Cummins India Limited — Q3 FY25 earnings call

Call held 7 Feb 2025

Management summary

Cummins India reported strong Q3 FY25 results with sales up 22% YoY to INR 3,041 crores, driven by robust domestic demand across PowerGen, Distribution, and Industrial segments, and significant export growth. Profit before tax increased by 11% YoY to INR 670 crores. The company also announced the strategic divestment of its 100% subsidiary, CSSPL, for INR 56.5 crores, and maintains a positive outlook for double-digit revenue growth for the full fiscal year.

Highlights

  • Sales grew significantly by 22% YoY to INR 3,041 crores, driven by strong domestic and export performance.

  • Domestic sales increased by 18% YoY, with PowerGen, Distribution, and Industrial segments showing robust growth.

  • Exports surged by 43% YoY, with both high and low horsepower segments contributing.

  • Profit before tax increased by 11% YoY to INR 670 crores, demonstrating improved profitability.

  • The company expects to achieve double-digit revenue growth for the full year FY25.

Concerns

  • Gross margin movement was impacted by the absence of a one-time benefit present in the prior year and overall product mix.

  • Pricing for CPCB IV+ products is still settling and is expected to take another 1-2 quarters.

  • Exports remain a mixed bag, with geopolitical issues and US tariffs under evaluation for their impact on end markets.

Key financials

  1. Sales ₹3,041 Cr +22%YoY
  2. Domestic Sales ₹2,577 Cr +18%YoY
  3. Exports ₹464 Cr +43%YoY
  4. Profit before tax ₹670 Cr +11%YoY

What they filed

Q1 FY27: revenue up 17.9%, net profit down 7.8% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue2,492 3,086 2,457 2,907 3,170 +27%3,055 −1%3,011 +23%3,426 +18%
EBITDA481 600 520 624 695 +44%634 +6%642 +23%616 −1%
Net profit451 514 521 589 638 +41%453 −12%650 +25%543 −8%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

SegmentSalesYoY GrowthQoQ Growth
PowerGen Domestic (Q3 FY25)₹1,271 Cr18%42%
Distribution Business (Q3 FY25)₹746 Cr13%13%
Industrial Domestic (Q3 FY25)₹511 Cr24%26%
Exports - High Horsepower (Q3 FY25)₹202 Cr47%1%
Exports - Low Horsepower (Q3 FY25)₹216 Cr47%9%
Industrial Segment (9 Months FY25)———
Marine (Q3 FY25)———
Compressor (Q3 FY25)———

Order book

low confidence
Data center demand continues to grow, Jonas, and we are continuing to see the movement in the orders coming in. So difficult to tell you for the next 3, 4 quarters. The demand continues for now. We are continuing to build the order board. We've managed to clear a lot of backlog. We've really managed to execute and clear a lot of backlog, to be honest, in this quarter.

Source: Q&A

Capital allocation

high confidence
  • Capex Capex disclosed
    So our we, as a company, keep evaluating our capex needs very regularly to see what are the new product ranges that we want to launch, what are the new technologies we want to launch for our customers. And that's a regular cycle. And the parent has announced for a few countries their capital expenditure. It will definitely come to us as well based on our needs, what -- where we need to spend in our manufacturing capability, where we need to spend in new product introduction. Depending on that, it will come to us. And that's under evaluation at this point in time.
  • M&A Cummins Sales & Service Private Limited (CSSPL) Divestment · Announced · Consideration ₹[object Object] (cash)

    Strategically, having independent dealers around the country really helps us serve our customers well. So strategically, going forward, that is the model that the company which we have adopted for the last year, last few -- many years. We will continue with that model. And with that intent in mind, we have divested this dealership entity.

    the Board approved sale of 100% subsidiary of Cummins India Limited, namely Cummins Sales & Service Private Limited, CSSPL, for a consideration of INR56.5 crores. Post the completion of the transaction, CSSPL will cease to be a subsidiary of the company. The expected date of closing the transaction is April 1, 2025.
  • Liquidity Liquidity disclosed The company is cash rich, and we continue to get the capex that we need to serve our customers.
    The company is cash rich, and we continue to get the capex that we need to serve our customers.

Guidance & targets

Margin

  • Gross Margin Margin · Medium confidence continue improving
    So from a gross margin perspective, I think our endeavour is to continue improving it.

