Cummins India Ltd (NSE: CUMMINSIND) Q2 2025 Earnings Call dated Nov. 08, 2024
Corporate Participants:
Shveta Arya — Managing Director
Ajay Patil — Chief Financial Officer
Analysts:
Parikshit Kandpal — Analyst
Subhadip Mitra — Analyst
Jason Soans — Analyst
Umesh Raut — Analyst
Mahesh Bendre — Analyst
Priyankar Biswas — Analyst
Nidhi Shah — Analyst
Vinod C — Analyst
Amit Mahawar — Analyst
Aditya Mongia — Analyst
Jonas Bhutta — Analyst
Pulkit Patni — Analyst
Sanjaya Satapathy — Analyst
Mohit Pandey — Analyst
Presentation:
Operator
Good morning, ladies and gentlemen. Welcome to Cummins India Limited Q2 FY2024 -’25 Earnings Conference Call. We hope you all are keeping safe and healthy. [Operator Instructions] I will now hand the conference over to Ms. Shveta Arya, Managing Director, Cummins India Limited. Thank you. And over to you ma’am.
Shveta Arya — Managing Director
Thank you. Good morning, ladies and gentlemen. I hope all of you are doing well and staying safe and healthy. Welcome to The Cummins India Limited Quarter two financial year 2024-’25 earnings conference call. I am Shveta Arya, Managing Director of Cummins India Limited. Joining me on the call today is Ajay Patil, Chief Financial Officer of Cummins India Limited. Thank you all of you for joining us today.
Now I would like to share the financial Results of Quarter two financial year ’24-’25. For the quarter ended September 30, 2024, with respect to the same quarter last year, our sales at r 2,444 crores are higher by 31% compared to INR1,871 crores recorded in the same quarter last year. Domestic sales at INR2,008 crores are higher by 47%. Exports at INR440 crores are lower by 13%. Profit before tax at INR594 crores is higher by 39% compared to the same quarter last year.
For the quarter ended September 30, 2024, with respect to the previous quarter, our sales at INR2,448 crores are higher by 8% compared to INR2,262 crores recorded in the last quarter. Domestic sales at INR2,008 crores are higher by 7%. Exports at INR440 crores are higher by 13%. Profit before tax at INR594 crores is higher by 8% compared to the previous quarter.
I would now like to share the segment by sales breakup for the quarter ended September 30, 2024. For the domestic business, power generation domestic sales were INR896 crores, 84% higher compared to last year and 12% higher compared to last quarter. Distribution business sales were INR658 crores, 20% higher compared to last year and 1% higher compared to last quarter. Industrial domestic business sales were at INR406 crores, 35% higher compared to last year and 9% higher compared to last quarter.
For the exports business, high horsepower exports were at INR200 crores, 24% lower compared to last year and 1% lower compared to last quarter. Low horsepower exports were at INR198 crores, 5% lower compared to last quarter and to last year and 28% higher compared to last quarter.
Cummins India Financial guidance, regarding the sales outlook for the full year 2024-’25, we expect to have double digit revenue growth over the fiscal year. That’s it from my side. I now open the session for questions. Thank you.
Questions and Answers:
Operator
Thank you very much ma’am. [Operator Instructions] The first question is from the line of Parikshit Kandpal from HDFC Securities.. Please go ahead.
Parikshit Kandpal
Hi Shveta. Congratulations on a great quarter. My first question is on the pricing of the CPCB-IV+ engines. So now we have almost two quarters now, and so from the starting point when you had introduced these engines and then there was a deferral. So, from that point to this point, have you seen any correction in prices?
Shveta Arya
So, you’re right, CPCB-IV+ was announced last year and then we transitioned to full CPCB-IV+ this year 1st of July. We are watching this space. We had launched our products last year. We are seeing all the other products from other players getting launched now. And so, I think we will see what happens to pricing in the coming two quarters. That’s how I would think this will play out in the next two quarters.
Parikshit Kandpal
But your own pricing when it was introduced, engines was introduced, until now, have you seen any correction in prices? Or you still maintaining those prices?
Shveta Arya
We are mostly maintaining those prices as of now since we launched.
Parikshit Kandpal
Okay. Second question is on the nodes. I think you have some advantage. You have more nodes in the market versus the competition. And now you said that more nodes are coming in from the competition. So do you think you have some fair advance because you have more nodes in the market, and hence, you are able to capture larger share of the market. And as competition introduces more product, do you think that potentially there is a case that you may lose some of this market share gains?
Shveta Arya
I would say that customers will now have more choices in the market for sure. We were amongst one of the first few players to launch the full range of products in the market. In the meantime, we have continuously worked on improving our supply chain, making sure that our product is well accepted in the market. We do have a strong brand in the market, so we do think we are pretty well positioned in the CPCB-IV+ space in the market. Okay, and what will be the differential between the competition prices and our prize in the market now? We are watching the space. Pricing will play out in our view in the next few quarters. We have seen products getting launched, so we are watching the space.
Parikshit Kandpal
This is the last question on the exports market. Now this is the fourth consecutive quarter of recovery in exports. If you can help us understand the demand from the end markets and which geographies have recovered, and how do you see this demand panning out for rest of the year.
Shveta Arya
So, from an export perspective, specifically speaking about the quarter that went by, we saw some good orders coming in from Latin America and from Europe. The Middle East, Asia Pacific, Africa regions remained muted. So, these are mixed signals. There are geopolitical situations around us. We provide our products to a wide range of countries, so we do see mixed signals. But for the quarter gone by we definitely saw great orders coming from Latin America and Europe region.
