth story. Considering these factors, we recommend a BUY.

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