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Double-digit sales growth guidance maintained

Cummins India (KKC IN) reported muted topline growth, due to a higher base in Q4FY24, and lower volumes of CPCB IV+ compared with CPCB II. KKC is facing intense competition, as more players now have CPCB IV+ gensets, and hence, is cautious on pricing for the next quarter. However, demand for data centers remains robust with KKC as the market leader. Exports have rebounded sharply in Q4 despite uncertainties related to US tariff. We reiterate Accumulate with a higher TP of INR 3,430 on 35x March FY27E P/E, as KKC remains the market leader in diesel gensets (strong brand and industry-leading margin).

Muted topline growth due to higher base: Revenue rose 6% YoY to INR 24.1bn in Q4FY25, muted due to a higher base in Q4FY24 on account of pre-buying given the transition from CPCB II to CPCB IV+ gensets. FY25 revenue rose 15% YoY to INR 103bn, in line with the guidance of double-digit growth in the year. KKC continues to maintain double-digit growth guidance for FY26. Competition has also intensified, with all the players having transitioned to CPCB IV+. KKC is monitoring pricing, which may soften in the upcoming quarters. However, KKC continues to hold on to price due to strong brand and superior product quality, with strong demand from data centers (KKC is the market leader in gensets).

Margins drop due to lower volumes: EBITDA margin dropped 230bps YoY to 21.2% in Q4FY25, and absolute EBITDA declined 5% YoY to INR 5.2bn in Q4 due to lower sales with lower operating leverage – Volumes of CPCB IV+ have not yet fully reached the levels of CPCB II. FY25 EBITDA margin inched up 30bps YoY to 20% due to higher pricing and growth in the previous quarters, along with a rebound in exports in Q4. KKC endeavors to improve margins gradually, led by cost optimization and growth in services.

Exports – Strong rebound after a slump, but only some regions have grown: After a series of declining quarters, exports have finally rebounded, up 39% YoY to INR 4.8bn. Exports of High Horsepower (HHP) gensets grew 27% YoY, and those of Low Horsepower (LHP) gensets 51% YoY. FY25 exports rose 6% YoY to INR 1.8bn, with demand robust from Latin America and Europe. However, other regions continue to see weak demand, with additional uncertainty from the US on account of impact from tariffs.

Reiterate Accumulate with a higher TP of INR 3,430: We raise our FY26E and FY27E EPS estimates by 4% and 6%, led by a gradual rise in volume of the higher-priced CPCB IV gensets and rebound in exports. So, we raise our TP to INR 3,430 from INR 3,150 on 35x (unchanged) March FY27E P/E, led by continued momentum in power, rail and data centers, and potential rebound in private capex. KKC retained its product pricing despite intensifying competition.

We maintain Accumulate as KKC remains the market leader in diesel gensets (strong brand and industry-leading margin). Expect an earnings CAGR of 18% in FY25-28E with an average ROE and ROCE of 27% each in FY26E-28E. Downside risks exist if the government focuses on clean energy over diesel gensets and if geopolitical issues further impact export demand.

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