Cummins India Ltd.’s June-quarter earnings have left brokerages focused on whether the sharp margin compression marks a temporary setback or the beginning of a more challenging earnings phase.
The biggest concern was gross margins, which fell to 33.5%, the lowest in nearly 13 to 14 quarters, as higher commodity costs and supply chain disruptions pushed material costs up to 66.5% of revenue from 63% a year ago.
Cummins India Q1 Results: Results Vs Estimates
- Revenue at Rs 3,426 crore vs estimate of Rs 3,217 crore (Beat by 6.5%)
- EBITDA at Rs 617 crore vs estimate of Rs 663 crore (Miss by 7%)
- EBITDA margin at 18% vs estimate of 20.7% (Miss by 270 bps)
- Adjusted PAT at Rs 543 crore vs estimate of Rs 597 crore (Miss by 9%)
HSBC maintained its ‘Buy’ rating with a target price of Rs 6,500, saying lower margins offset otherwise solid execution. The brokerage believes management commentary still points to healthy business momentum across key markets despite near-term cost pressures.
Citi also retained its ‘Buy’ rating with a Rs 6,700 target price. It attributed the earnings miss to a larger-than-expected impact from commodity inflation and delays in passing on higher costs to customers. The brokerage said it will look for greater clarity during the earnings call on whether any one-off expenses also affected profitability.
ALSO READ: Cummins India Q1 Results: Profit Slips 7% Despite Jump In Revenue; Margin Contracts
JPMorgan struck a more cautious tone, maintaining a ‘Neutral’ rating with a target price of Rs 5,882. The brokerage described the June quarter as the weakest margin performance in the past 10 quarters and noted that the decline appeared unusually steep given Cummins’ relatively limited exposure to commodities such as copper and silver.
Adding to investor concerns, Managing Director Shveta Arya resigned with effect from Aug. 31, citing external opportunities. JPMorgan believes the unexpected leadership change, coupled with weak margins, could weigh on near-term stock performance.
Brokerages on Cummins India
HSBC
- Maintain Buy; Target Price: Rs 6,500.
- Earnings missed estimates due to margin pressure.
- Lower margins offset strong execution during the quarter.
- Management commentary points to steady business momentum across key markets.
Citi
- Maintain Buy; Target Price: Rs 6,700.
- Q1 margins came in below expectations.
- Commodity headwinds and a lag in cost pass-through had a larger-than-expected impact.
- Awaits clarity on any one-off expenditures during the earnings call.
JPMorgan
- Maintain Neutral; Target Price: Rs 5,882.
- Q1FY27 margins were the weakest in the past 10 quarters.
- Margin weakness is notable given Cummins’ relatively low exposure to commodities such as copper and silver.
- The key question is whether Q1 marks the end of the company’s robust margin phase or is a one-off.
- Expects the weak margin performance and the Managing Director’s resignation to weigh on the stock.
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