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CRISIL Ratings in its latest report has said that capital goods makers are likely to see revenue rise of 9-11% in fiscal 2025, led by continued significant outlays towards railways (including metros), defence, conventional and renewable sectors. This compares with an expected around 13% growth in fiscal 2024. It said operating margin could moderate 80-100 basis points to 12-13% in fiscal 2025 as the market scenario continues to be highly competitive and exports, which offer higher margins, remain sluggish, even as prices of raw material (mainly steel, copper, and aluminium) are stable. That said, modest capital expenditure (capex) and continuing lower reliance on debt will support credit profiles. 

According to the report, in fiscal 2024, spending by the government on railways grew a strong 28% on-year, and on defence by 10%. Conventional sectors increased capex spend by 6-8% and investments in renewable capacity increased by a healthy 18%. This continued momentum in capex is also evident from the order books of capital goods makers that has seen a strong growth of over 15% in fiscal 2024, translating into 2.5-3.0 times the revenue. 

The report further said revenue growth momentum for capital good players will also be supported by investments in PLI driven schemes as well as in emerging sectors like electric vehicles and data centres wherein growth opportunities could arise in terms of providing automation, digitalisation services, and setting up of charging networks. These sectors (PLI driven schemes and emerging sectors) which accounted for around 10% of investments in fiscal 2024 is expected to rise to around 25% by fiscal 2028. That said, any deferment in expected capex by end-user industries in a year could alter the growth trajectory of the industry. Also, ability of companies to cater to technological needs of the emerging sectors would be critical to sustain the growth expectations and would be monitorable.