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Transformer plant visit

We visited the new transformer plant of CG Power in Sehore, Madhya Pradesh, which has a manufacturing capacity of 45,000 MVA. With the commissioning of this greenfield capacity, CG Power’s transformer manufacturing capacity has increased to 120,000 MVA. Management highlighted that the company was ahead of the curve in commissioning capacities and expanded its capacity in 13 months. This plant has a potential to further scale up the capacity in future depending upon demand supply situation. We bake in power systems revenue to clock a CAGR of 32% over FY26-29 with a potential to scale up further as this capacity now has more than doubled. We maintain our view on a gradual recovery in industrial systems, while CG Semi should break even by FY28E. We roll forward our valuation and retain BUY rating with a revised SoTP-based TP of INR1,020 (vs. INR975 earlier).

Transformer capacity enhanced

to 120,000 MVA After this capacity expansion, CG Power’s total capacity has expanded to 120,000 MVA from 23,000 MVA in FY25. With this, the company now has the most comprehensive transformer portfolios in the industry, with voltage classes ranging from 66kV to 1,200kV AC, spanning the full MVA range from distribution equipment to high-capacity EHV transformers and reactors. The product scope includes generator transformers, autotransformers, shunt reactors & variable shunt reactors, synchronous condensers, interconnecting transformers and distribution transformers. The company has already been receiving orders and enquiries for this facility from both domestic and export markets. With an order book of INR144b and more than doubling its capacity in this segment, we expect power systems revenue to post a CAGR of 32% over FY26-29. This has a scope of further improvement as inflows improve for the new facility. With adequate pricing power in this space, along with backwardintegration initiatives, we expect EBIT margin to remain strong at 23%/22%/21% for FY27/28/29. This translates into an EBIT CAGR of 30% over the same period.

Planning to grow exports too from new facility

From the new capacity, the company is targeting exports of up to 30% of the production. The company is working on few orders from the US for data centers and is already exporting transformers and switchgears to various countries. It receives export orders either directly or through indirect relationships for white labelling. It plans to ramp up export orders from the US, Europe and Greece from the renewable and data center related segments from this plant.

Backward-integration initiatives

CG Power has a good vendor base across various components such as tanks from local sourcing, insulation and bushings from Hitachi and other players. The company has backward integration for RIP bushings of up to 400 kV too and is also strengthening capabilities in tank fabrication and key insulation

Industrial system margin to improve gradually, supported by pricing actions

Industrial systems demand remained weak in FY26, though it has started improving 1QFY27 onwards, with inflows increasing 25% YoY. The company has expanded capacity across LV Motors, HV Motors and stampings, including the 80-132 and 160- 355 frame ranges in LV Motors. Now with some green-shoots visible in private sector, the growth outlook for motor sector is improving and this is also supported by price hikes taken by the company in FY26 (~17%) and FY27TD (~5%). Railway segment continue to remain weak, but upcoming opportunities from Kavach-related orders can be margin-accretive in the future. We expect segment revenue to post 8% CAGR over FY26-29, with gradual improvement in EBIT margin to 8%/9%/10.5% in FY27/FY28/FY29.

Semiconductor business scaling up well

CG Semi’s semiconductor manufacturing build-out is progressing in phases, with the G1 OSAT facility at Sanand inaugurated in Aug’25 and subsequent commercial production commencing in Jul’26 with peak capacity of ~0.5m units/day. The larger G2 facility is targeted for completion by end-CY26, with capacity of ~14.5m units/day. The immediate focus is on ramping up G1, completing G2 and securing customer qualifications, with mass production for the first qualified global IDM expected in FY27. We expect Axiro profitability to improve in the coming quarters, while we expect OSAT division EBIT losses to continue for a few more quarters. As per management’s commentary is 1QFY27, management is evaluating opportunities under ISM 2.0 but is currently prioritizing the ramp-up of existing capacity rather than further expansion. With the semiconductor business still in the investment and ramp-up phase, we expect EBITDA breakeven from FY28 as utilization scales up and operating leverage improves.

Financial outlook

We maintain our estimates and expect overall order inflows to register an 11% CAGR over FY26-29E. We model a revenue/EBITDA/PAT CAGR of 25%/33%/28% over FY26-29E, with EBITDA margin of 13.7%/15.1%/15.9% for FY27E/FY28E/FY29E.

Valuation and view

The stock currently trades at 90.3x/67.7x/53.5x P/E on FY27E/FY28E/FY29E EPS. We reiterate our BUY rating with a revised TP of INR1,020 (vs. INR975 earlier) on roll forward. We ascribe a 58x multiple for the power systems business (baking in large power transformer 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.

Key risks and concerns Key risks would include:

1) a slowdown in T&D capex,

2) an increase in commodity prices,

3) weak motor demand, and

4) limited OSAT experience.

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