Cummins India Powergen growth poised to benefit from data centre expansion

Investment View and Valuation

Motilal Oswal Financial Services’ June 9, 2026 company update on Cummins India, following investor meetings with management, retains its BUY rating and unchanged target price of Rs 6,600.

The broker’s central thesis is that Cummins India is positioned for balanced growth across Powergen, distribution, industrial operations and exports. This outlook is supported by the company’s strong installed base, broad product range and expanding geographical presence. Motilal Oswal expects the healthy revenue mix to sustain strong EBITDA margins despite higher raw-material prices.

At the report CMP of Rs 5,626, the stock traded at 52.6x FY27E and 43.6x FY28E earnings. The target price of Rs 6,600 is based on an average of 45x P/E and DCF valuation using September 2028 estimates, intended to capture long-term gains from high-growth segments.

Growth Outlook Across Key Businesses

Powergen: Data-Centre Expansion Is the Main Catalyst

Powergen remains the principal growth driver, with broad-based demand across high-horsepower (HHP) and non-HHP ranges. Non-HHP growth in FY26 was led by volumes from manufacturing, pharmaceuticals, quick commerce, luxury residential and commercial real estate.

HHP growth has increasingly been driven by data centres. Motilal Oswal expects India’s data-centre market to increase from 1.5 GW in FY26 to 8 GW by FY30, creating an opportunity for both HHP product sales and project revenue as colocation operators and hyperscalers expand capacity.

Demand from colocation data centres is largely for QSK60 nodes, which Cummins India has fully localised. QSK78 and QSK95 nodes are expected to remain imported for the next few years until volumes justify new production lines. The broker forecasts Powergen revenue CAGR of 20% over FY26 to FY28.

Distribution: Installed Base and Aftermarket Opportunities

The distribution business is expected to maintain momentum through Cummins India’s installed base, new products, new geographies, RECD installations and telematics offerings for CPCB 4+ products.

Maharashtra’s mandate for RECD devices on older CPCB 2 gensets could create additional opportunity, while telematics can also be installed on the CPCB 2 base. Warranty renewals for CPCB 4+ products beginning July 2026 and data-centre offerings are further support factors. Motilal Oswal forecasts distribution revenue CAGR of 22% over FY26 to FY28.

Industrial Operations: Selective Growth

Industrial growth is selective. Mining, marine and railways are growing, but construction and compressors may remain weak in the near to medium term.

Construction and compressors accounted for about 48% of industrial revenue in FY26. The compressor business is in a weak cycle after three strong years, while road construction is weak although smart-city projects are growing. The broker projects industrial revenue CAGR of 11% over FY26 to FY28.

Exports: Diversified but Near-Term Recovery Remains Patchy

Exports are diversified across low-horsepower and HHP engines, with low-horsepower demand led largely by telecom. Latin America, Europe and Africa are growing consistently, whereas Middle East and Asia-Pacific markets face supply-chain and logistics challenges.

Demand beyond 60-litre engines is largely met by the parent or adjacent geographies. Motilal Oswal expects exports to grow at a 16% CAGR over FY26 to FY28, although it characterises near-term exports as patchy.

Financial Performance and Estimates

Cummins India reported FY26 standalone revenue of Rs 12,143 crore, EBITDA of Rs 2,595 crore and adjusted PAT of Rs 2,433 crore, with an EBITDA margin of 21.4%.

Motilal Oswal maintains estimates for revenue, EBITDA and PAT CAGRs of 18%, 20% and 21%, respectively, over FY26 to FY28. The broker expects higher pig-iron and steel costs to be passed to end-users, with product mix managing any short-term pass-through lag and keeping FY27 margins broadly stable year on year.

Key Risks

• Weaker-than-expected demand in key segments.
• Higher commodity prices.
• Greater competition.
• A slower-than-expected export recovery.