New CPCB norms: What it means for cap goods, engineering

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26 Aug, 2025 12:21

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Emkay Global Financial Services has come out with its report on engineering and capital goods sector. The research firm says under the new norms, engines to cost 10-15% higher while gensets to cost 5-7% higher (upto 800 kVA) - strengthening the case for pre-buying till Q1FY14E.

• New CPCB norms for diesel gensets likely to be implemented from Jul’13. This is not likely to have any material effect on the competitive landscape – both MNC and domestic.
• Under the new norms, engines to cost 10-15% higher while gensets to cost 5-7% higher (upto 800 kVA) - strengthening the case for pre-buying till Q1FY14E.
• 40-50% of Cummins India’s gensets business stands to gain – factored 7% volume-led and 10% price-led growth in FY14E.
• Retain positive bias on Cummins India with price target of Rs500/Share.

• These norms are applied to power gensets below 800 KVA range. Also, last round of emission norms for CPCB were applied in 2003-2005 period.
• Since power gensets above 800 KVA are already technologically compliant with revised CPCB norms, there are no changes required.

• Upgradation / modifications / technology changes are envisaged for few components / parts of the engines in order to make them CPCB norm compliant. They are EGR, fuel pumps, injection systems and turbo chargers. Even, logic control in gensets would have to undergo change.
• Only acoustics for gensets would not undergo any change.
  Typically, engines form 50-70% of the gensets price depending on whether they are acoustic enclosure gensets (50%) or open gensets (70%).

• Typically, design and testing of engines is a 2-3 year procedure. With CPCB norms being pre-defined, engine manufacturers have adequate time to adhere to the norms.
• Certification is obtained for individual engine platforms, which means, engine ratings do not determine need for certifications.
• Certifications can be obtained from independent certification agencies (India or Abroad) or research bodies like Automotive Research Association of India (ARAI) or Austria (AVL).
• Even international certifications and accreditation are valid in India.

• Implementation of the new norms unlikely to result in any competitive or technological advantage to an engine manufacturer. This applies to both MNCs operating in India and local players.
• In our opinion, domestic companies (Greaves Cotton, Kirloskar Oil) are unlikely to be at a disadvantage to their MNC counterparts, consequent to the implementation of the revised norms.
• Significant advantage for MNCs players would be availability of technology know how from the global operations. This is by virtue of high budgets for R&D activities.
• Other players can always do technology tie-ups or access know-how from independent agencies like ARAI and AVL.

• Upgrading engines to make them CPCB compliant would entail some capital expenditure for setting-up facilities or infrastructure.
• Consequent to the implementation of revised norms, prices of engines would increase by 10-15%. With engines comprising 50%-70% of gensets, the prices of gensets would increase by 5-7%.
• Industry had implemented price hikes in Jun’12, but that is in lieu of cost increases.
• Strong probability of another round of price hike in conjunction to implementation of CPCB norms.

• Factored revenue growth of 17% in power gensets in FY14E – split as 10% price led and 7% volume led.
• With 40-50% of power gensets business from less than 800 KVA (Low and Medium HP), Cummins India is expected to initiate price hikes on 40-50% of portfolio. On the other hand, KOEL and Greaves Cotton would gain from larger portfolio, having majority portfolio in less than 800 KVA.
• With dominant market share at 28% (volume terms), robust product portfolio, strong brand equity, national reach and strong technology back-up, Cummins is in a sweet spot to reap gains in FY14E.
• Cummins India reported strong volume growth of 19.1% and 20.4% in FY08 and FY09 respectively. But, power gensets business grew 9% and 4% in same time period, being largely volume led. This further cushions our assumption of 7% volume growth in FY14E, besides gains from rising power deficit in India.

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