India is expanding its data center infrastructure to support the next phase of its digital economy. Industry estimates suggest that installed data center power capacity, currently a little over 1 GW, will cross 2 GW by 2026. Over a longer horizon, KPMG projects capacity could scale to more than 8GW by 2030, implying a multi-year investment cycle with capital expenditure exceeding US$30 billion (₹270,000 crore).
This build-out is being driven by structural factors, including India’s large and data-intensive mobile user base, the rollout of 5G, India’s data localisation norms, and the growing compute requirements of artificial intelligence workloads. This investment is expected to create opportunities across various market segments and sub-segments, including power and engines, and the generators sector.
On a similar note, here are two engine and generator companies expected to benefit as the data center market scales up…
#1 Cummins India: Powering the Digital Backbone
Cummins is a leading company in the power sector. The company provides engines and generator sets to various industrial and commercial sectors. This includes Railways, Marine, Infrastructure, Defence, real estate, and Oil & Gas. It caters to the domestic market and exports to the USA, Europe, Mexico, Africa, and China.
The Digital Engine: Data Centers Claim a 40% Revenue Share
The company’s operations are categorized into three primary domestic segments and a global export division. The power generation segment is the largest, accounting for 40% of revenue in Q2 FY26. Segment revenue increased 49% year-on-year to ₹1,340 crore in Q2, primarily driven by the data center market.
The data center accounted for about 40% of the segment’s revenue, driven by strong project execution. This performance was driven by the successful execution of large-scale projects and high demand for mission-critical backup power.
Two customer segments drive demand
Management distinguishes between two main customer types in the Indian data center landscape.
- Hyperscalers: These include global giants like Microsoft, Amazon, and Google. Business with them is “lumpy” and project-based as it depends on specific site clearances and complex execution timelines. Once site clearances are obtained, execution proceeds more quickly, resulting in sharper revenue spikes.
- Colocation (Colo) Players: These are local or global operators who build infrastructure to rent to other companies. Demand from these players tends to be more evenly spread throughout the year than the irregular, large-scale orders from hyperscalers.
Defending the Moat Against Global Rivals
The data center sector also requires complex project execution and stringent technical and commissioning demands. Consequently, competition is primarily limited to large Multinational Corporations and some intensifying presence from Chinese players. But to maintain its market share, Cummins is taking strategic initiatives.
This includes reducing lead times. The company says competitors sometimes win orders by offering shorter delivery times. To counter this, Cummins is actively working to reduce its lead times and improve capacity. It is also improving logistics and proximity.
The engines and generator sets used for data centers are very heavy, making them logistically difficult and expensive to ship over long distances. Therefore, the company’s strategy is to manufacture products closer to the end market.
That said, management acknowledges that this level of performance may not be identical in the H2 FY26 due to the lumpy nature of project orders. However, they remain optimistic about the long-term potential in India. Cummins sees India as a significant opportunity if it matches global growth rates.
Currently, the data center markets in the U.S., China, and Europe are growing faster than in India. The time from data center announcement to actual implementation on the ground is typically one to two years. Cummins believes its supply chain is agile enough to handle the growing demand.
Surging Domestic Sales vs. Industrial Drag
From a financial perspective, total revenue increased by 28% year-on-year to ₹3,122 crore in Q2 FY26. Domestic sales grew 28% to ₹2,577 crore, while exports rose 24% to ₹545 crore. Beyond power generation, the distribution segment’s revenue rose 21% to ₹796 crore, while the industrial segment’s revenue declined 5% to ₹387 crore.
Net profit surged 38.5% to ₹622 crore, with operating margins at 22%, up by 300 basis points. The company expected to achieve double-digit revenue growth.
#2 Kirloskar Oil Engines: Engineering a Multi-Segment Powerhouse
Kirloskar Oil Engines (KOEL) is a leading Kirloskar Group company specializing in a diverse range of engineering solutions across B2B and B2C segments. The company’s product portfolio is broad, spanning B2B and B2C categories from small agricultural tools to massive mission-critical power systems.