Parikshit Kandpal
Okay, sure Shveta. Thank you. Those were my questions and wish you the best.
Operator
Thank you. The next question is from the line of Subhadip Mitra from Nuvama. Please go ahead.
Subhadip Mitra
Good morning and thank you for the opportunity. Congratulations for an excellent set of results. My first question is to — what we’re trying to understand is out of the overall INR2,400 crores of top line that you have come up with, what rough percentage of that would be CPCB-IV sale?
Shveta Arya
Thank you for the question and thank you for the — I can share with you that in the domestic power gen market, out of the INR2,448 crores, the overall domestic market number I shared with you at INR2,008 crores of which our power gen number is around INR896 crores for the quarter, that is power gen and the mix continues to be in the last quarter mostly CPCB-IV+, some CPCB-II but mostly CPCB-IV+. As you will understand, CPCB-IV+ is below 800 kilowatts and above that is CPCB-II range. So, there is a mix there of CPCB-II and CPCB-IV+.
Subhadip Mitra
Understood. Secondly, I think in your parent’s commentary for this particular quarter it was mentioned that there is still some lingering benefit of CPCB-II pre sales, so has there been any CPCB-II related pre-sale benefit that has still continued in 2Q?
Shveta Arya
No, no. CPCB presale is all over, and we flushed out all the inventory now. So, in this quarter there is no CPCB-II pre-sale benefit.
Subhadip Mitra
Perfect, perfect. That is understandable. Secondly, just wanted to understand that in this particular quarter, clearly gross margin numbers have seen a bit of an impact. Is this largely because of higher import component that we are seeing for CPCB-IV+?
Shveta Arya
No, this is largely due to the mix that plays out for us. In this quarter, there is a large share of the projects business as we call it where we do installation and commissioning for some of our gensets, and so because of that it’s the mix playing out.
Subhadip Mitra
Understood. So, you anticipate gross margins to kind of revert back to normalized levels once this project business execution is done?
Shveta Arya
It’s the regular part of the business, projects business continues for us as do the other sales. So, there are some quarters where we do larger share of that kind of business. We do sometimes larger share of the other sales. So, it’s a continuous part of our business.
Subhadip Mitra
Understood. Understood. Last question from my side is I understand there is a good component of operating leverage benefit also which would have probably come in this quarter leading to these kind of EBITDA margins. So, would you believe that this range of EBITDA margin can continue and what kind of capacity utilization are we getting on right now?
Shveta Arya
So, from a margin perspective we’ve been putting continuous efforts really. We do have good volumes. There are cost management and material margin improvement programs that we continuously work on. So, all of that is ongoing work for us which is mostly to provide the right value to our customers in the market, and that is going to continue for us.
Subhadip Mitra
In terms of capacity utilization, any number you would like to talk about?
Shveta Arya
There are — so there is a large, there is a wide range of products that we manufacture in our plants and our capacities are utilized quite well at this point in time, more than — on an average more than 60% to 65% utilization.
Subhadip Mitra
Understood. One last question I will squeeze in that in terms of data centers, is there a large potential market that you’re looking at, and what quantum of your sales would data center [Indecipherable]?
Shveta Arya
Data centers around the world as a segment is doing very well given the AI boom across the world, as is the case in India, and we have products which are rightfully positioned for that segment. So most definitely we are quite focused on that segment, and we see the growth of that segment around the world as we see it in India. So that’s where we are with data centers.
Subhadip Mitra
And any particular percentage of sales today that you’re seeing data centers comprise of?
Shveta Arya
Not really. Data centers are spread across, we don’t give specific segment wise information, and in data center space we do [Indecipherable] as well as we do some project work. So, it’s spread out across different kinds of work that we do. So, we can’t share that segment specific information.
Subhadip Mitra
Understood, Madam, thanks so much for answering my questions.
Operator
Thank you. We’ll take the next question from the line of Jason Soans from IDBI Capital. Please go ahead.
Jason Soans
Yeah, madam. Thanks for taking my question. First of all, congrats on taking charge on your new role. I would just ask you [Technical Issues] industrial segment business Now I believe January 2025 there is an emission norm change for the construction equipment industry in terms of engines. So, are we looking in this — in the Q3 quarter for some prebuying? Could you give some color on this aspect in terms of the emission norm change? How are we playing, and how are we getting ready for this change coming along from January 2025?
Shveta Arya
Thank you. Thank you for your question. Yes, there will be an emission norm change in that segment. The construction segment from a demand perspective has been doing well. So, in the quarter gone by and in the coming quarter, given the construction activity going on in the country, as it is, the segment has been — this particular space has been doing well. As with any other emission change, there is some prebuy that happens in the market plus the demand is strong. So, there would be mostly some prebuy [Technical Issues] as happens in every segment.
Jason Soans
Sure, ma’am. Also, I wanted to understand. [Technical Issues]
Operator
I am sorry Mr. Soans, your voice is breaking sir. Yeah, can you come in the network area? There is a background noise as well from your end.
Jason Soans
Hello, is it better now?
Operator
Yes, much better. Please continue.
Jason Soans
Yeah, sure, sure, I will try and continue. Yeah, so I just wanted to ask, I understand that an earlier participant did ask this question now just wanted to understand this GM — the gross margins dip which happened as around 220 bps on a consol basis. So just wanted to understand, you did explain about the larger share of the project. Could you just explain a bit — could you throw more color on this like and now since we have completely shifted to the CPCB-IV+ regime, what could be sustainable going forward for Cummins?
