Abhay Capital Q3 FY26 Earnings Call Summary

Summary

Cummins India Limited - Q3 FY 2026 Earnings Call Summary Thursday, February 05, 2026 11:00 AM

Event Participants

Executives 2 Shveta Arya (Managing Director), Soma Ghosh (Chief Financial Officer)

Analysts 10 Aditya Mongia, Amit Anwani, Balasubramanian, Devesh Kasliwal, Kunal Sheth, Mohit Kumar, Parikshit Kandpal, Pulkit Patni, Rahul Gajare, Renu Baid (Pugalia), Shirom Kapur, Umesh Raut

Financials & KPIs

Geographic & Segment Commentary

• Power Generation (Domestic): Revenue was impacted by the lumpy nature of data center projects, which saw high execution in Q2 but not Q3. Management maintains that core demand is growing at near double-digits, supported by manufacturing, infrastructure, and residential/commercial realty.
• Distribution: This segment reached an all-time high of 31% of total sales. Growth is driven by an increasing installed asset base and increased service penetration in Railways and Defense, with CPCB IV+ technological complexity expected to drive future aftermarket gains.
• Industrial: Construction and Mining remain the weak spots, with road construction activity reportedly at half the rate of the previous year. However, the Marine segment is performing well due to government investment and successful execution of customized engine orders.
• Exports: High Horsepower (HHP) grew 15% YoY while Low Horsepower (LHP) fell 14% YoY. Demand is inconsistent across regions, though Asia Pacific and Europe showed resilience this quarter; management remains cautious on exports due to geopolitical instability.

Company-Specific & Strategic Commentary

• Data Center Focus: Data centers contribute ~25% of Power Gen revenue on average. Management expects the recent budget tax incentives for data centers to accelerate the pipeline for HHP (>2,500 kVA) gensets over the next 3-4 years.
• Technology Transition (CPCB IV+): The market has fully shifted to CPCB IV+ as of July 2024. These technologically advanced products (electronics, after-treatment, telematics) are expected to provide a significant boost to Distribution revenue as they exit the 2-year warranty period starting in 2027.
• New Energy Solutions (BESS): The company has launched 10-ft and 20-ft Battery Energy Storage Systems (200 kWh to 2 mWh). While inquiries are high, actual sales are slow as customers evaluate how BESS fits into a hybrid energy mix alongside traditional diesel backup.
• Cost Management: Achieved record gross margins (~38%) through rigorous material cost reduction and favorable product mix. Management noted a ₹50 crore one-time “true-up” in management cost charges that negatively impacted other expenses this quarter.

Guidance & Outlook

Risks & Constraints

Q&A Highlights

Margins and One-offs

• Question: What led to the record gross margins and the spike in other expenses? (Parikshit Kandpal, Aditya Mongia)
• Answer: Gross margins benefited from material cost efforts, product mix, and some one-time supplier benefits. Other expenses included a ₹50 crore one-time “true-up” for management cost charges, which will even out over the full year (Shveta Arya).

Data Center Pipeline

• Question: How is the data center pipeline building out following budget incentives? (Parikshit Kandpal, Amit Anwani)
• Answer: The tax break is positive, but conversion from announcement to sale takes 2-3 years. Most data centers require HHP gensets of 2,500 kVA and above (Shveta Arya).

Distribution Growth Sustainability

• Question: What is driving the record Distribution revenue? (Umesh Raut, Pulkit Patni)
• Answer: Growth is due to an expanding asset base and deeper service penetration. The real tailwind will come in 2027 when CPCB IV+ products, which are more technologically complex, begin moving out of warranty (Shveta Arya).

BESS vs. Diesel Gensets

• Question: Will Battery Energy Storage Systems (BESS) cannibalize diesel genset sales? (Aditya Mongia)
• Answer: BESS will likely become part of a hybrid energy solution. However, diesel remains the only “reliable” solution for long-duration backups (e.g., floods) where grid and solar fail (Shveta Arya).

Key Takeaway

Cummins India delivered a stable Q3 FY2026, characterized by record gross margins of ~38% and exceptional growth in the Distribution segment (+26% YoY), which now comprises 31% of total revenue. While Power Gen and Industrial revenues faced temporary headwinds from lumpy data center execution and a slowdown in road construction, the core domestic demand remains healthy. Strategically, the company is positioning itself to capture the next wave of growth from CPCB IV+ aftermarket services starting in 2027 and the expanding Indian data center market, which contributes 25% to Power Gen sales. Management maintained its guidance for double-digit revenue growth in FY2026 and extended this target to FY2027 for the domestic business. Key watch points include the volatility of copper prices and the aggressive pricing environment from competitors as the company navigates a “choppy” export landscape.