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Muted Q2; Pricing benefits yet to flow through

We have revised our EPS estimates downward by -15.0%/-3.9%/-3.7% for FY27E/FY28E/FY29E, respectively, factoring in near-term margin pressures from elevated commodity and freight costs, supply-chain disruptions and an adverse product mix. While the pricing actions implemented in Q2FY27 are expected to provide a gradual offset, we have adopted a relatively cautious outlook on margin recovery, particularly for FY27E. Cummins India (KKC) reported a modest quarterly performance, with revenue growing ~4% YoY to INR32.5bn, supported by moderate growth in domestic sales (+5% YoY to ~INR27bn) and exports (+2% YoY to INR5.7bn). EBITDA margin contracted sharply by 658bps YoY to 18%, primarily due to elevated commodity and freight costs, supply-chain disruptions and an adverse product mix. Despite nearterm margin pressures, demand remain healthy across key domestic markets, including data centres, manufacturing and real estate, alongside continued growth in the distribution business. Exports also recorded sequential improvement (~7% QoQ), indicating resilient underlying demand across end markets. The price hike implemented in Q2FY27 is expected to be progressively realized, supporting a gradual margin recovery over the coming quarters. Looking ahead, demand across domestic and export markets is expected to remain steady, although geopolitical uncertainty, inflationary pressures, commodity price volatility and evolving supply-chain dynamics remain key monitorable. Cummins remains focused on disciplined execution, price realization, cost management and operational efficiency. The stock is currently trading at a P/E of 35.7x/30.2x for FY28/29E. We maintain our ‘BUY’ rating on the stock value the stock at a PE of 43x Sep’28E (same earlier) with revised TP of INR 5,334 (INR 5,414 earlier). We are likely to revisit our estimates post the call, factoring in further clarity on demand trends, pricing actions and margin recovery.

Long-term view intact:

Amid higher commodity and freight cost in near term we remain constructive on KKC’s long-term prospects, supported by

1) the strong domestic demand for Powergen solutions across end-user segments, and rising demand from data centers, where reliable backup power is critical

2) the significant growth potential in its Distribution business, driven by opportunities to expand market reach and deepen customer penetration 

3) strong brand franchise, extensive service network and proven execution capabilities further reinforce its long-term growth outlook.

Weaker gross margins amid higher cost pressure and adverse product mix impact profitability:

Standalone revenue increased by 4% YoY to INR32.5bn (PLe: INR35.6bn). Domestic sales grew by 4.5% YoY to INR26.9bn and Exports sales grew by ~2% YoY to INR5.6bn. Gross margin contracted by 441bps YoY to 32.1% (Ple: 33.8%). EBITDA decreased by 27.1% YoY to INR5.1bn (PLe: INR6.7bn) with EBITDA margin contracted by 658bps YoY to 15.3% (PLe: 18.9%) due to commodity and freight inflation coupled with product mix. PBT (ex. Extra ordinaries) decreased by ~28% YoY to INR6bn (PLe: INR8.2bn) due to lower other income ( -22.9% YoY to INR1.5bn). Adj.PAT decreased by 26.8% YoY to INR4.7bn (PLe: INR6.2bn) due to weaker operating performance despite lower effective tax rate of 22.3% (vs 24% in Q2FY26).

H1FY27 Performance:

For H1FY27, revenue increased by ~11% YoY to INR66.2bn while EBITDA/PAT declined by 15%/15% YoY and EBITDA margin contracted by 501bps to 16.7%. H1FY27 OCF increased by 37% YoY to INR10.2bn aided by better control over trade receivables and payables.

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