CUMMINSIND - Cummins India Ltd. Share Price

Management Outlook:
Cummins India anticipates double-digit revenue growth for FY2024-25, driven by stable domestic economic conditions (India's GDP growth estimated at 6.4"“6.6%) and government-led infrastructure development. The company expects pricing for CPCB IV+ products to stabilize in the next 1"“2 quarters as markets transition fully to new emission norms.

Key Points:

1. Financial Performance:

   • Q3 sales rose 22% YoY to Rs.3,041 crore (domestic +18%, exports +43%).
   • Profit before tax grew 11% YoY to Rs.670 crore.

2. Segment Growth:

   • PowerGen (Domestic): Up 18% YoY (Rs.1,271 crore), led by data centers, mission-critical power, and infrastructure.
   • Industrial: Up 24% YoY (Rs.511 crore) on strong demand in construction, rail, and mining.
   • Exports: High- and low-horsepower segments grew 47% YoY each.

3. Market Dynamics:

   • CPCB IV+ Adoption: Inventory clearance of older CPCB II products completed; pricing stabilization ongoing. Margins impacted by product mix and one-offs (prior-year benefits).
   • Industrial Demand: Sustained by government capex in rail, mining, and construction; tender-driven execution.

4. Margins & Efficiency:

   • Gross margins reflect product mix dynamics. Focus on cost optimization and localization to improve margins.

5. Exports & Geopolitics:

   • Growth in Middle East and Latin America; North American market entry for electronic engines in early stages. Tariff impacts under evaluation.

6. Strategic Moves:

   • Divested subsidiary CSSPL (dealership) to align with an independent dealer model.
   • Parental capex ($200M for India) to support manufacturing and R&D.

Confidence Factors: Strong balance sheet, infrastructure, and talent position the company to leverage growth opportunities amid global uncertainties.

Question 1: Mohit Pandey (Macquarie Capital)
"My first question, ma'am, is on the domestic PowerGen business. If you could please comment on pricing trends at the portfolio level and now that there's more than 6 months have passed with full-fledged adoption of CPCB IV, if you think pricing levels have more or less settled?"
Answer Summary: Pricing for CPCB IV+ products is expected to stabilize in the next 1"“2 quarters as the market transitions fully to CPCB IV+ after exhausting CPCB II inventory. Cummins' advanced technology and reliability justify premium pricing, but competitive dynamics remain dynamic.

Question 2: Mohit Pandey (Macquarie Capital)
"Can you give end market-wise color on what has driven the strength in the domestic PowerGen market in this quarter?"
Answer Summary: Growth in domestic PowerGen is driven by infrastructure development, mission-critical power needs (e.g., data centers), and improved execution. Demand spans construction, healthcare, manufacturing, and commercial real estate.

Question 3: Mohit Pandey (Macquarie Capital)
"Does the high HP sale number imply a big data center delivery in the quarter?"
Answer Summary: High-horsepower sales (INR 893 crores) include data center orders and other mission-critical applications. Data centers remain a key growth driver due to backup power needs.

Question 4: Mohit Pandey (Macquarie Capital)
"Can you give more color around the rationale and valuation for the sale of the wholly owned subsidiary CSSPL?"
Answer Summary: CSSPL, a dealership entity, was divested to align with Cummins' strategy of partnering with independent dealers for customer service. Valuation followed standard processes, and the transaction closes on April 1, 2025.

Question 5: Parikshit Kandpal (HDFC Securities)
"Have you seen any price cuts in your CPCB IV+ portfolio, and is competition now fully operational with CPCB IV+ products?"
Answer Summary: Cummins has maintained CPCB IV+ pricing, leveraging advanced technology and TCO benefits. Competitors have launched products, but differentiation in reliability and aftermarket support sustains Cummins' premium.

Question 6: Parikshit Kandpal (HDFC Securities)
"What is the pricing differential between Cummins and peers, and how does TCO compare?"
Answer Summary: Pricing varies across segments, but Cummins commands a premium due to brand value and technology. TCO advantages (e.g., fuel efficiency, reliability) offset higher upfront costs.

Question 7: Jonas Bhutta (Birla Mutual Fund)
"Is the surge in domestic high-horsepower sales (INR 893 crores) driven by data center orders?"
Answer Summary: High-horsepower growth reflects data center demand, mission-critical infrastructure needs, and improved execution. Visibility for future quarters depends on order inflows.

Question 8: Jonas Bhutta (Birla Mutual Fund)
"What explains the dip in gross margins YoY and QoQ?"
Answer Summary: Lower margins stem from a one-time benefit in Q3 FY24 (provision reversal) and product mix shifts. Efforts to reduce costs and improve manufacturing efficiency continue.

Question 9: Amit Anwani (PL Capital)
"What drove the Industrial segment's strong performance, and can you share subsegment breakdowns?"
Answer Summary: Industrial growth (INR 1,289 crores for 9M FY25) was led by construction (INR 455 crores) and railways (INR 357 crores), driven by infrastructure spending and tender execution.

Question 10: Pulkit Patni (Goldman Sachs)
"Are gross margins (35% in Q3) sustainable, given mix changes and CPCB IV adoption?"
Answer Summary: Margins depend on product mix, cost-reduction efforts, and market dynamics. Cummins aims to improve margins through operational efficiency, but sustainability hinges on external factors.

Question 11: Shrinidhi Karlekar (HSBC)
"What is the outlook for exports amid US tariffs and geopolitical risks?"
Answer Summary: Exports face uncertainty due to tariff evaluations and geopolitical issues. Cummins is assessing supply chain adjustments but sees near-term growth in Middle East and Latin America.

Question 12: Vinod (PhillipCapital)
"Could SMRs/battery storage disrupt DG demand in data centers?"
Answer Summary: Diesel gensets remain critical for data center backup power due to reliability. Battery/SMR adoption is unlikely in the near term due to cost and scalability challenges.

Question 13: Renu Pugalia (IIFL Securities)
"How is distribution revenue growing post-CPCB IV, and what drives aftermarket demand?"
Answer Summary: Distribution growth reflects higher asset utilization, retrofit kits (RECD/dual-fuel), and AMC services. Demand is sustained by pollution norms and Cummins' large installed base.

Question 14: Aditya Mongia (Kotak Securities)
"Can Cummins replace Mexican exports to the US post-tariffs?"
Answer Summary: Cummins is evaluating tariff impacts but notes differences in product portfolios for North America. Feasibility depends on logistics, costs, and supply chain optimization.

Question 15: Priyankar Biswas (BNP Paribas Exane)
"What is the contribution of RECD/dual-fuel kits to distribution revenue?"
Answer Summary: RECD/kits contribute to growth but remain smaller than core aftermarket services. Demand persists due to pollution norms, while long-term growth ties to Cummins' expanding asset base.