Hold Cummins India Ltd for the Target Rs. 4,182 By Prabhudas Lilladher Ltd
Quick Pointers:
* The management maintained revenue guidance of double-digit growth for FY26 supported by demand across all key segments.
* Data centers accounted for ~25% of domestic Powergen revenue in 9MFY26.
Cummins India (KKC) delivered in line performance with revenue declining 1.2% YoY (against higher base) and EBITDA margin expanding by 296bps YoY to 22.4%. The management reiterated double-digit revenue growth guidance for FY26, led by continued strength in the domestic Powergen, while exports are expected to remain subdued in the near term. Domestic Powergen revenue declined due to lower HHP sales (against higher base); however, core Powergen (ex–data center) demand is expected to remain steady, supported by continued traction across residential & commercial real estate, manufacturing and infrastructure. While order pipeline from data centers remain healthy, aided by policy support and sustained investments in data centers across globe. Distribution continued to outperform with 26% YoY growth on broad-based traction across Powergen, Defence, Railways and Mining. Industrial revenue declined by 9% YoY due to weakness in construction and railways, partly offset by continued strength in the marine segment and improving mining activity. Export demand remained firm in Europe and the Middle East, though near-term softness persists. The stock is trading at a P/E of 48.2x/42.5x of FY27/28E. Bottom of FormWe maintain our ‘HOLD’ rating valuing the stock at a PE of 43x Sep’27E (same as earlier) with revised TP of Rs4,182 (Rs4,172 earlier).
Long-term view intact: We expect KKC’s outlook to remain intact given the 1) strong domestic demand in Powergen across sectors with CPCB 4+ products witnessing traction, 2) stable margin profile, and 3) ample room for growth in the Distribution business.
Gross margin expansion aided by better sales mix: Standalone revenue decreased by 1.2% YoY to Rs30.1bn (PLe: Rs32.9bn) against a higher base in Q3FY25. Gross margin expanded by 309bps YoY to 37.9% (PLe: 36.0%). EBITDA increased by 5.7% YoY to Rs6.3bn (PLe: Rs6.7bn) with EBITDA margin expanding by 133bps YoY to 20.8% (PLe: 20.4%) driven by gross margin expansion and lower employee cost (-14.1% YoY to Rs2bn). PBT (ex-Extra-ordinaries) increased by 7.3% YoY to Rs7.2bn (PLe: Rs7.9bn) aided by higher other income (+15.6% YoY to Rs1.4bn). Adj PAT increased by 7.0% YoY to Rs5.5bn (PLe: Rs6.0bn) driven by the increase in other income, while effective rate remains flattish YoY to 23.5%.
Distribution growth remains strong: Domestic sales decreases by 1.6% YoY to Rs25.4bn due to decline in Powergen (-16% YoY) and Industrial (-9% YoY) sales, offset by increase in the Distribution business (+26% YoY). Domestic Powergen revenue mix stood at 55%/11%/27%/6% for HHP/HHD/MHP/LHP. Exports increased by ~2% YoY, to Rs4.7bn. Export mix stood at 39%/49%/11% for LHP/HHP/Spares.
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