Cummins India’s Q2 earnings beat offers comfort, but have valuations caught up with growth?
Standalone revenue grew 27% year-on-year to ₹3,170 crore, prompted earnings upgrades by various brokerages. But rich valuations leave little room for disappointment.
Cummins India Ltd’s shares hit a new 52-week high of ₹4,495 on Friday after its September quarter (Q2FY26) results surpassed consensus expectations on key parameters. Standalone revenue grew 27% year-on-year to ₹3,170 crore, beating estimates with the execution of a large data centre order, which is a part of its key power generation business. Growth in distribution and exports was also healthy, but subdued construction activity and a slowdown in mining tenders hurt the industrial segment.
Operating margin increased 261 basis points to 21.9% aided by volume-led operating leverage and cost control. This was the fifth consecutive quarter of margin expansion. Cummins has maintained double-digit revenue growth guidance for FY26 on brighter domestic demand prospects and aims to maintain Ebitda margin at the current level. But some blips could spoil the party for the stock, which has delivered mouth-watering 50% returns over the past six months.
Exports revenue rose 24% in Q2FY26 on strong traction for the high horsepower and low horsepower segments from Europe and the Middle East. However, management has indicated some sluggishness in new export order inflows and cautioned of near-term softness in exports owing to ongoing inventory correction in the market. Cummins also faces competition from multinationals and Chinese companies in the data centre business. It is therefore enhancing capacity to reduce lead times and focusing on domestic opportunities, particularly hyperscale data centres.
Stricter rules
Overall, competition in power generation has intensified, with companies having transitioned to CPCB IV+, which brought in stricter emission standards for diesel generators (up to 800 kW) in India, effective July 2023. But management believes pricing across various nodes has stabilized. It aims to hold prices steady, given its strong brand value and superior product quality.
Engine sales have now recovered to pre-CPCB IV+ levels. Still, the risk of lumpy order inflows in power generation remains. Unlike in Q2FY26, management does not anticipate such large executions in H2FY26, so JM Financial Institutional Securities now expects quarterly power generation sales to moderate from ₹1,300 crore to ₹1,100-1,200 crore, and high horsepower power generation sales to fall from ₹900 crore to ₹650-700 crore in next two quarters.
For now, Q2FY26 results have prompted earnings upgrades by various brokerages, but rich valuations leave little room for disappointment. As per IDBI Capital Markets & Securities, the stock’s valuation, at 40 times estimated FY27 earnings, has caught up with its growth potential.
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