Whalesbook
Citigroup has adopted a more bullish stance on Cummins India, increasing its price target to Rs 6,700 from Rs 5,200 while reaffirming a 'Buy' rating. This optimism stems from robust demand in the data center sector, emerging opportunities within the company's distribution business, and steady domestic power generation requirements. The engine manufacturer's performance in the March quarter exceeded expectations, with profit after tax climbing 21% year-on-year to Rs 630 crore, significantly surpassing Citi's estimates.
Data Centers Drive Growth
The brokerage highlighted that deliveries linked to data center projects accelerated through FY26. Enquiries from colocation operators have also picked up pace since October 2025. Citigroup anticipates that the distribution segment will experience a new growth impetus starting June 2026. Consequently, earnings estimates for FY27 and FY28 have been revised upward to account for stronger growth prospects in both power generation and distribution.
Data centers are increasingly contributing to Cummins India's power generation revenue. Citi noted that high-horsepower power generation revenue saw a year-on-year increase of over 50% in the March quarter, largely due to data center-related deliveries. These projects accounted for approximately 30% to 35% of the full-year power generation revenue and about 35% of the segment's revenue in the fourth quarter. Enquiries from hyperscalers and colocation operators showed a sharp acceleration post-October 2025.
Resilient Demand Beyond Data Centers
While data centers are a major growth driver, Citigroup pointed out that the broader power generation business continues to benefit from multiple demand sources. Sectors such as solar cell manufacturing, pharmaceuticals, and quick commerce are contributing to this demand. The company's diversified business model is effectively supporting its growth trajectory. Commentary from other industrial companies also suggests healthy demand across the wider market.
Distribution Business Poised for Growth
Citigroup sees a favorable phase approaching for the distribution business, which could boost both growth and profitability. The Distribution Business Unit already achieved 22% year-on-year growth in FY26, driven primarily by volume expansion. A structural opportunity is expected to emerge from June 2026 as CPCB IV+ engines begin to exceed their standard warranty periods, creating demand for maintenance, service contracts, and lifecycle solutions. Cummins India is actively pursuing this by offering extended warranty programs and specialized maintenance packages.
Margin Strength and Earnings Revision
The brokerage also emphasized the company's strong margin performance. Cummins India is well-positioned to navigate risks such as commodity inflation and rising fuel costs, partly due to high localization levels. Operating leverage, the increasing contribution of high-horsepower products, and pricing power in key segments are expected to support margins. Input cost increases can be passed through due to the short cycle nature of much of the company's business. Following the strong March quarter results, Citigroup revised its FY27 and FY28 earnings per share estimates upwards by 8% and 14% respectively. The brokerage forecasts earnings before interest and tax to grow at a compounded annual rate of approximately 21% between FY26 and FY29.