Shveta Arya
I did explain this that this did happen due to the mix the products, and it’s a continuous part of the business. Other than that, there is nothing specific in this space and there’s just continuous work going on, on improving our material margins which is an internal program called ACE that we run. Other than that, there is nothing unusual here than the mix. So, which plays out based on how we get those projects and how we execute them, as I mentioned earlier.
Jason Soans
Okay, sure. Those are all my questions. I’ll join back with you. Thank you so much.
Operator
Thank you. We’ll take the next question from the line of Umesh Raut from Nomura India. Please go ahead.
Umesh Raut
Hi, ma’am. Good morning. Congratulations for the strong domestic performance on sales side. My question again is more on the gross margin side. So, if I look at overall mix for the company on a quarter-on-quarter basis, even on a year-on-year basis, I think it is largely remaining same. But we have observed about closer to 200 basis point gross margin drop on a quarter-on-quarter basis. So, is it primarily because in your view whatever cost increase that was there on the CPCB-IV+ product side, that is fully not yet passed on to the customer and that is how incremental CPCB-IV+ product line is kind of impacting on the gross margins for you?
Shveta Arya
Thank you for the question. But no, that is not how it is playing out in the gross margin. The gross margin as I explained is mostly a function of the mix really. So that’s not what’s playing out.
Umesh Raut
Got it. Thank you for that clarity. Second question. When you are saying that project business contribution for this quarter was relatively on a high side, are you referring to project business which is coming under industrial segment or any particular project order that you have received in the power generation site?
Shveta Arya
This is a separate business. This is not from the industrial business. This is execution of sites at the data center where we do installation and commissioning of heavy genset applications tailored to the customer’s demands. So that’s what this projects business is.
Umesh Raut
Got it. I’m sure your restructuring exercises like VRS and all, they have contributed in controlling employee cost for you. But for this quarter, we have observed more of about flat employee cost on a year-on-year basis. Any reason over here what kind of employee cost we can assume going forward?
Shveta Arya
I will request Ajay for you to take this question please.
Ajay Patil
Hi Umesh, thank you for joining the call. I think the function of what you see on the people cost has some amount of one-off item impact that has played out in the quarter. There were certain reclassifications that we reported. So therefore, the numbers seem flat when you see it on a year-on-year basis. However, when you see on a YTD basis on a six-monthly basis, you will find people cost has the impact of one off plus the merit. So overall, you should expect the people cost to inflate at a normal rate, what you have seen historically.
Umesh Raut
Okay, could you please quantify the numbers for first half or for this quarter?
Ajay Patil
There was some one-off adjustment to the tune of about INR42 crores.
Umesh Raut
This is for the quarter, right?
Ajay Patil
Yeah, quarter and YTD both.
Umesh Raut
Okay, got it. And is there any one off on the other expenses side as well in the quarter? Because we have seen about 32% jump in other expenses as compared to 31% sales growth. Was, there any promotional expenses around new product launches related to CPCB-IV+?
Ajay Patil
No, I think the other expense, Umesh, is a function of how the volume has played out for us. As you could have seen on an H1 basis, the revenue is up 16%. So, obviously there is an impact of some volume linked variable expenses there. Besides some of the requirements that we talked about has some impact flowing through the other expense as well. And plus of course there are certain investments that we have made when it comes to our front-end infrastructure on how we serve the customer. So, some costs associated with those technology expenses, those are coming through in the other expense.
Jason Soans
Got it, sir. Thank you so much. I will join back the queue. All the very best.
Operator
Thank you. We will take the next question from the line of Mahesh Bendre from LIC Mutual Fund. Please go ahead.
Mahesh Bendre
Hi. Thank you so much for the opportunity. Ma’am, what is the currently capacity utilization in our genset factory in terms of engine manufacturing facility?
Shveta Arya
Yeah, Ajay, would you like.
Ajay Patil
I think, Mahesh, the way the capacity utilization has been looked at it is in two parts. One is on the manned capacity side, we are in excess of 90%. However, when you look at our installed capacity, relative to that, we are about 60% of thereabouts. So, from a capacity availability point of view, we have ample capacity available in order to address any potential uptick that may come.
Umesh Raut
Yeah. So basically, the waiting period for genset has gone up.
Shveta Arya
No, the waiting period for genset has not gone up. We are maintaining our lead times. In fact, we’ve been able to work on our supply chain, and we have been able to improve our lead times.
Mahesh Bendre
Okay, and last question from my end is about distribution side. I mean this business has been doing really well. 20% growth. So how should we look at, in terms of the genset population we are currently addressing? I mean, if someone has to imagine about the business in terms of growth, how should we look at this?
Shveta Arya
This is a parts and service business for us, and where we are focused on is increasing the penetration with our customers across the board. And we continuously provide service contracts as well as parts to our customers for them to be able to maintain their assets over a long period of time. So, our endeavor is to provide that right kind of maintenance and the right kind of value adds for the customer. And that’s how this business has been growing for us, and it continues to be a focus area for us.
Mahesh Bendre
So, I mean, the genset has, as long as genset population grows from our end, this business will continue to build up, right.
Shveta Arya
So the genset population growth, our penetration with the customers, both of those help with growing this business.
Mahesh Bendre
Sure. Thank you. Thank you, ma’am.
Operator
Thank you. We’ll take the next question from the line of Priyankar Biswas from BNP Paribas Exane. Please go ahead.
Priyankar Biswas
Congratulations ma’am for your new responsibilities. So, my first question is on the power gen side. If I recall in the last concall what we had, was that there was a lack of channel inventory for CPC before because there was a lot of prebuy. So, what is the inventory level at the channel right now? And also parallelly on that question, I would add on one more thing is what I understand is that most of the players are offering two years comprehensive warranty and then on top of that three years critical parts warranty. So, isn’t it going to lead to higher warranty provisioning at your end in case if you are following the same trend? So that’s my question.
