Cummins India shares fall 5% after Q1 margins fall to 10-quarter low, MD quits

Shares of Cummins India Ltd. will be reacting to their June quarter results on Thursday, August 6. The results were reported after market hours on Wednesday evening.

Cummins India missed street expectations on the profitability and margin front, while its margins also fell to the lowest level in the last 10 quarters.

Revenue for the quarter grew by 18% from last year to ₹3,425 crore, which was marginally higher than the CNBC-TV18 poll estimate of ₹3,286 crore.

Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) stood at ₹615.4 crore, which was lower than the ₹623.5 crore figure it reported during the same quarter last year. A CNBC-TV18 poll had projected the figure to be ₹689 crore.

The 10-quarter low EBITDA margin stood at 17.97%, 350 basis points lower than last year's figure of 21.46%, and also lower than the CNBC-TV18 poll estimate of 20.97%.

Cummins India's operating performance during the quarter was impacted by higher cost of goods, which increased by 24% from the year-ago period and a lag in the pass through of these higher costs.

Growth during the quarter came from domestic sales, which were up 22% from last year to ₹2,854 crore, while exports at ₹521 crore were flat from last year.

While the management expects the business momentum to remain steady going forward, it expects the inflationary pressure and supply chain constraints to continue.

The other piece of news for Cummins India is the resignation of its Managing Director Shveta Arya, who will leave on August 31, after a stint of less than two years to pursue external opportunities. Shveta Arya had been appointed the company's MD in September 2024. Cummins India said it is evaluating potential candidates to succeed her.

In an interaction with CNBC-TV18 on May 29 this year, Arya had highlighted that the second and third quarter will be key to watch this financial year due to the current geopolitical tensions. She had warned of no improvement in exports this quarter, which was evident from the flat sales growth. She had also highlighted growth in the data center business and a growing order book in railways and mining.

Brokerage firm Citi has maintained its "buy" rating on Cummins India with a price target of ₹6,700 crore.

Citi said that it is awaiting more clarity on any one-off expenditures during the company's earnings call, adding that the impact of commodity headwinds or the lag in pass-through turned out to be higher than expectations.

Nomura remains "neutral" on the stock with a price target of ₹6,000. It attributed the margin miss to a sharper-than-expected gross margin contraction.

Shares of Cummins India ended 2.7% lower on Wednesday at ₹5,401 ahead of the results announcement. The stock is still up 21% so far for the year, having corrected nearly 12% from its 52-week high.