Strong demand from datacentres, rising opportunities in the distribution business and resilient domestic power generation demand have prompted Citi to raise its target price on Cummins India while maintaining its ‘Buy’ rating.
The brokerage increased its target price to Rs 6,700 from Rs 5,200 after the company’s March quarter earnings exceeded expectations. Citi said Cummins India’s March quarter profit after tax stood at Rs 630 crore, up 21% year on year and 15% above its estimate.
The brokerage said datacentre-linked deliveries accelerated during FY26, while enquiries from colocation operators picked up after October 2025. Citi also expects the distribution business to benefit from a new tailwind beginning June 2026 and revised its FY27 and FY28 earnings estimates upward to reflect stronger growth prospects in power generation and distribution.
Citi says datacentres are becoming a bigger growth driver
A major factor behind Citi’s constructive view is the increasing contribution from datacentres to the power generation business.
The brokerage said high-horsepower power generation revenue grew more than 50% year on year during the March quarter, supported by deliveries linked to datacentre projects. According to Citi, datacentres contributed around 30% to 35% of full-year power generation revenue and about 35% of segment revenue during the fourth quarter. The brokerage also noted that enquiry activity accelerated sharply after October 2025, led by both hyperscalers and colocation operators.
Citi said in the report, “FY26 saw hyperscaler linked deliveries in both H1 & H2, unlike prior years; colocation business is also improving as enquiries have seen an increase post October 2025.”
The brokerage also said execution over the next two years is expected to be supported by the fully localised QSK60 engine platform, while Cummins India continues to counter competitive pressures through end-to-end lifecycle solutions and local supply chains.
Demand remains resilient beyond datacentres, Citi says
While datacentres are attracting significant attention, Citi said the broader power generation business continues to benefit from multiple demand drivers.
The brokerage pointed to demand from sectors such as solar cell manufacturing, pharmaceuticals and quick commerce, adding that the company’s diversified exposure is helping support growth. Citi also noted that commentary from other industrial companies indicated healthy demand conditions across the wider market.
Citi said, “Non datacentre-linked powergen’s resilience has continued benefitting from a wide bench of independent demand drivers.”
The brokerage added that domestic solar cell manufacturing plants emerged as an additional growth driver during the quarter alongside demand trends already visible across other sectors.
Distribution business could see a fresh growth tailwind from June
Beyond power generation, Citi said the distribution business is entering a favourable phase that could support both growth and profitability.
The brokerage noted that the Distribution Business Unit delivered 22% year-on-year growth during FY26, driven largely by volume expansion. According to Citi, a structural opportunity emerges from June 2026 as CPCB IV+ engines begin moving beyond their standard warranty periods, creating demand for maintenance, service contracts and lifecycle solutions.
Citi said in the report, “Distribution is likely to see further tailwinds in FY27 and beyond as FY26 base business growth was largely volume led.”
The brokerage said the company has already been actively pursuing this opportunity through extended warranty programmes and specialised maintenance packages aimed at capturing higher-margin lifecycle revenue.
Margin performance continues to stand out, according to Citi
Citi also pointed to profitability as one of the company’s key strengths.
The brokerage said Cummins India remains relatively well positioned despite risks from commodity inflation, fuel costs and labour shortages among suppliers. According to Citi, a combination of operating leverage, a growing contribution from high-horsepower products and pricing power in key segments should support margins. The brokerage also noted that much of the company’s business operates on short cycles, allowing input cost increases to be passed through over time.
Citi said, “Margin strengths due to relatively higher localization levels has stood out in FY26.”
The brokerage added that pricing remained particularly strong in the mid- and high-horsepower categories, while competitive pressure remained concentrated in lower-horsepower products.
Earnings estimates move higher as Citi factors in stronger growth
Following the March quarter performance, Citi revised its forecasts upward.
The brokerage increased its FY27 profit after tax estimate by 8% and its FY28 estimate by 14%, citing stronger expectations for power generation and distribution businesses. Citi also rolled forward its valuation framework to March 2028 estimates and raised its target valuation multiple.
Explaining the revision, Citi said, “We revise our FY27E/FY28E PAT est. by 8%/14% respectively to factor in higher growth in powergen and distribution.”
The brokerage said it forecasts earnings before interest and tax growth of around 21% compounded annually between FY26 and FY29, supported by the increasing contribution of higher-margin businesses.
Exports remain soft, but Citi sees room for improvement
Not every segment is showing the same momentum.
Citi said export demand remains weak and industrial demand trends remain mixed. The brokerage noted that geopolitical uncertainty continues to make forecasting export demand difficult, with varying trends across regions. Europe and Asia-Pacific are seeing modest growth, while demand in the Middle East has moderated.
However, Citi said there remains potential for improvement.
The brokerage said, “Exports remain soft & industrial mixed, though we see possibility of MT cyclical rebound.”
Conclusion
Citi’s positive view on Cummins India is increasingly tied to growth opportunities emerging from datacentres and the distribution business. The brokerage said accelerating enquiries from hyperscalers and colocation operators, resilient domestic power generation demand and a forthcoming lifecycle revenue opportunity in distribution are strengthening the company’s earnings outlook. Following a March quarter performance that exceeded expectations, Citi raised its target price to Rs 6,700 and maintained its Buy rating, while also increasing its earnings forecasts to reflect stronger growth expectations in key businesses.
Disclaimer: The target prices, institutional ratings, and sectoral projections discussed in this report are based on a single broker update and do not constitute direct buy, sell, or hold recommendations for retail investors. Capital goods and industrial manufacturing stocks are heavily influenced by corporate capital expenditure cycles, infrastructure allocations, public and private data centre infrastructure timelines, and raw material cost fluctuations, meaning individual portfolio results can vary. Readers are strongly advised to consult a SEBI-registered investment advisor or a qualified financial analyst before making specific equity allocations in the industrial engineering or power generation sectors.
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