Shveta Arya
Okay, thank you for the question. I’ll first answer the inventory question. We continuously evaluate inventory in the channel and for CPCB-IV+ as well, we have evaluated the inventory, and we are at adequate stock availability in our channel for CPCB-IV+. So that’s where the inventory levels are. In terms of your question around warranty, this is a very, very careful calculation at our end where we work through what does the customer need? How can we provide the best value to the customer? And that’s how we provide them these kind of warranty options. This does not lead to any excess provisions. It’s the usual course of business, and we have quantified that in our books as well.
Priyankar Biswas
Okay, so one more question that I have is recently what we are seeing is that at least from the data shared by ICMR, that the construction equipment sales growth has been falling. For example, in 4Q what used to be 21% is now like 1% construction equipment sales growth in September. So how confident are we that our construction segment or the industrial sales will continue on their growth momentum?
Shveta Arya
We have seen strong demand from our customers in the construction segment. So that’s — we do think that this space will show demand in the coming quarters as well. So, we have not seen any other signals yet.
Priyankar Biswas
And then finally from my end, like the usual breakup of power gen like HHP, midrange, LHP and for industrials like mining, construction, those numbers if you can share.
Shveta Arya
Sure, let me share the power gen sales numbers. So, for high horsepower for the quarter, we saw INR452 crores of revenue. For MHP, INR178 crores. For LHP, INR199 crores, and for our projects business around INR68 crores. That’s the total breakup of power gen. For the industrial business the breakup into different segments — construction is INR146 crores; rail, INR105 crores; mining at INR32 crores. Compressor at INR58 crores. And those are the major segments that we operate in.
Priyankar Biswas
Thank you ma’am.
Operator
Thank you, ma’am. The next question is from the line of Nidhi Shah from ICICI Securities. Please go ahead.
Nidhi Shah
Hi. Thank you for taking my question. Just on the previous participant’s question, you gave us the breakup for power gen for domestic, could you also provide the breakup for export?
Shveta Arya
Yeah, let me share that with you. For the exports, the high horsepower exports for the quarter overall, INR200 crores, and the low horsepower for the quarter is INR198 crores spread across the different geographies.
Nidhi Shah
All right, thank you so much.
Operator
Thank you. The next question is from the line of Vinod C from PhillipCapital. Please go ahead.
Vinod C
Yeah. Hi, good morning, and congratulations on your first quarter. I had a question related to data center. So, what will be our market share in our addressable market in data center, and you know, parallel to that, see backup is non-negotiable in data center. So, are we able to command better pricing in data center sales compared to our regular sales?
Shveta Arya
Thank you for your question. As I mentioned, data center is a focus segment for us. It’s a growing segment. We are rightly positioned with the correct product in this market. We have good relationships with all our customers. As you rightly said, backup is very important as is customer service in this segment. So through both our businesses we are very well positioned in the data center market to provide the value that our customer needs.
Vinod C
So, are we seeing better pricing in data center compared to what we normally realize in the market?
Shveta Arya
They are always very competitively priced in the market. And data center as any other segment also, you know there is obviously competitive pricing in that space as well. We are priced [Speech Overlap]
Vinod C
So, what would be our market share there?
Shveta Arya
We won’t be able to share the market share information. But I can tell you that we are very well positioned because our products are very well accepted in the data center space, and we provide the right kind of service to our customers along with the value adds that specific segment needs.
Vinod C
Sure. Second question was on exports. You’ve been mentioning for the past one year that India has the highest standards of emission norms, and if my engines are passed, in India, it can be sold anywhere. So where are we on that, in terms of making India hub for CPCB-IV+? And since you spearheaded the CPCB-IV+, probably you’re apt to answer that.
Shveta Arya
Yes, thank you for that question. So CPCB-IV+, if you see these are rightfully amongst the most stringent norms across the globe. We do have that technology. There are certain markets who are at these kind of emission levels and there are certain markets that are not. As markets transition and as they require these products, we are ready with the technology. As we speak, we are tailoring our products for the markets which are getting ready to be able to provide this technology to them. So as and when the markets move, we move and we are able to provide this technology to them.
Vinod C
Sure. Thank you. Thanks for the reply.
Operator
Thank you. The next question is from the line of Aditya Mongia from Kotak Securities. Please go ahead.
Amit Mahawar
Thank you for the opportunity and congratulations for the new role. I will move to my questions. The first one being was there any positive benefit that you had in the power gen segment because of [Indecipherable] that would have happened? So, CPCB-IV+ [Technical Issues] or can we assume this run rate.
Shveta Arya
We can’t hear you clearly. Could you please repeat your question?
Operator
I’m sorry to interrupt, sir, your voice is muffled. I would request you to use your handset please.
Aditya Mongia
Is this better now.
Operator
Yes sir. Please continue.
Aditya Mongia
Great. So, the question that I had was, was there any positive effect on the power gen sales because of restocking that would have happened for CPCB-IV+ compliant products? Or can we assume this run rate incrementally as well?
Shveta Arya
Sorry, you are still unclear. The voice is still slightly muffled. You’re asking about CPCB-IV+ restocking?
Aditya Mongia
Yeah, in the sense that as you flush out CPCB-II products and go for CPCB-IV, was there any inventory filling that led to a higher than usual number in power gen?
Shveta Arya
Okay. No, no, no, no. We had flushed out all the inventory before 1st of July. So, there is no impact of CPCB-II inventory in this quarter.
