Cummins India data centre powergen demand supports growth despite margin pressure

Investment View and Key Takeaways

Motilal Oswal Financial Services' August 6, 2026 result update on Cummins India retains a BUY recommendation. A 1QFY27 revenue beat was offset by a profitability miss caused by raw-material cost inflation and delayed price pass-through. The broker expects price increases across the powergen range to support margins in subsequent quarters, while data centre-led demand remains the principal growth driver.

1QFY27 Financial Performance

Cummins India reported 1QFY27 revenue of Rs 34.3 billion, up 18 per cent year on year and 7 per cent above Motilal Oswal's estimate. Domestic sales rose 22 per cent year on year to Rs 28.5 billion, 9 per cent above the broker's estimate. Exports were flat year on year at Rs 5.2 billion, although they were 5 per cent above estimate.

Gross margin declined to 33.5 per cent against the broker's 36.0 per cent estimate. EBITDA was broadly flat year on year at Rs 6.2 billion, with EBITDA margin falling to 18.0 per cent versus the 21.3 per cent forecast. Adjusted profit after tax declined 2 per cent year on year to Rs 5.4 billion, below Motilal Oswal's Rs 6.2 billion expectation. The broker attributes the earnings miss mainly to margin contraction.

Data Centre-Led Powergen Growth

Powergen revenue grew 35 per cent year on year in 1QFY27 to Rs 14.2 billion, led by data centre offerings. Data centres accounted for 40 per cent of powergen revenue, compared with 23 per cent in 1QFY26.

Demand came from both co-location data centres and hyperscaler projects, with hyperscaler-led project revenue booking remaining strong. Revenue growth in the non-data-centre powergen portfolio was in single digits, although management indicated scope for improvement.

Industrial, Distribution and Export Trends

Industrial revenue increased 10 per cent year on year to Rs 4.6 billion in 1QFY27, while distribution revenue grew 14 per cent to Rs 8.9 billion. Motilal Oswal expects distribution to benefit from deeper penetration and warranty renewals, but sees industrial growth being affected by weakness in construction and compressors.

Export performance reflected mixed trends. High-horsepower exports rose 16 per cent year on year and 37 per cent quarter on quarter to Rs 3.0 billion, whereas low-horsepower exports declined 20 per cent year on year to Rs 1.8 billion because of continued West Asia weakness. Lower Middle East demand caused by geopolitical disruption was largely offset by stronger Europe and Asia-Pacific demand. The broker notes that exports have begun recovering sequentially.

Margin Outlook and Pricing Actions

Commodity inflation in steel, pig iron, aluminium and copper, together with elevated freight costs, supplier labour shortages and supply-chain disruptions, pressured quarterly margins. Management implemented a price hike at the beginning of 2QFY27, but the report cautions that the initial increase may not fully recover raw-material inflation.

Further pricing actions may depend on customer acceptance. Cummins India has implemented price increases across product ranges and will continue evaluating commodity costs, freight and supply-chain conditions when considering further increases.

Motilal Oswal identifies the following as positive margin levers over the next two years:

• Price hikes across the powergen and other product ranges.
• A greater distribution revenue mix.
• Potential improvement in exports.

Estimates, Growth Outlook and Valuation

Motilal Oswal reduced its FY27E and FY28E EBITDA estimates by 4 per cent and 1 per cent, respectively, reflecting 1QFY27 margin performance and slightly lower margin assumptions.

The target price was revised to Rs 6,500 from Rs 6,600, based on an average of 45x P/E and DCF valuation using two-year forward estimates.

Key Risks

• Weaker-than-expected demand in key segments.
• Higher commodity prices.
• Increased competitive intensity.
• A slower-than-expected export recovery.