The stock market reacted positively to the revenue and earnings beat. However, revenue was lumpy with large hyperscale project execution contributing a large chunk. Management sounded a note of slight caution with a clarification that such project revenues are unlikely to recur in H2FY26, as well as issuing a warning about potential exports slowdown in the third quarter of 2025-26 (Q3FY26) with an inventory correction being on the cards.
The Q2FY26 standalone revenue grew 27 per cent year-on-year (Y-o-Y) to ₹3,120 crore. The power generation (PG) segment revenue grew 50 per cent Y-o-Y, led by data centres projects which accounted for 40 per cent PG segment revenues. PG excluding data centres also rose at 20 per cent Y-o-Y. Exports were also up 24 per cent Y-o-Y to ₹550 crore with traction in Europe, Latin America, and West Asia.
Distribution revenues grew 21 per cent Y-o-Y while industrial segment revenues declined 5 per cent. The operating profit margin expanded 261 basis points and operating profit was reported at ₹690 crore with margin at 21.9 per cent. Adjusted net profit increased by 41.5 per cent Y-o-Y to ₹640 crore including higher other income.PG will continue to grow at a good pace led by demand from data centres, real estate, quick commerce among others but the rate of growth may moderate. Data centres’ hyperscalar orders tend to be lumpy and projects are dependent on site clearances and can take 1-2 years to launch. Data centres accounted for 25-30 per cent of PG segment revenue for H1FY26 and the big project was hyperscalar. Industry watchers say that around 90 per cent of the Indian data centre market is colocation with hyperscalars around 8-10 per cent of data centres capacity.
Moreover, other capital goods players say that hyperscalar is slowing down relative to colocation and even Chinese firms are competitors. Cummins India is working on reducing lead time and increasing capacity for data centres. A slow-down specifically in data centres projects, especially in hyperscalars could impact Cummins India’s growth. However, PG revenues excluding data centres did grow at 20 per cent (like-for-like). Management guided for double-digit FY26 growth, despite the warnings about exports seeing a slowdown. Apart from data centres, there’s traction across infrastructure, manufacturing, airports, and healthcare. Industrials could see a pick up on the basis of railways orders and construction as well as mining should improve post-monsoon.
Powergen demand remains strong with CPCB 4+ products catching on and Cummins India should be able to maintain margin and sees room for growth in distribution.
Cummins seems comfortably placed in the transition to CPCB-4-plus norms where it has a favourable competitive position. PG volumes are back to pre-emission norm changes with pricing settling and Cummins India maintaining leadership.Some key risks are potential supply-side issues which may stress the supply-chain, and global demand weakness due to geopolitical uncertainties and economic headwinds which could impact exports. Given the company’s leadership in capital goods, and its diversified exposure across markets and its embedded positioning across segments, Cummins is well-placed to ride out any such issues.
The excellent margins indicate the competitive edge.Overall net profit growth should continue to be in the late teens. The company has seen valuation upgrades, reducing the valuation gap between it and competing MNCs like ABB India. Analysts have uniformly upgraded earnings prospects but there are some ‘sell’ recommendations on the basis of the high valuations.
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