IGI Logo

Strong performance

CG Power’s 2QFY27 result was ahead of our estimates. This outperformance versus our estimates was led by strong order inflow and revenue growth in power systems segment and better margins in industrial segment despite weak performance in railways within the industrial segment. Price hikes, product mix and operating leverage led to strong margin performance across segments. The pace of inflows has accelerated sharply, and consolidated order inflows were up 85% YoY at INR78b for the quarter. The overall order book stood at INR236b, up 58% YoY. Going forward, we expect CG Power to benefit from 1) recent capacity expansion at power systems for transformers and switchgear & circuit breakers, 2) price hikes and a gradual demand recovery in the industrial segment, and 3) a reduction of losses at CG-SEMI by FY28. We raise our estimates by 5%/9%/10% for FY27/28/29 to bake in higher estimates for power systems, while we moderate our margin assumptions for industrial systems. We reiterate our BUY rating on the stock with a revised SoTP-based two-year forward TP of INR1,140 (vs. INR1,020 earlier).

Results above our estimates

Consolidated revenue increased 30% YoY to INR38b, 5% above our estimate. Gross margin expanded 90bp YoY to 32% vs. our estimate of 31%. Absolute EBITDA grew 43% YoY to INR5.4b (14% beat), while margin expanded 130bp YoY to 14.2% (vs. est of 13.0%), supported by better-than-expected EBIT margin in power systems and industrial business, and lower-than-expected losses in semiconductor business. Strong execution and better-than-expected margin led to PAT of INR4.1b (+44% YoY), beating our est. by 18%. Consolidated order inflows increased 78% YoY to INR85b, taking the closing order book to INR236b (+58% YoY). For 1HFY27, revenue/EBITDA/PAT grew 22%/24%/30% YoY, while EBITDA margin expanded 10bp YoY to 13.2%. For 1HFY27, OCF declined 30% YoY to INR3.1b mainly due to higher NWC requirement, whereas free cash outflow stood at INR2.9b (vs. outflow of INR3.1b last year).

Power systems sees strong broad-based demand

Power Systems revenue grew 41% YoY to INR17.7b, in line with our estimate, while EBIT margin expanded 440bp YoY to 25.1% (vs. our est. of 22.0%), supported by improved price realization and operating leverage. Order inflows increased 137% YoY to INR63b, taking the closing order book to INR190b as of Sep’26 (up 81% YoY). The strong order intake was broad-based across utility customers, AI and data centers, domestic markets, and exports, rather than being driven by any single large order or end market. Export inflows jumped ~200% sequentially. The company expects to sustain or improve segment margin through continued operational efficiencies. We expect the new Sehore facility which commissioned in Sep’26 and brownfield expansion at the existing transformer plant to cater to the growing domestic and export demand. The company is further expanding its capacity by 10GVA at its Bhopal facility, taking its totally power transformer capacity to 120 GVA. We expect order inflow/revenue to clock a 23%/39% CAGR over FY26-29, with EBIT margin of 24%/23%/22% over FY27-29E.

Industrial systems’ margins improved sequentially

Industrial systems revenue increased 22% YoY to INR18.7b, while EBIT margin improved 100bp sequentially to 8.6%, driven by a recovery in motors margins to double digits. The improvement was driven by price increases, product portfolio optimization and manufacturing efficiencies. The company has implemented price hikes over 30% in the last 12 months to offset commodity inflation, with further near-term hikes unlikely unless input costs warrant them. Inflows grew 12% YoY to INR17.6b, taking the standalone order book to INR29b, while GG Tronics’ order book stood at INR11b. The company is upgrading its motor portfolio through phased IE4 launches from Aug’26, alongside developing permanent magnet and IE5+ motors to strengthen its product offering and support entry into export markets. In contrast, the company expects the railway business performance to remain weak over the next year as the company prioritizes technology and capability building over revenue growth at the expense of profitability. GG Tronics’ Kavach-related production, installation and commissioning are expected to commence in the coming months, subject to final approval. We model an order inflow/revenue CAGR of 15%/11% over FY26-29E for the segment, with EBIT margin of 8.3%/8.5%/8.5%% over FY27/FY28/FY29.

Semiconductor scale-up tied to G2 commissioning and qualification

CG Semi and Axiro continue to weigh on consolidated profitability, with investments of ~INR350m made in 2Q, equivalent to 90bp of consolidated sales. Axiro was around breakeven at the EBIT level. G2-unit construction is progressing as planned, with qualification expected to commence from mid-FY28 and take 2-3 quarters to complete, ahead of commercial production in late FY28. G1-unit customer development continues, although lengthy qualification cycles could delay revenue ramp-up. Axiro acquired 100% of TOSIL System for INR164m, adding capabilities in silicon design, verification, physical implementation, embedded software, and edge AI engineering. This strengthens the semiconductor design and engineering portfolio alongside planned manufacturing investments, with near-term returns dependent on customer qualifications, commercialization timelines and scale-up. We expect the semiconductor business to achieve EBIT breakeven from FY28.

Multiple capex plans to expand capacities and build capabilities

In 2Q results, the company announced capacity expansions across power transformers, OIP bushings and instrument transformers, EHV circuit breakers and GIS, with a combined capex of ~INR4.3b (Refer Exhibit 13). In power transformers, the company will invest INR680m to add 10,000 MVA at the existing T3 facility over 12-15 months, taking that facility’s capacity to 75,000 MVA. In switchgear, a capex of INR3b will add 4,236 OIP bushing and instrument transformer units annually. EHV circuit breaker capacity will increase by 3,600 units to 10,800 units with INR153m capex over 6-9 months, while GIS capacity will double from 228 to 468 equivalent units annually with INR446m investment, including an 800kV high-voltage testing system. Core business capex is expected to be at ~INR10b in FY27 and INR7-8b in FY28, excluding the semiconductor investments.

Financial outlook

We raise our estimates by 5%/9%/10% for FY27/28/29 to bake in higher estimates for power systems, while we moderate our margin assumptions for industrial systems. We expect overall order inflows to register an 18% CAGR over FY26-29E. We model a revenue/EBITDA/PAT CAGR of 29%/37%/33% over FY26-29E, with EBITDA margin of 14.1%/15.1%/15.7% for FY27/FY28/FY29E.

Valuation and view

The stock currently trades at 78.4x/56.9x/44.3 P/E on FY27E/FY28E/FY29E EPS. We reiterate our BUY rating on the stock with a revised SoTP-based two-year forward TP of INR1,140 (vs. INR1,020 earlier). We ascribe a 58x multiple for the power systems business (baking in the large capacity), a 55x multiple to industrial systems, and value to the OSAT business via DCF to capture the benefits that will start accruing from FY28-29 onward.

Key risks and concerns

1) a slowdown in T&D capex

2) an increase in commodity prices

3) weak motor demand

4) limited OSAT experience.

For More Research Reports : Click Here 

For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412