    — Shveta Arya

Market context

  • Revenue Growth Revenue · full year 2024-25 · High confidence double-digit
    Regarding the sales outlook for the full year 2024-'25, we expect to achieve double-digit revenue growth over the fiscal year 2023-'24.

    — Shveta Arya

What to watch in Q4 FY25

CPCB IV+ pricing settlement

Next 1-2 quarters
Current Still settling
Target Settled pricing levels

Why it matters

Pricing stability directly impacts profitability and competitive landscape.

From a PowerGen domestic perspective, we believe that pricing will take at least another one or 2 quarters to settle in the market. ... So another quarter or 2 is what we believe pricing will take to settle.

Risks & concerns

  • Geopolitical events and US tariffs impacting export markets.

    medium

    Geopolitical issues and US tariffs are under evaluation for their potential impact on end markets, making the export outlook a mixed bag.

    Management acknowledged

  • Pricing settlement for CPCB IV+ products.

    medium

    Pricing levels for CPCB IV+ products are still settling and are expected to stabilize over the next one to two quarters, which could impact margins.

    Management acknowledged

  • Cyclical nature of the construction segment.

    low

    While demand is currently strong, construction is a cyclical segment that the company continues to monitor.

    Management acknowledged

Q&A highlights

6 direct
Pricing trends and settlement for CPCB IV+ products. Direct
From a PowerGen domestic perspective, we believe that pricing will take at least another one or 2 quarters to settle in the market. We spoke last time that there was inventory of CPCB II available till the last quarter. So we still will see now we will see the market completely buying CPCB IV+ products. So another quarter or 2 is what we believe pricing will take to settle.

Provides clarity on the ongoing pricing dynamics post CPCB IV+ adoption and timeline for stabilization.

Asked by Mohit Pandey

Drivers for strong domestic PowerGen growth. Direct
So the infrastructure growth in our country continues. And specifically for the power gen market, we see demand in the mission-critical power segment. As infrastructure is getting built in the country that continues to grow. Data center segment continues to grow in our country. And with the infrastructure spend, there are many other segments which continue to grow. So this demand is actually across various segments.

Identifies key demand drivers for the PowerGen segment, indicating broad-based growth.

Asked by Mohit Pandey

Rationale and valuation for the sale of subsidiary CSSPL. Partial
So this wholly owned subsidiary is actually a dealership entity. And we had this one dealership entity that the company had shares in. Across the country, there are other dealerships that we have as well. And strategically, what we have seen is that having independent dealers around the country really helps us serve our customers well. So strategically, going forward, that is the model that the company which we have adopted for the last year, last few -- many years. We will continue with that model. And with that intent in mind, we have divested this dealership entity.

Explains the strategic shift towards independent dealers and the company's long-term model for distribution.

Asked by Mohit Pandey

Impact of parent company's $200 million capex announcement for India on Cummins India. Direct
So our we, as a company, keep evaluating our capex needs very regularly to see what are the new product ranges that we want to launch, what are the new technologies we want to launch for our customers. And that's a regular cycle. And the parent has announced for a few countries their capital expenditure. It will definitely come to us as well based on our needs, what -- where we need to spend in our manufacturing capability, where we need to spend in new product introduction. Depending on that, it will come to us. And that's under evaluation at this point in time.

Clarifies that the capex will be allocated based on Cummins India's specific needs for manufacturing and new product development, indicating potential future investments.

Asked by Parikshit Kandpal

Sustainability of high horsepower sales, particularly from data centers. Partial
Data center demand continues to grow, Jonas, and we are continuing to see the movement in the orders coming in. So difficult to tell you for the next 3, 4 quarters. The demand continues for now. We are continuing to build the order board.

Confirms continued strong demand from data centers but indicates limited short-term visibility on specific delivery levels.

Asked by Jonas Bhutta

Gross margin movement, including a one-time benefit in the previous year. Direct
So the gross margin movement, Jonas, I would say the 2 big factors over there. One is that in the last year, if you're looking at that, there was a onetime benefit that we had, which we didn't have this year. And then overall mix of products that we saw in this quarter is what impacts the gross margin.

Explains the factors influencing gross margin, including a non-recurring benefit in the base quarter, which helps in understanding YoY comparisons.

