Motilal Oswal sector of the week: Genset; Cummins, Kirloskar Oil top picks

Motilal Oswal Financial Services Research desk suggests buying Kirloskar Oil Engines and Cummins India; here's why

After a year of regulatory transition and pricing volatility, India’s genset (generator set) industry is witnessing a steady normalization in demand, supported by a broad-based recovery across industrial, commercial, and infrastructure segments. Channel checks indicate that volumes rose between 10 per cent and 20 per cent year-on-year (Y-o-Y) in the September quarter, reflecting a return to pre-transition stability following the implementation of CPCB 4+ emission norms in July 2024.

 

While sequential trends remain seasonally soft, demand from data centers, hospitals, manufacturing units, airports, and educational institutions has strengthened. The medium- and high-horsepower (200–1500 kVA) categories continue to drive incremental growth, even as the low-horsepower segment contracts due to higher costs and increased competition from low-cost manufacturers. The rental genset market, typically contributing 5–8 per cent of total demand, remains sluggish.

 

On the pricing front, the industry has stabilised after competitive pressure during the transition period. Price rationalisation across players has now largely settled, with the next round of hikes—estimated at 3–5 per cent—expected in the coming quarters, driven by rising copper and commodity prices. Margins are also supported by stronger pricing discipline and better product mix in higher horsepower categories.

 

A key differentiator in the sector remains distribution depth and aftermarket reach. The shift to sophisticated CPCB 4+ gensets has expanded aftermarket opportunities, with companies implementing 5–10 per cent price hikes in spare parts and leveraging integrated telematics for predictive maintenance. Over the next six months, the installed base of CPCB 4+ gensets is expected to start generating recurring revenue from service and parts, offering a structural tailwind for distribution businesses.

 

On exports, India’s engineering shipments have shown a steady rise since mid-2024, benefiting leading genset manufacturers with diversified exposure across markets. However, geopolitical uncertainty continues to pose near-term volatility risks.

 

Overall, the genset industry is entering a more balanced phase marked by normalized demand, stable pricing, and improving margin visibility. Medium-term prospects remain underpinned by industrial capex recovery, data center expansion, and the ongoing upgrade cycle under CPCB 4+ norms, setting the stage for steady volume-led revenue growth in FY26–27.

Stock recommendations by Motilal Oswal Financial Services Research

Cummins India – Target: ₹4,500

Cummins is witnessing a broad-based revival in its powergen segment, with demand from manufacturing, real estate, healthcare, hospitality, and data centers driving volumes back to pre-emission levels. Strong positioning in high-kVA nodes and a robust product-distribution network underpin market share gains. Industrial growth is expected to gain from new products in railways, mining, and construction, supporting an 18 per cent compound annual growth rate (CAGR) over FY25–28. Distribution remains a steady driver, aided by telematics, aftermarket penetration and pricing, with a projected 19 per cent CAGR. Exports continue to benefit from global demand, particularly in data centers and the low-horsepower segment across multiple regions. With BESS adding long-term optionality, we model revenue/EBITDA/PAT CAGR of 16 per cent/16 per cent/17 per cent over FY25-28.

Kirloskar Oil Engines – Target: ₹1,230

Kirloskar maintained broad-based strength across its key business verticals, with the Powergen segment sustaining strong momentum despite a high base effect from pre-buying ahead of emission norm changes. Demand remained robust across infrastructure, real estate, and data center segments, aided by the successful rollout of the Sentinel and Optiprime ranges and a strong nationwide service network. The company remains optimistic on the Industrial segment, citing progress in strategic defense and nuclear projects, including those for the Indian Navy and NPCIL. Exports gained traction, particularly in the MENA region, through its OEM partnership model, while the B2C water management business delivered steady cash flows and double-digit margins. With confidence in its diversified portfolio and operational efficiency, we expect revenue/Ebitda/PAT CAGR of 15 per cent/17 per cent/18 per cent over FY25-28.

 

(Disclaimer: This story is by Motilal Oswal Financial Services Research desk. Views expressed are his own.)