Aditya Mongia
Understood. The second question that I had was more on your assessment of the market share gain that has happened for you prior to and now post CPCB-IV in the power gen segment as a whole. If you could give us some sense on that.
Shveta Arya
In the power gen space, I will tell you in the CPCB-IV+ range we launched the product last year, and we have managed to make a lot of improvements in our supply chain till then. We have been able to — our product is exceptionally well positioned. We have a great brand in the market, we are pricing competitively, and there is good acceptance of the product in the market that is the CPCB-IV+ range, and in the higher ranges we have seen because our products are well positioned in the high horsepower range. So, we have seen that our market presence has remained stable over the last few quarters, and we have been able to maintain good value to our customers. That’s what I would be able to say.
Aditya Mongia
Understood. I just want to move on to the data centers piece because I think it’s important to understand for all of us. Now if we see the global company’s power gen sales, it seems as if data centers command almost a 40% salience inside the power gen number, and they count the distribution fee for power gen inside. Could you give us a sense whether it’s a good way to think through the mix of power gen in India for Cummings maybe three, four years down the line?
Shveta Arya
The global markets and India markets are quite separate in their demand drivers and what drives the market. Different countries are at different spaces in terms of their backup power needs and how data centers are progressing. So, I will not be able to say that we can draw a parallel right away with those global markets unless we can really analyze them with how similar they are and how similar India will be to some of those market signals.
Aditya Mongia
Understood. Just a weighted question and maybe I’ll fall back into the queue. Basically, if you see globally this phenomenon of hyperscaler, data centers are becoming more and more prominent and these customers typically are probably better served by Cummins, because Cummins owns their own kind of distribution network as well, which I think is of importance in this kind of segment. Should one be assuming that as share of these kinds of customers go up, the market share that Cummins would be having in the data center segment and potentially the distribution revenues also start scaling up.
Shveta Arya
I will only say that Cummins has good technology, well accepted product and really good service and relationships with these customers. That being said, the data center is absolutely a growing market in India, and us as well as others are present in this market. We do have a great brand presence and great relationship with our customers.
Aditya Mongia
Can that lead to an export kind of number happening? The data center market as such, can that lead to an export number that starts becoming relevant over time? That would be the last question. Thank you.
Shveta Arya
Data centers across the world, the nodes at which they operate are not similar. India operates at a different node and in the other markets these are slightly higher nodes at which data centers operate what they buy. So, there could be, but there are, you know, these are different nodes as we speak.
Aditya Mongia
Sure. Thanks a lot for the responses. Thank you. Those are my questions.
Operator
Thank you. The next question is from the line of Amit Mahawar from UBS. Please go ahead.
Amit Mahawar
Yeah, thank you. Hi Shveta, I just have one question, and sorry to harp on the competition and domestic market point. Post the new nodes, the competition eventually will catch up but do you think this time on gensets up to 800 KVA, the competitive intensity will make us command the market share similar to what we enjoyed in the older nodes, and more importantly because this time seemingly competition is taking more time. So, three, four of our key local competition are yet to see the acceptance of even higher nodes, particularly in data center or advanced nodes. So do you think the market share will stabilize even in the data center piece of ours by next year or it will still remain around 70%, 80% plus market share which earlier in the calls we had shared.
Shveta Arya
So, the data center space is outside of the CPCB-IV+ space. CPCB-IV as you rightly said is up to 800 kilowatts. So, if we were to talk about the CPCB-IV space, we did, we were amongst the first few to launch this product about a year ago across the nodes in the power gen market, and we do, I did mention that our product has good acceptance and we have been able to make a lot of improvements in our supply chain and provide better value adds to the customer. Definitely our customers have more choices now with other products being launched in the market as well. So that’s with respect to your specific CPCB-IV+ question. Data center is not a part of the CPCB-IV+ range, and I did answer the data center question that we definitely see the demand in the data center market to continue and we our product is very well positioned along with the relationships that we have with our customers.
Amit Mahawar
And just a clarification to last participants question, did I hear it correctly? You mentioned the manufacturing of data centers led product engineering manufacturers particularly fit for India. It is not for the global markets. And I’m also asking this question because some regions saw very strong growth like China doubled in power gen revenue this quarter. So, did we have any export benefit there? Thank you.
Shveta Arya
So, in case of the data center market, the product that we have for the data center market, India, China, Southeast Asia actually use the same product. It’s the U.S. and the U.K. which use different nodes in the data center. So, definitely we export to those kind of markets which use the same product in the data center space.
Amit Mahawar
Thank you, Shveta, and good luck.
Operator
Thank you. The next question is from the line of Jonas Bhutta from Birla Mutual Fund. Please go ahead.
Jonas Bhutta
Hi Shveta and Ajay, thank you for the opportunity and congratulations on a great set of numbers. Shveta, congratulations on the new role. A couple of questions from my side. Firstly, if you can talk about volume growth in the power gen side, you know, while we understand this quarter sort of benefited from a lot of restocking of CPCB-IV+ engines at the dealer end, you know, for the year as a whole, do you expect volumes in the power gen to grow? You know, given that, you know, what we see as revenues is a function of price and volume, and prices are up 25%, 30% for this year. So how should we think through volume growth particularly in power gen? With a backdrop that last year FY ’24 saw 40% growth in megawatt terms on the generator sales side which is what is reported in the annual report. So that’s the first question.
Shveta Arya
Thank you, Jonas, for the question. Ajay, do you want to take the volume question?
