Cummins India Data Centre Demand Drives HHP Genset Growth Despite Margin Pressure

Investment View and Valuation

Motilal Oswal Financial Services’ August 24, 2026 update on Cummins India, based on a recent management meeting, reiterates a Buy view. The broker has reduced its target price to Rs 6,400 from Rs 6,500 after trimming earnings estimates to reflect near-term margin pressure.

Motilal Oswal cuts its FY27E, FY28E and FY29E adjusted PAT estimates by 4.7 per cent, 2.5 per cent and 2.2 per cent, respectively. It forecasts revenue, EBITDA and PAT CAGRs of 18 per cent, 18 per cent and 19 per cent over FY26-FY29. The target price is based on an average of 45 times P/E and DCF using two-year forward estimates.

Power Generation: Data Centre Demand Supports Growth

Cummins India is expected to benefit from strong data centre-led demand for high-horsepower, or HHP, gensets. This should support powergen growth even as non-HHP segments expand more slowly. Demand is also being supported by residential, commercial, manufacturing, rental, dark-store and data centre applications.

The company supplies locally made QSK60 engines to colocation data centres and sources QSK78 and QSK95 engines from its parent for hyperscale data centres, particularly for 2 MW and 3 MW requirements. Management does not see a need to expand capacity for the higher-range QSK78 and QSK95 engines because the parent is doubling capacity.

Motilal Oswal maintains its powergen estimates and forecasts a 19 per cent revenue CAGR for the segment over FY26-FY29, led by the growing data centre-related share of revenue.

Industrial Businesses: Mixed Outlook Across Segments

Railways, mining, defence and marine are the key industrial demand drivers. Construction remains subdued and monsoon-dependent, with a gradual recovery expected as tunnel construction and infrastructure activity improve.

Cummins India has delivered propulsion packages for DETCs and associated systems for passenger-coach power-car applications. It is pursuing complex marine projects for shipyards, receives mining orders from large OEMs excluding BEML, and is working on defence products. The compressor business remains in a downcycle.

Motilal Oswal expects growth in the stronger industrial businesses to partly offset slower construction and compressor demand, resulting in a 12 per cent industrial-segment revenue CAGR over FY26-FY29.

Distribution: Installed Base and New Solutions Support Expansion

The distribution business is expected to benefit from Cummins India’s large and increasing installed base. Growth opportunities include customised DBU services, spare parts, retrofit solutions, repowering programmes and telematics offerings for CPCB4+ gensets.

The FY26 launch of a Battery Energy Storage System solution broadens the company’s participation in grid-resilience and renewable-integration opportunities. Motilal Oswal forecasts a 21 per cent distribution revenue CAGR over FY26-FY29.

Exports: Recovery Underway, but Middle East Outlook Remains Cautious

Exports are recovering, with low-horsepower offerings supporting Africa, the Middle East and Europe. HHP export demand is being led by realty and manufacturing in Europe, Latin America, Asia Pacific and China.

Management remains cautious on the Middle East, which accounted for about 2 per cent of total revenue in FY26 and 3 per cent in Q1 FY27. Cummins India is aligned with Euro 6 standards and is preparing for Stage 7 requirements.

Management clarified that related-party approvals for a potential lumpy order do not represent guaranteed orders or sales. Motilal Oswal projects a 16 per cent export revenue CAGR over FY26-FY29.

Margins and Earnings Outlook

Q1 FY27 margins were somewhat soft because of higher commodity prices, revenue mix and an employee-cost true-up. Cummins India implemented a price increase in July 2026, but management is assessing further hikes because the latest increase did not fully offset raw-material pressure.

The company intends to maintain margins in the 20-21 per cent range. Motilal Oswal forecasts EBITDA margins of 19.8 per cent, 21.3 per cent and 21.5 per cent across its forecast period.

Key Risks

• Weaker-than-expected demand across segments.
• Higher commodity prices and continued raw-material pressure.
• Greater competition.
• A slower-than-expected recovery in exports.