Revenue growth in the quarter registered a moderate increase of ~11% year-on-year, reflecting a mixed trend of execution across companies, with strong performance in the private capex-based segments versus weak growth in transmission, renewables and top defense players. However, profit after tax (PAT) was broadly higher than expected, highlighting operational resilience amid an uneven pace of growth.
Importantly, order flows remain healthy, driven by a diverse pipeline that includes domestic infrastructure, Middle East projects, power-T&D and data centers. Public investment continues to be the dominant driver of demand; The latest Union Budget has increased the financial expenditure allocation by an estimated 11% for FY27, increasing defense spending by nearly 18%, raising the prospect for big-ticket project awards over the next few years. Nearly $6.9 trillion worth of accumulated approvals are expected to turn into firm contracts, supporting an expanding backlog.
Private sector capex, while still subdued, showed pockets of resilience in the metals, automobiles and cement sectors. Export prospects have been buoyed following the recent Indo-US and Indo-EU trade agreements, with equipment demand especially for data centers and overseas renewable infrastructure upgrades.
Margins expanded to ~13.1% year-on-year, driven by operating profit and favorable mix changes, despite headwinds from sharp commodity price movements. Hedging strategies and contractual rate hike provisions have helped ease near-term cost pressures, while companies are widely expected to pass through additional costs with a short delay.
Capacity additions continue in key areas such as transformers, HVDC systems, power generation and rail generation, reflecting a steady demand outlook. While some sectors face time lags in finalizing the global order and the slow uptake of private capex, vast structural opportunity remains.
Limited near-competitive pressure from international entrants – especially China – is stabilizing prices for domestic players. Looking ahead, rising public investment, strengthening export pipelines and secular demand from energy transition and digital infrastructure continue to drive the capital goods sector.
Key oversights include accelerating tendering activity, the transfer of large strategic orders, the extensive restructuring of private capex and the continued expansion of exports.
Siemens Energy: Buy | Target 3600 Rs
Siemens Energy ( ENRIN ) is positioned to benefit from India’s power transmission capex cycle, supported by a rapid increase in transmission capacity requirements and a strong export opportunity.
Adding capacity in transformers and high-voltage switchgear increases its ability to handle both domestic and international demand. Management notes that any entry by Chinese players would require local capacity adjustments and certifications, limiting immediate industry disruption.
In Q3 of FY26, revenue grew 26% YoY, while EBITDA margin expanded 200bp YoY to 24.1%, helped by further lower costs. Strong margins and further higher revenue led to 57% YoY PAT growth. Order backlog grew by 38% YoY, providing a healthy revenue outlook. With capacity expansion expected to flow through FY27, operating profit and export mix should support profitability.
We expect revenue/EBITDA/PAT CAGR of 27%/30%/32% in FY25-28E, strong transaction growth and steady generation recovery.
Kirloskar Fuel Engines: Buy | Target 1600 Rs
KOEL continues to make gains across LHP and HHP Powergen, supported by capacity building and consultant-led sales. The increase in nuclear and defense orders, renewal of CPCB 4+, and expansion of exports provide a multi-year outlook.
B2C transaction accelerates focus on high-margin B2B portfolio. On a restated basis, 3QFY26 revenue rose 35% YoY to INR13.8b, led by Powergen (+44%) and Industrials (+41%). EBITDA margin was at 12.2%, which was impacted by other higher costs respectively. Adjusted PAT was INR1,022m.
9MFY26 Revenue/EBITDA/PAT grew 16%/17%/15%. We model FY25–28 revenue CAGR of 15% with EBITDA/PAT CAGR of 19%/21%, supported by product mix improvement and operating profitability. Margins are expected to improve to ~14–14.5% by FY27/28.
(Author Siddhartha Khemka, Head of Research – Wealth Management, Motilal Oswal Financial Services)
((rejection: The recommendations, suggestions, opinions and views given by the experts are their own. (It does not represent the views of The Economic Times.)