Asked by Jonas Bhutta

Outlook for Industrial segment subsegments (construction, rail, mining) and CEV norms impact. Direct
The base demand because of the infrastructure growth in the country and the capital expenditure continues, but it is a segment which can be cyclical. So we continue to watch that. Difficult to say at this point in time how that will play out in this year. Rail. In rail, there were quite a few orders that came in, in the last quarter, and we were able to execute them as well. The base demand in the railways continues. Definitely, the frequency of the orders and all of that changes based on how the tenders come out. Then again, mining, we do expect activity to pick up in mining. We -- again, it's a tender-based business. So it really depends on the tender velocity. We anticipate the tender velocity to be better in this year.

Provides detailed outlook for key industrial subsegments, highlighting both sustained demand and cyclical/tender-based nature.

Asked by Jason Soans

Comparison of diesel gensets with SMRs and battery storage for data centers. Direct
Diesel gensets will continue to be the backup power requirement of the data centers because this is the -- diesel gensets are the products which can provide continuous power no matter what conditions for a long period of time as much as you can maintain them. And keep providing the fuel. So it does remain the primary backup power source. The reliability of a diesel genset as a backup power is well known. And at this point in time, we do not see that getting replaced so easily till the reliability and the prices of the batteries come to very, very similar space of a diesel genset, which is not the case today.

Reassures investors about the continued relevance of diesel gensets as primary backup power for data centers despite emerging technologies like SMRs and battery storage.

Asked by Vinod

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Detailed narrative

Strong Q3 FY25 Performance Driven by Domestic and Exports

Cummins India reported robust Q3 FY25 sales of INR 3,041 crores, marking a 22% year-on-year and 24% quarter-on-quarter increase. Domestic sales grew by 18% YoY and 28% QoQ to INR 2,577 crores, while exports surged by 43% YoY and 5% QoQ to INR 464 crores. This strong top-line growth translated into a profit before tax of INR 670 crores, an 11% YoY and 13% QoQ improvement.

Strategic Divestment of Subsidiary for INR 56.5 Crores

The company's Board approved the sale of its 100% subsidiary, Cummins Sales & Service Private Limited (CSSPL), for a consideration of INR 56.5 crores. This strategic move aims to transition towards a model with independent dealers, which management believes better serves customers and aligns with the company's long-term distribution strategy. The transaction is expected to close by April 1, 2025.

PowerGen Segment Fueled by Infrastructure and Data Centers

The domestic PowerGen segment recorded sales of INR 1,271 crores in Q3 FY25, an 18% YoY and 42% QoQ increase. This growth was primarily driven by continued infrastructure development in India and strong demand from mission-critical power segments, including data centers. High horsepower sales, which include data centers, contributed INR 893 crores to this segment.

Industrial Segment Shows Broad-Based Growth

The Industrial domestic business saw sales of INR 511 crores, up 24% YoY and 26% QoQ. Key subsegments like construction (INR 455 crores for 9 months), rail (INR 357 crores for 9 months), and mining (INR 170 crores for 9 months) contributed significantly. Management noted strong demand from infrastructure projects, good execution in railways, and anticipated better tender velocity in mining.

CPCB IV+ Pricing Still Settling, Margin Improvement Efforts Underway

While CPCB IV+ products now constitute roughly 40% of total PowerGen sales, management indicated that pricing levels are still settling and are expected to stabilize over the next one to two quarters. Despite this, the company is actively working on cost reductions, manufacturing efficiency, and product mix optimization to continuously improve gross margins.

Exports Face Geopolitical Headwinds Amidst Growth

Exports demonstrated strong growth of 43% YoY in Q3 FY25, with both high and low horsepower segments contributing significantly (INR 202 crores and INR 216 crores respectively). However, management highlighted that the export market remains a mixed bag, with geopolitical issues and recently announced US tariffs requiring ongoing evaluation for their potential impact on various end markets.

Capital Expenditure Plans Under Evaluation

The parent company has announced a $200 million capex for India, which Cummins India is evaluating based on its needs for manufacturing capability enhancements and new product introductions. The company emphasized its cash-rich position and continuous, albeit smaller, capex additions over the past five years for sustenance projects, facility upgrades, and new product development.

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