Indian power generation equipment major Cummins India has delivered impressive second-quarter results that exceeded market expectations, driving its stock to a new 52-week high while raising questions about whether current valuations have outpaced growth potential.
Strong Quarterly Performance
Cummins India's standalone revenue surged 27% year-on-year to ₹3,170 crore in the September quarter of FY26, significantly beating analyst estimates. The company's shares reached a fresh 52-week high of ₹4,495 on November 10, 2025, reflecting investor optimism about the company's performance.
The robust revenue growth was primarily driven by the execution of a large data centre order within its key power generation business. The company also reported healthy growth in its distribution and exports segments, though the industrial business faced headwinds from subdued construction activity and a slowdown in mining tenders.
Margin Expansion and Guidance
Operating performance showed remarkable improvement with the EBITDA margin expanding by 261 basis points to 21.9%. This marks the fifth consecutive quarter of margin expansion for the company, supported by volume-led operating leverage and effective cost control measures.
Management has maintained its double-digit revenue growth guidance for FY26, citing brighter domestic demand prospects. The company aims to maintain EBITDA margins at current levels, providing confidence about sustained profitability.
Export Performance and Competitive Landscape
Export revenue grew 24% in Q2FY26, showing strong traction in both high horsepower and low horsepower segments across European and Middle Eastern markets. However, management indicated some sluggishness in new export order inflows and cautioned about near-term softness due to ongoing inventory correction in international markets.
The company faces increasing competition from multinational corporations and Chinese companies in the data centre business. In response, Cummins India is enhancing its capacity to reduce lead times and focusing on domestic opportunities, particularly in the hyperscale data centre segment.
Regulatory Environment and Market Position
The power generation industry has undergone significant changes with the transition to CPCB IV+ emission standards for diesel generators up to 800 kW, which became effective in July 2023. Management believes pricing across various nodes has stabilized and aims to hold prices steady, leveraging its strong brand value and superior product quality.
Engine sales have now recovered to pre-CPCB IV+ levels, indicating successful adaptation to the new regulatory framework. However, the risk of lumpy order inflows in power generation remains a concern for consistent performance.
Future Outlook and Valuation Concerns
While the Q2 performance prompted earnings upgrades by various brokerages, analysts express caution about rich valuations. JM Financial Institutional Securities expects quarterly power generation sales to moderate from ₹1,300 crore to ₹1,100-1,200 crore in the coming quarters, with high horsepower power generation sales declining from ₹900 crore to ₹650-700 crore.
According to IDBI Capital Markets & Securities, the stock's valuation at 40 times estimated FY27 earnings has caught up with its growth potential. This leaves little room for disappointment, especially considering the stock has delivered impressive 50% returns over the past six months.
The company's strategic focus on domestic opportunities, particularly in the growing data centre segment, combined with stable export performance, positions it well for continued growth. However, investors should monitor execution capabilities and competitive pressures that could impact future performance.
