Broker’s Call: Cummins India (Buy)

Cummins India has shown strong potential for growth in the data center segment, even as other areas of the non-HHP gensets market slow down. The company expects to maintain margins at 20-21 percent, with EBITDA margins expected to range between 19.8 percent and 21.5 percent over the next three years. Cummins India anticipates revenue, EBITDA, and PAT compound annual growth rates (CAGRs) of 18 percent each over the FY26-29 period.

Despite a recent price increase in July 2026, RM prices remain volatile, suggesting that more hikes may be necessary. The company's growth is driven by demand for power generation in data centers, railways, mining, defense, and marine sectors, as well as higher installed base and customized offerings in distribution. Additionally, exports to Europe and Asia-Pacific are expected to boost growth.

The current P/E ratios for FY27, FY28, and FY29E EPS are 52.8x, 41.5x, and 35.1x, respectively. The analysts have slightly reduced their estimates by 4.7 percent, 2.5 percent, and 2.2 percent for FY27, FY28, and FY29, respectively, to account for near-term margin pressures. The revised target price (TP) is ₹6,400, based on an average of 45x P/E and discounted cash flow (DCF) calculations using two-year forward estimates.

However, key risks include lower-than-expected demand in key segments, higher commodity prices, increased competition, and a lower-than-anticipated recovery in exports.