Motilal Oswal Financial Services has reiterated a Buy rating on Cummins India, trimming its target price marginally to Rs 6,500 from Rs 6,600, still implying 20% upside from the current market price of Rs 5,402. In an August 6 result update titled "Profitability hit by higher RM costs," the brokerage said the engine and power-generation equipment maker's first-quarter revenue beat expectations, led by surging data-center-driven demand, but margins fell short as raw material inflation outpaced the company's ability to pass on price hikes.

Q1FY27: Revenue Beat, Profitability Miss

Cummins India's revenue rose 18% year-on-year to Rs 34.3 billion, roughly 7% ahead of the brokerage's estimate. Domestic sales grew a strong 22% year-on-year to Rs 28.5 billion, while export sales stayed flat at Rs 5.2 billion. The shortfall came further down the income statement: gross margin came in at 33.5%, well below the brokerage's 36.0% estimate, as sharp increases in steel, pig iron, aluminium and copper prices, along with elevated freight costs and labour shortages at suppliers, squeezed profitability. EBITDA margin fell to 18.0% against a forecast of 21.3%, leaving absolute EBITDA broadly flat year-on-year at Rs 6.2 billion. Adjusted profit after tax declined 2% year-on-year to Rs 5.4 billion, missing the brokerage's Rs 6.2 billion estimate.

Segment Performance And Multi-Year Growth Outlook

The powergen segment's growth was almost entirely a data-center story: data centers accounted for 40% of total powergen revenue in the first quarter, up sharply from 23% a year earlier, while growth in the non-data-center portfolio remained in the single digits. Management said hyperscaler customers are prioritising product availability and delivery lead times over price, with several requesting earlier deliveries rather than deferrals — a dynamic the brokerage expects to sustain powergen momentum through the rest of the year.

Where The Pressure — And The Relief — Is Coming From

1. Distribution remains a structural growth pillar. Revenue grew 14% year-on-year to Rs 8.9 billion — a moderation from the roughly 20% compound growth delivered over the past five years, which the brokerage attributes to a high base and temporary parts-availability constraints rather than any demand weakness. With a nationwide network of 3,500 trained engineers and over 450 service touchpoints, the segment is positioned to benefit as the sharp rise in data-center installations over the past two years begins generating aftermarket revenue once those assets exit their two-year warranty period.
2. Industrial growth was uneven. The segment grew 10% year-on-year, driven mainly by mining and marine — both relatively small contributors — while the larger railways and construction sub-segments were flat. Tendering activity has improved in railways and mining, but construction and compressor demand are expected to stay soft in the near-to-medium term.
3. Exports stayed flat but the mix is shifting. High-horsepower exports grew 16% year-on-year to Rs 3.0 billion, offsetting a roughly 20% decline in low-horsepower exports tied to continued weak demand from the Middle East and Latin America; stronger demand from Europe and Asia-Pacific is increasingly compensating for that West Asia softness.
4. The company has also sought higher related-party transaction approvals of roughly Rs 30 billion for fiscal 2027, up from Rs 19.3 billion in fiscal 2026, giving it more flexibility to capitalise on incremental export opportunities through the global Cummins network without requiring repeated shareholder sign-off.

Stock Levels To Watch

The stock has climbed off its 52-week low of Rs 3,573 and now trades within roughly 12% of its 52-week high of Rs 6,143, with a strong 12-month relative gain of 48% — reflecting the market's enthusiasm for the company's data-center exposure even as this quarter's margin miss introduced some near-term caution.

Estimates And Valuation

The brokerage now expects revenue, EBITDA and profit to compound at 18%, 19% and 20%, respectively, over fiscal 2026-29. The revised Rs 6,500 target is based on an average of 45 times price-to-earnings and a discounted cash flow valuation on two-year forward estimates — a premium multiple the brokerage justifies by the company's high return ratios, with return on equity projected to rise from 33.7% in fiscal 2027 to 37.0% by fiscal 2029.

Promoter holding stood at 51.0% as of June 2026, unchanged from March 2026, with foreign institutional investors holding 21.2% and domestic institutions holding 19.2% of the company.