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Strong broad-based performance

Cummins India (KKC) reported a strong set of results with a beat on all parameters. Revenue growth was fueled by sharp growth in powergen and exports, followed by distribution. KKC seems to have gained market share during the quarter, with a sharp growth seen in the powergen segment revenues as compared to the nearest peer. We expect KKC to benefit from 1) demand improvement in the powergen segment as prices have largely stabilized, 2) customized product offerings in the industrial segment and improved penetration for the distribution segment, and 3) recovery in exports. We broadly maintain our estimates and roll forward our valuations to 41x Sep’27E earnings. We reiterate our BUY rating with a revised TP of INR4,350.

Strong start to the year with a beat across all parameters

KKC reported a strong set of results in 1QFY26, with a beat on all parameters. Revenue increased 26% YoY to INR29.1b, beating our estimate by 9%. Domestic sales at INR23.4b grew 25% YoY/21% QoQ, whereas export sales rose 34% YoY/9% QoQ to INR5.2b. Exports have been continuously increasing since 4QFY24. Gross margin at 37.0% contracted 80bp YoY/20bp QoQ. However, lower employee costs and other expenses led to EBITDA margin expansion of 110bp YoY/20bp QoQ to 21.4%. This was higher than our expectation of 20.1%, which was already above the Street’s expectation of 19%. Absolute EBITDA rose 33% YoY/20% QoQ to INR6.2b, a 17% beat to our estimate. Adj. PAT increased 32% YoY to INR5.6b (13% above our estimate). During the quarter, the company had an exceptional gain of INR442m related to the sale of 100% stake in its wholly owned subsidiary, Cummins Sales & Service Private Limited (CSSPL). This was included in the reported PAT of INR5.9b.

Powergen segment’s growth outperforms the industry

The powergen revenue grew 31% YoY during 1QFY26, much higher than our estimates. Powergen volumes have now come back to pre-emission levels and are getting the benefit of a broad-based demand revival. Even sequentially, the company’s powergen revenues below the 750kVa category have grown 45%, indicating a much sharper volume growth than the overall industry. KKC appears to have gained market share in 1QFY26. In the above 750kVa category too, the company’s revenue rose 24% YoY, thereby reflecting its market leadership position in the HHP segment. Demand originated from the manufacturing sector, pharma, quick commerce, and mission-critical operations. Data centers contributed steadily, accounting for 15-20% of overall powergen sales. From 2QFY26 onwards, it will be a volume-driven growth. We expect the powergen segment’s revenue to clock a 15% CAGR over FY25-28.

Industrial segment’s performance hurt by the monsoons

Industrial segment’s performance hurt by the monsoons Industrial segment growth stood at 12% YoY for 1QFY26, with sub-segments, such as railways, mining, and compressors, contributing to healthy growth, while the construction sub-segment growth was hit by subdued activity due to monsoons. The company is working on products for Indian Railways, such as the diesel electric tower car and power car, which will keep the growth momentum intact in railways. We expect industrial segment revenues to grow at 18% CAGR over FY25-28.

Distribution growth riding on deeper penetration of core segments

KKC’s distribution segment revenue grew by 19% YoY/23% QoQ to INR7.8b in 1QFY26, supported primarily by better penetration in the traditional Powergen and Railways businesses, as well as improved execution and aftermarket solutions. While newly launched products such as DF (dual fuel) kits, power management solutions, AdBlue (diesel exhaust fluid), hydraulic filters, and innovations in the railway segment (e.g., track recording cars and hotel load converters) have begun contributing, these are not yet the primary growth drivers. Instead, the focus remains on deepening reach within established segments and delivering high-quality service support. The CPCB IV+ transition has increased the technological complexity of gensets, opening opportunities for branded players with strong technical teams, which should favor KKC in the aftermarket. Both the Powergen and Industrial subsegments within distribution are growing, with additional prospects in railways, mining, and marine. While near-term growth is driven by deeper penetration and execution in core markets, the gradual ramp-up of new products could add incremental upside in the medium term. We expect the distribution segment to grow at a CAGR of 19% over FY25-28.

Exports gaining momentum across key markets

Export revenue surged 34% YoY in 1QFY26, with both HHP and LHP categories performing strongly. Growth was broad-based across geographies, led by Latin America and Europe, reflecting the benefits of targeted product positioning and steady market penetration. While management is mindful of geopolitical and trade policy risks, the underlying demand in key markets remains healthy, supported by lower-emission product offerings in regions with less stringent norms and continued participation in markets adopting CPCB IV+ standards. Potential opportunities in the US, particularly for engines like QSK38 and QSK50, offer additional upside, with tariff and market factors under review. With robust momentum in the C&I and rental Powergen segments, deeper penetration in select high-growth regions, and an expanding product portfolio tailored to local needs, we expect export revenue to clock a 17% CAGR over FY25-28.

Financial outlook

We broadly retain our estimates and expect a revenue/EBITDA/PAT CAGR of 16%/ 16%/17% over FY25-28; we also build in an EBITDA margin of 19.7%/19.7%/19.8% for FY26/27/28. Our estimates factor in a gross margin of 35% in FY26/27/28 vs. 36% in FY25, as we expect some gross margin contraction after price levels for CPCB 4+ normalize.

Valuation and view The stock is currently trading at 45.6x/38.7x/33.3x on FY26/27/28E EPS. We reiterate our BUY rating on the stock with a revised TP of INR4,350 (based on 41x Sep’27E earnings).

Key risks and concerns Key risks to our recommendation would come from lower-than-expected demand for key segments, higher commodity prices, increased competitive intensity, and lower-than-expected recovery in exports.

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