Hold Cummins India; target of Rs 3719: Prabhudas Lilladher

Prabhudas Lilladher's research report on Cummins India

We revise our FY25/26E EPS estimates by +8.3%/10.3% factoring in robust margin improvement. Cummins India (KKC) reported healthy quarterly performance with revenue growing 20.3% YoY due to strong domestic sales and EBITDA margin expanding by 657bps YoY to 23.5%. The company is expected to grow at 12-15% CAGR in the long term (~2x India’s GDP growth) driven by infrastructure-linked investments across data centers, commercial & residential realty, manufacturing, etc. CPCB IV+ is seeing improved offtake as pre-buying for CBCB II has come down and customers’ products are better prepared for CBCP IV+. Distribution and Industrial businesses also continue to see healthy growth. Meanwhile, exports may continue to lag in FY25 owing to geopolitical issues in the Middle East, currency problems in Africa, and soft demand in Europe. We expect Cummins’ outlook to remain intact given 1) strong domestic demand in power gen across sectors with CPCB IV+ products witnessing traction, 2) improving margin profile and 3) ample room for growth in the Distribution business.

Outlook

The stock is trading at a P/E of 56.6x/48.4x FY25/26E. We roll forward to FY26E and maintain ‘Hold’ rating with a revised TP of Rs3,719 (Rs2,480 earlier) valuing it at a P/E of 50x FY26E (38x Dec-25E earlier), factoring in strong improvement in margins and return ratios.