Ajay Patil
Jonas, as you know for last year the original date for migration to CPCB-IV+ was July 1st of 2023, and at the last minute that changed, that date was shifted to July 1, 2024. The consequence was that we had a prebuy in quarter two of last year which was quite significant. And that’s the reason when you see it in unit growth perspective, the FY ’23, ’24 numbers were to that extent significantly higher than the year before. Now obviously from a current year that the migration was clarified, the 12 months that you see from July till this June was a combination of both sets of products getting sold in the market. So obviously the one-time effects of that pre buy had an obvious impact on the subsequent quarter, and all of us have seen those numbers softening on an expected line last year. Now if you take that sort of a phenomenon out, our belief based on when we see the unit volume growth that is playing out for the year should be consistent with what we see the broader guidance that we have been generally providing in terms of how do we see the growth is standing out for the year, number one. Number two, price that you talked about is really a function of how CPCB-IV+ because we were among the first to get our product readiness in the market, and then the other players progressively catching up would mean that the price discovery is still playing out. Now whether that price discovery process goes on for another quarter or more, our hypothesis is that maybe it will go on for up until another three to four months, or maybe that’s where the clarity would start to emerge. So, when you see the revenue number as you rightly pointed out, I think is a function of what is happening on the unit side. B, what is happening to the price. Obviously, there is a price change because we are talking about transition from mechanical to electronic engine. And number three, also there is a content increase. The configuration of a CPCB-II genset and CPCB-IV genset is very different given the emission requirement. We have new products which are after treatment and many other electronic components getting added. So, the two and four product is really not comparable. So, when you put these two things together, you will have to look at this current year more of a transitional year in terms of these changes playing out before we can very clearly state as to what the unit growth volume is and what the pricing impact is.
Jonas Bhutta
Just to follow up on this. You know, Ajay, so just to close this out, is it fair to say that on a normalized basis this year we’ll still see a two times GDP volume growth? Pricing will obviously yield at a higher ultimate revenue number. But are you on track to do a two times GDP volume growth this year? Is that what the market is supporting?
Ajay Patil
I think since your question is linked to the guidance, Jonas, I would just reiterate what Shveta said at the start of the call that we continue to mention our double-digit guidance for the year on the revenue side. Volume is a little bit of a difficult one to see because we are not giving guidance on volume. And you also have to remember that the volume also has a shifting fans in it because the way the volume gets computed depending on which segments you talk about, for example Telecom, large volume unit growth at a very low end of the market goes into that segment which kind of re-shades the number when you think about the volume growth and because it’s a tender driven business, and we participate very selectively into it, that can change the dynamics of what unit volume we had in the previous year compared to what unit volume we have this year. So therefore, I think this year is going to be that way difficult to compare, given the sort of hybrid transition that we did where we had two emission products playing out in the same year, it generally doesn’t happen because there is generally a clean cutover taken for emission. But because this has been a sort of a mixed bag when we are selling both the products up until 30th of June, that unit growth is going to get a little bit impacted as a result of how the emissions are implemented.
Jonas Bhutta
Sure, that’s helpful. The second question was on the value addition on the CPCB-IV+ engines and you alluded to the fact that there is a content change, and most of that content, you know, typically is going to come from group entity which is on the SCR side. Given now two normalized quarters on CPCB-IV+, you know, do you still hold on to this view that the gross margins on the IV+ engine is similar to the two CPCB-II engines despite the higher component coming from outside the listed entity?
Ajay Patil
Yeah, so, Jonas, I think the question is, and we have already stated that, right? I mean when you think about the content change and the way it is playing out, the current year’s revenue has a combination of both the products, okay. Number two is that as we now take a clean cut from July onwards then we will have, so to say a revenue which is predominantly driven by CPCB-IV+ into our revenue profile. Number three is the mixed part which was explained by Shveta earlier for a different question, is also how the mix plays out overall because just to remind all of us that the emissions are only up to 800KV, about that which is predominantly an HHP segment continuously operating at the old emission norm. If that plays out stronger for any reason, then to that extent the overall revenue number would be then looking different as to how the year plays out.
Number three, from a supply chain question that you asked, I think we continue to sort of optimize, and as you rightly said, now that we are operating for a period of time, our supply chain optimization is a continuous process, and because we are engineered product, even if we see a cost reduction opportunity, we are not able to deploy it immediately unless it is clear from engineering point of view. And that process of validation takes time for us. So, an opportunity identification, getting the opportunity realized and getting a signoff typically can take anything between three months to six months for us. So, some of this cost optimization effort you will continue to see reflecting into our margin as we go forward, and the quarter-on-quarter number, Jonas, as all of us know, has the impact of mix, and therefore, I’m not giving a guidance or anything, but simply saying that generally a year, full year number or half yearly number is a better representation in terms of how the figures look like.
Jonas Bhutta
And the last quick one, you know, I know many questions were centered around data center. But Shveta, like you said that there is a known difference between developed markets and developing markets. But typically, as the scale migrates today, developed markets are setting up 100 megawatt data centers, single locations and probably at some point in time this migrates to India over the next two, three years. Indian entity because what we understand the QSK60 and the QSK95 which are the predominant nodes used abroad, certain CTILs [Phonetic], so from a clarification perspective would appreciate that, you know, while the sales is routed through CIL, which is the listed entity, the manufacturing for QSK60 and 95 currently set in CTIL.
