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Cummins India Ltd is poised to enjoy a slew of benefits from the rising pace of decarbonization. According to analysts at Kotak Institutional Equities, the shift towards stringent emission standards will add to the growth impetus from infrastructure asset creation for Cummins India.

"Decarbonization has direct and indirect benefits for Cummins’ product and services businesses. It will enable Cummins to improve market share and pricing in the domestic market, grow its distribution business as the shift towards electronic engines gains momentum and benefit from opportunities to co-work on new diesel engines with OEMs that shift attention to electrification of products," said the Kotak report dated 28 March.

Apart from this, it will also the company to spread its wings into leading-emission geographies of North America and parts of Europe through its electronic range of engines.

Investors should note that the company continues to broaden scope of its offerings beyond conventional engines. It has been making investments in battery storage, powertrain components and electrified power solutions.

So, it seems to be well placed to capture the opportunity that the decarbonization theme presents. That said, the aforementioned benefits will play out over the course of time. Nonetheless, the company's efforts in this direction bode well for investors' sentiment towards the stock.

Meanwhile, in the near term, investors in this stock need to watch out for the impact of higher commodity prices on the company's gross margins, which declined by around 230 basis points on a year-on-year basis to 33.6% in the December quarter of FY22. One basis point is one hundredeth of a percentage point. While the company took price hikes in Q3FY22 across segments, commentary on margins would be key in Q4FY22 earnings.

So far in this calendar year, the stock has risen by around 18%. A further upside from current levels, would largely depend on trends in cost inflation and company's ability to pass on prices to the consumers.

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