Cummins Inc.

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Somewhat Bullish +50

L&T, Siemens Energy, Cummins Among Motilal Oswal's Pick In Capital Goods; BEL Tops Defence Pack In Q4 Preview

AI-generated analysis

πŸ“ˆ Motilal Oswal forecasts limited impact from the Middle East conflict on capital goods, expecting 12% YoY execution growth in Q4 FY26 due to a strong order book.

πŸ›‘οΈ The brokerage maintains a selective approach favoring companies with robust execution capabilities, high order book visibility, and exposure to defense and transmission sectors.

⚠️ Uncertainties include potential extended war effects on GCC orders and rising raw material and freight costs, though strong demand may aid cost pass-through.

πŸ”‹ Transmission spending is highlighted as a growth driver, particularly for players in HVDCs involved in EPC and product segments.

πŸ’£ Defence spending is expected to benefit both domestic public sector undertakings (PSUs) and private players in India.

πŸ“‰ EMS (Engine Management Systems) valuations have dipped but are supported by government initiatives to boost value addition in India.

πŸ”’ Revenue and PAT estimates for Q4 FY26 coverage companies are projected at roughly +12%/-6% YoY with flat Ebitda.

πŸ”Œ L&T, Siemens Energy, and Cummins are reiterated as top large-cap picks in the capital goods sector.

βš™οΈ Mid-cap and small-cap stocks favored include Kirloskar Oil Engines and Kalpataru Projects International.

πŸ’» Bharat Electronics (BEL) is named the top pick in the defence sector pack for Q4 preview.

πŸ“Š Strong order books are cited as a primary factor fueling anticipated execution growth despite geopolitical turmoil.

🌱 Increasing investment needs are identified in defense, alternative energy renewables, and transmission infrastructure.

🏭 Developing a domestic ecosystem is seen as crucial to reduce dependence on other countries for key industrial inputs.

β›½ Monitoring of crude prices and government/private capex will continue to track sector performance going forward.

⚠️ Rising commodity prices over recent quarters are noted as a variable that brokerage analysts will watch closely.

Bullish Signals
  • Motilal Oswal expects execution growth of 12% year-over-year in Q4 FY26 for the capital goods sector, fueled by a strong order book.
  • The brokerage remains optimistic about transmission spending, particularly HVDCs, which will benefit both EPC and product side players.
  • Defence spending is expected to boost growth, benefiting domestic PSUs and private players alike.
  • The EMS segment looks positive as valuations have dipped while the government accelerates value addition initiatives in India.
  • L&T, Cummins India, and Siemens Energy are maintained with a positive stance in the large-cap space by Motilal Oswal.
  • Kirloskar Oil Engines and Kalpataru Projects International are favored in mid-cap and small-cap segments due to their quality execution capabilities.
  • Bharat Electronics (BEL) is highlighted as the top pick in the defence sector, topping the defence pack in Q4 preview.
  • The capital goods sector has been resilient amid turmoil from the Middle East war, driven by increasing investment needs in defence and alternative energy sources.
Risk Factors
  • Uncertainties persist if the current Middle East war continues for an extended period, which could affect existing order book visibility in the GCC region.
  • Higher raw material costs and elevated freight expenses present downside risks to profitability margins.
  • The brokerage expects a flat Ebitda growth for Q4 FY26, indicating limited operating leverage despite revenue growth.
  • Government and private capex may remain constrained due to a potential spike in crude prices over the coming quarters.
  • Rising commodity prices over the last few quarters could pressure cost structures if effective pass-through mechanisms fail.
  • Motilal Oswal remains selective in the capital goods sector, implying potential weakness among non-favored peers not explicitly mentioned.
Full Analysis
Motilal Oswal has maintained its positive outlook for the capital goods and defence sectors, identifying Larsen & Toubro (L&T), Siemens Energy, and Cummins India as key picks in the large-cap space for Q4 FY26. The brokerage expects limited impact from the ongoing Middle East conflict on these stocks, anticipating an execution growth of approximately 12% year-on-year driven by a robust order book. This resilience is attributed to strong demand tailwinds in high-growth segments such as transmission, including high-voltage direct current (HVDC) projects, defence spending, and data centres. However, the firm notes persistent uncertainties stemming from potential prolonged conflict affecting GCC region orders, escalating raw material costs, and elevated freight expenses, which could be mitigated by companies' ability to pass through cost increases. In the mid-cap and small-cap categories, Motilal Oswal highlights Kirloskar Oil Engines and Kalpataru Projects International as recommended stocks alongside its large-cap selections. For Q4 FY26, the brokerage projects that covered companies will report revenue and profit after tax (PAT) growth of around 12% and a decline of approximately 6% year-on-year respectively, while flat Ebitda is expected. The analysis underscores a strategic shift towards investing in domestic defence capabilities, alternative energy sources like renewables, and transmission infrastructure to reduce dependence on other nations, with particular optimism for the engineering manufacturing services (EMS) sector where valuations have declined amidst government initiatives promoting local value addition. Regarding the defence sector specifically, Bharat Electronics Limited (BEL) is positioned as the top pick by Motilal Oswal for the quarter, capitalizing on a strong defence spending outlook that benefits both public sector undertakings and private players. The firm advises monitoring the outcome of the ongoing war, government and private capital expenditure driven by crude price spikes, and commodity price movements over the coming quarters. This research was conducted within NDTV Profit's special equity research section, which aggregates reports from top brokerages and asset managers, though the content is provided as an external party analysis and does not constitute investment advice or represent NDTV Profit's own views.