Shveta Arya
So, Jonas, QSK60 is the predominant node in the data centers in India and Southeast Asia. And for the global markets like U.S. and Europe, the predominant nodes are QSK78 and 95. Now we’ve been watching the data center space, and as you rightly said, we were also thinking that probably the data center nodes in India will move up in the range. But for now, data center is a very space constrained space in our country still. Where you see the data center clusters in India, in Mumbai, in Hyderabad, in Gurgaon, in Delhi, these are still space constrained cities which is unlike the global markets. So, for the India market and predominantly the larger Southeast Asia markets, QSK60 continues to be the predominant node which is a very, very robust node made in India for the rest of the world as well. So as of now we are not seeing a migration towards the higher nodes for the India market, mostly owing to space constraints and also customers being very familiar with the QSK60 node and the maintenance of those equipments which have QSK60. So, we are not seeing that trend. We are watching it very carefully for now. And as things change, we will take those calls.
Jonas Bhutta
Just to clarify, does QSK60 manufacturing set in CIL?
Ajay Patil
Jonas, QSK60 as we have stated in the past is an exports program that got launched, and therefore from a core manufacturing perspective, a significant volume of the QSK60 was for exports purposes. The domestic volume is fairly low. On its own, therefore, on a competitive side, CIL gets that engine at a certain level of readiness from CTICL. Thus, the subsequent value add in CIL and then it gets, you know, sold in the domestic market for various applications including data centers.
Jonas Bhutta
Got it. Appreciate, all the best. Thank you.
Operator
Thank you. We’ll take the next question from the line of Pulkit Patni from Goldman Sachs. Please go ahead.
Pulkit Patni
Sir. Thank you. Most of my questions are answered and this is in continuation with Jonas’ question. So, we’ve had two consecutive quarters of about INR800 crore plus revenue in the power gen segment, out of which second quarter clearly was only CPCB-IV+ in terms of new implementation. Can we for our modeling purpose assume that this is now the new base to model next few quarters from here on? That is, it has the impact of significant price increases in CPCB-IV+, plus that you did not have a large portfolio of CPCB-II that got sold in the current quarter. And I’m asking this question because there’s been a lot of noise and numbers in the past few quarters with meaningful price increases and prebuying and so on and so forth. So, between INR800 crores to INR900 crore in the last two quarters, is it the right number from a sustainability perspective, and we build our models based on that, is that a right assumption?
Shveta Arya
I’ll say two, three things here. You know, the first is that from an overall market demand perspective, the market continues to show demand in the power generation space. The second, the numbers are not completely just CPCB-IV because CPCB-IV+ is applicable only up to 800-kilowatt hour or the 910KV range, above that is CPCB-II. So, both these in different ranges continue and contribute to the overall power gen segment sale. Now the third thing around pricing, Ajay mentioned, we are seeing, this was the first quarter where we saw full CPC before plus, and we do believe that pricing will take some time to settle in the market, at least three to four months. So, you know, the demand, the pricing, the mix between below 800-kilowatt hour and above 800-kilowatt hour, which can change given where the demand is driven. So higher if we are selling in the higher than 800-kilowatt hour range, that is more the CPCB-II product and then below is the CPCB-IV+ product. So those will continue to play out really and could give us different results.
Pulkit Patni
No, I think all the three points are well taken, and that’s exactly what my question was. Thank you for that.
Operator
Thank you. We’ll take the next question from the line of Sanjaya Satapathy from Ampersand Capital. Please go ahead.
Sanjaya Satapathy
Yeah, thanks for the opportunity. Can I just ask that what is the level of indigenization in your CPCB-IV gensets, and what is the scope of improvement there?
Shveta Arya
So, in the CPCB-IV+ product range you will appreciate that we are a global company and we do take advantage of technology and products from around the world. A large part of our CPCB-IV+ product range and what goes in those products is localized, and we are continuously working on where we do not have indigenized parts yet. So, it’s a continuous endeavor. But I can tell you that a large part of that product range is already localized at the time of launch.
Sanjaya Satapathy
Understood. And does this mean that the scope of margin improvement is not much from current level?
Shveta Arya
I do think margin will be a factor of various things. Other than localization, there are other cost reduction efforts that we take which is around value engineering. Ajay was explaining just a while ago, we are continuously working across all CPCB-IV+ products, even those that are localized today on cost improvement programs. And that plus the pricing settling in the market, so margins is actually a function of those two. So, can’t say it only depends on localization efforts.
Sanjaya Satapathy
Understood. And last thing, if you can just tell us like between the genset which is like over INR800 crore for you, how much would be data center related and how much would be non-data center? Is that something which you can share?
Shveta Arya
That is very segment…
Sanjaya Satapathy
At least how much is more than those INR800 crores plus capacity, that mix of that?
Shveta Arya
We won’t be able to share that. And like I explained earlier, data center sits in the projects business for us as well as in the actual sale of the product, both different places. So, it’s difficult to tell you really what would be our presence in that space.
Sanjaya Satapathy
Got it. And can you just also understand from your perspective, like the previous instance of this emission change was more disruptive for the industry and the demand took a lot longer to settle. But this time around the implementation has been very different way, that is one staggered one year. So should one expect the normalcy to return to the industry much quicker and the pricing discovery will be faster than what had happened in the past. And also related to now that you are globally benchmarked in terms of emission norms, shouldn’t one expect a much better export perspective for your company?
Shveta Arya
So, on your first question on whether the market will settle quicker, obviously everyone has learned through the last emission change. But how soon will we settle in the market is difficult to say. Will it be quicker than the last emission norms? Difficult to say. All I can say is that everyone has learned through the last emission cycle, and we all had one year also to learn on how the product is doing in the market. On the export side, I did answer this question earlier. Yes, we definitely have the technology. We are looking at different markets, some of the markets which need our product, and we can tailor our products for their specific requirements, that work is going on, and for other markets which would move to this emission norm, this is one of the most stringent emission norms around the world. So, there are not many markets which are on this level of emission norms. But we closely monitor that. And as markets move, we are ready to provide the products for those markets. And you will appreciate that for each different market, while the core technology is there, the products need to be tailored to suit the local market requirements. So that is the work we are doing currently for some markets which need these products and watching the other markets closely.
