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We maintain BUY on CG Power & Industrial Solutions (CGPower) with a TP of Rs765 (unchanged) as the company remains a strong play on T&D and manufacturing. Q1FY26 results were broadly mixed, with revenue coming in line with the estimate and EBITDA missing by 8%. Consolidated revenue/EBITDA/PAT grew 29%/17%/12% YoY to Rs28.8/3.8/2.7bn, respectively. Both Industrial System and Power System segments saw strong revenue growth of 43% and 15% YoY. Industrial business profitability was impacted by a rise in input costs amid weak demand and an unfavorable mix. However, better profitability in Power System supported the overall EBITDA margin. The management expects to gain further market share in Industrial Motors, given consistent product launches and go-to-market strategy. Also, CG Power’s recent entry into OSAT provides it an early-mover advantage in India’s journey toward building a full-scale semiconductor manufacturing ecosystem.

Power Systems segment benefiting from cyclical upturn The Power System segment witnessed all-round strong performance with the highest ever order inflow (+111% YoY at Rs35bn – mainly domestic), strong execution (+43% YoY revenue growth at Rs10.7bn) and 120bps YoY margin expansion. The management indicated that better price realization and operating leverage led to margin improvement. We expect the margin to sustain at a higher level, supported by the current cyclical upturn, which in turn is led by energy transition. Domestic demand remains robust and is likely to sustain for the next 4-5 years. With recently announced capacity addition plans to reach 85,000MVA in the next couple of years, the management remains confident of strong growth in exports as well.

Unfavorable mix impacted Industrial System profitability The Industrial System segment revenue grew by 15% YoY to Rs16.9 bn. However, EBIT margin declined by 290bps YoY/80bps QoQ to 10.2%. The profitability was hit by an increase in input costs, weak demand in the Industrial motors, higher share of railways business (low margin), and losses in new businesses that are in investment mode. Order inflow also declined by 8% YoY during the quarter. Management indicated delays in meaningful recovery in demand for Industrial motors. However, new investments are likely to see improvement in profitability as operations scale up.

Valuation and view Consolidated order book remains healthy at Rs131bn (+82% YoY), led by 62% YoY order inflow growth in the quarter. The company offers a robust play on Power T&D and Manufacturing with strong growth tailwinds. CG Power continues to report healthy return ratios, with RoE/RoCE likely to log at 34%/44% in FY27E. Our SOTP-based TP of Rs765 is a summation of 55x June-27E PER for the core business and Rs55/sh for the OSAT business. The stock is currently trading at FY26E/FY27E PER of 71x/52x (ex-OSAT).

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