KOEL is one of the world’s largest manufacturers of power-generating sets, specializing in both air-cooled and liquid-cooled engines. It offers fuel-agnostic gensets with power outputs ranging from 3 to 12,000 kVA. To future-proof its portfolio, it is investing in internal combustion engines, energy storage solutions, electrification, and fuel cells and electrolysers.
The Digital Frontier: Cracking the Data Center Code
Data centers are identified as a strategic target segment, particularly in their power generation business and high-horsepower node expansion. The company is still building its reputation in the category and has scored several early wins. It has won large-scale orders, including 1,500 kVA, 2,000 kVA, and 2,500 kVA units.
Kirloskar describes the data center industry as a “closely set and controlled market” primarily driven by U.S. standards. Because of these strict requirements, it is currently targeting non-spec customers and working closely with them to gain a foothold.
Operational Readiness and Value Chain Ascent
KOEL isn’t limiting itself to edge data centers (small, decentralized facilities). Rather, it’s pursuing a broader strategy to penetrate the data center market at multiple levels, moving up the value chain. It has already developed the necessary product readiness and internal capabilities to meet the high-performance demands of the sector.
Financial Vitals: Surging Revenue and Steady Margins
From a financial perspective, revenue increased by 30% year-on-year to ₹1,948 crore in Q2 FY26, driven by strong growth in the B2B segment. Operating margin was flat at 20%, while net profit increased by 27.2% to ₹159 crore.
Management believes there is headroom for margin improvement through a favourable product mix. In the revenue mix, power generation (+41 %), industrial (+40%), distribution and aftermarket (+13%), international (+39%), and fluid dynamics (+28%) all rose.
The $2 Billion Roadmap
The company plans to reach US$2 billion in revenue by FY30. To this end, the company plans to focus on executing manufacturing strategies and increasing capacity utilisation within the core B2C segment. In FY27, it aims to complete the current technology roadmap and increase Arka’s retail market share.
Then, in FY28, it plans to pursue inorganic opportunities and rapidly expand its international market share. In FY29, it plans to increase its business share in defense and railways, as well as expand into non-internal combustion engine (non-ICE) programs.
Kirloskar Oil Engines Share Price
The Verdict: Growth Potential vs. Premium Pricing
Cummins has strong returns on capital employed (RoCE) and returns on equity (RoE), demonstrating its global reputation and market leadership. However, its valuation is higher than both the industry and its median multiple. Kirloskar, with a moderate return ratio, trades at a premium to its historical median, but is roughly in line with the industry.
| Valuation Assessment (X) | ||||
| Company | P/E | 5Y Median P/E | RoCE (%) | RoE (%) |
| Cummins | 50.0 | 39.7 | 36.3 | 28.2 |
| Kirloskar | 36.8 | 18.5 | 13.7 | 15.4 |
| Industry Median | 39.5 | 25.7 | 20.6 | |
| Source: Screener.in | ||||
India’s data center build-out is creating a sustained, multi-year demand cycle for reliable power infrastructure.
Cummins India enters this phase with scale, execution depth, and entrenched relationships in mission-critical applications, positioning it to capture near-term volume as capacity additions accelerate.
Kirloskar Oil Engines, while earlier in its data center journey, is methodically expanding capabilities and moving up the value chain. Together, they offer differentiated exposure to the same structural theme, with distinct risk-return profiles.
Disclaimer:
Note: Throughout this article, we have relied on data from http://www.Screener.in and the company’s investor presentation. Only in cases where the data were not available have we used an alternate, widely used, and accepted source of information.
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About the Author: Madhvendra has been deeply immersed in the equity markets for over seven years, combining his passion for investing with his expertise in financial writing. With a knack for simplifying complex concepts, he enjoys sharing his honest perspectives on startups, listed Indian companies, and macroeconomic trends.
A dedicated reader and storyteller, Madhvendra thrives on uncovering insights that inspire his audience to deepen their understanding of the financial world.
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