Sanjaya Satapathy
Got it. And as we know like last year, December quarter, you had taken some kind of inventory correction in your exports market. Probably that is not the case. So, the double-digit guidance which you were giving, probably I’m assuming it is for domestic market while exports probably on the low base will start growing much better. Is that correct assumption?
Shveta Arya
Guidance for us is overall guidance, not just for the domestic market and exports, I shared earlier, we have mixed signals. There are certain markets which have shown some signs of recovery. There are certain markets which we are watching very closely. The geopolitical situation is still volatile. Yet our overall guidance is what we have provided for the overall business of the company.
Sanjaya Satapathy
Thank you so much. Thank you.
Shveta Arya
Thank you for your question.
Operator
Thank you, ma’am. Ladies and gentlemen, this will be the last question for today which is from the line of Mohit Pandey from Macquarie Capital. Please go ahead.
Mohit Pandey
Yeah, ma’am, thank you for the opportunity. My first question is on the demand outlook on specialty [Phonetic]. You have mentioned you’re cautiously optimistic about the near term but optimistic about the demand outlook for the medium term. If you could share your thought process around, how are you factoring in impact, if any from potentially higher adoption of storage solutions on genset demand? That would be my first question.
Shveta Arya
Sorry, the voice was a little. Okay. Battery storage demand on — the impact of that. Well, I would say that in the backup power space in the country, given the way we are in the power situation for a growing economy like ours, one is that we do see this backup power demand growing over the medium to long term for the time being for our country. Second, there are different solutions which are being tried today. But you will appreciate that in the backup power market or the standby market, reliability is extremely important for our customers for different segments that we operate in. So, the energy storage solutions, while there are available in the market from an affordability, reliability, ease of use, ease of deployment, I think we all are watching that space. So, it remains to be seen how it turns out in the future. But I would only say that reliability of the product, clean products available for the market is paramount. And for now, we are seeing good demand for us in the market.
Mohit Pandey
Okay, thank you, ma’am. And secondly, with regards to the industrial segment, if you could share a sense of what proportion of the segment will see some impact of the upcoming emission norm changes. That would be very helpful.
Shveta Arya
Yes, that’s the construction segment you are referring to which is going to different emission norms from the 1st of January. I did share that in the last quarter the construction segment saw about INR146 crores of revenue. We are seeing strong demand from that segment owing to activity, higher construction activity from our set of customers. And we see that demand continuing for the time being.
Mohit Pandey
Okay. And any ballpark indication of what kind of price changes are expected with these norms or is that too early?
Shveta Arya
That’s too early. That is too early.
Mohit Pandey
Okay, no problem. And the last question is on exports. If you could share more color on region wide strengths, that would be very helpful for the key regions, yeah, on the demand side.
Shveta Arya
On the demand side, we have shared in the past calls that we believe the demand has bottomed out. But like I said earlier, mixed signals yet. So, we are trying to watch it really closely. For example, in this quarter we definitely had great orders from Latin America region and Europe region which we were able to execute. From the Middle East and Africa and Asia Pacific region, the demand continued to be flat or muted. So, watching this space, we’re getting mixed signals. We do believe that this should improve, but we are watching it very closely.
Mohit Pandey
Okay, ma’am. And a lot of this sluggishness is also linked to higher channel inventory there. Or is that understanding not fair?
Shveta Arya
I’m sorry, could you repeat that?
Mohit Pandey
Yeah. So, this continuous sluggishness is linked to higher channel inventory in some of these markets, or [Speech Overlap]
Shveta Arya
In the exports? It’s a mix. It is really a mix. Different regions are, there are certain geopolitical issues in certain regions. There is, for example, better power availability in certain regions. There are certain regions who are dealing with emission changes. There are, you know, difference. There is obviously some inventory in the system as well. So, there are different reasons, and in fact, if you look at places like Europe or Africa, these are, even within those places, every country behaves differently. So very, very different reasons in different countries and different regions. Hard to point one or two big reasons for this.
Mohit Pandey
Okay, sure, ma’am. Thank you. That’s it for me, and wish you all the best. Thank you.
Shveta Arya
Thank you so much.
Operator
Thank you. As that was the last question for today, I would now like to hand the conference over to Ms. Shweta Arya for closing comments. Over to you, ma’am.
Shveta Arya
Thank you. Thank you to all of you for your active participation and engagement during the call today. Cummins India believes that the broader economic outlook is stable and India’s GDP is expected to grow by approximately 7% based on various reports. Fiscal and monetary policy stability coupled with government emphasis on infrastructure development bodes well for our end markets. Export markets are showing some signs of recovery in few pockets, and we continue to work with our intercompany partners to drive growth opportunities in all the end markets in the world where we supply. The company closely monitors geopolitical events unfolding in various parts of the world and their impact on global demand and supply chain. The company is well positioned to leverage all opportunities to sustain its growth momentum. And with a strong balance sheet, world class infrastructure on the ground for manufacturing, our best-in-class talent, we are very confident of sustaining our growth trajectory. Thank you for your continued trust and confidence in the Cummins brand. And with this, I would close the call. Thank you so much everyone.
Operator
Thank you very much, ma’am. [Operator Closing Remarks]