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CG2025 takeaways - taking stock of EMS, renewables, infra and defense space

We hosted 10 companies (two EMS, two renewable, three infra and three defense) at our flagship Chasing Growth 2025 conference and conducted two panel discussions and one speaker session. The key takeaways were as follows: (1) EMS—growth momentum remains strong for most players in the near term, with moderate margin expectations; we see compressors as a potential risk for RAC-focused EMS players such as Amber and PG for FY2026, (2) renewables—large players expect to realize elevated margins in the near term and ALCM to be implemented without any delay, (3) T&D - opportunity pipeline remains robust in the domestic and international markets providing strong visibility, but labor shortage will continue to be a problem in the near to medium term, (4) road sector - focus shifting to BOT projects and TOT monetization, aiding players such as IRB and (5) defense—while order inflow has been muted until 3QFY25, expect inflow to pick up 4QFY25. Companies remain very positive on the industry prospects and believe import substitution will be the key driver.

EMS - growth momentum intact; RAC business can come under pressure in FY2026, led by compressor shortage

Revenue performance for most companies remains on track, aided by a strong order book. (1) Avalon - continues to guide for a 25%+ revenue growth in the medium term, given successful turnaround of the US business. Margins will likely see continued improvement due to operating leverage since Avalon has the highest gross margin among peers. Despite majority of the revenue coming from the US it does not see any risk from US import tariffs since Avalon has an existing manufacturing presence in the US. (2) PG Electroplast—aims to reach Rs100 bn in revenue by FY2028, while maintaining similar margins and return profile. The company is entering into refrigerator manufacturing and is in discussion with a leading Chinese manufacturer to set up a compressor manufacturing plant in India. Compressor production to commence with 5 mn as the initial capacity expandable to 10 mn. Management has indicated there is ongoing compressor shortage, and although there is enough to support the 2025 summer season, any further shortage might impact 2026

Renewable energy - near-term solar module and cell demand to remain robust; margins to moderate in medium term; overcapacity after 2028 is a risk

We hosted large listed solar manufacturers Waaree and Premier Energies in CG2025. Both companies expect domestic solar demand to remain robust, with potential demand to reach 45-50 GW by 2026/27. This will likely help manufacturers generate elevated margins until 2027/28. Additionally, management seems confident that the government would not delay ALCM implementation, as IPPs will need ALCM modules only by December 2026 and there will be sufficient supply by then. On the future overcapacity risk, both companies believe that while we will reach supply-demand parity by 2027/28, India will not have a China-like situation of severe overcapacity, but they do believe that as new supply comes in, margins will moderate.

EPC - robust pipeline in T&D provides strong near-term visibility

The opportunity pipeline remains strong for the domestic T&D business, with Rs500 bn of short-term tenders in the pipeline and longer-term pipeline of Rs2.4 tn. Green energy corridor, incremental transmission capex for new thermal power plants and HVDC projects all provide strong growth potential, with only 5-6 key players in the market. Both remain extremely bullish on the international T&D pipeline, driven by Latin America, Africa and the Middle East. KEC and Kalpataru highlighted that despite strong pipeline in T&D there are three problems, i.e., (1) severe labor shortage that can impact the pace of implementation and margins, (2) water business—the government has been slow in disbursing money, which weakened the working capital cycle of the said firms and (3) railway business - remains slow, but they are optimistic on the future metro-led growth. Going forth, both companies expect (1) strong revenue growth, backed by robust order book and (2) margin improvement.  

Road—focusing on BOT projects and TOT monetization

Due to ballooning debt levels, NHAI has shifted its focus to asset monetization (multiple TOT bundles have been awarded in the past quarter). Furthermore, the pipeline for the TOT project remains robust, with 46 projects having a total length of 2,700 km, which are expected to be monetized over the medium term. BOT projects have also started making a comeback after years of focus on EPC and HAM projects. The NHAI has identified 15 projects worth Rs444 bn, which are expected to be awarded in the coming months (the medium-term pipeline for BOT is ~Rs2 tn - 53 projects). In 9MFY25, just two TOT projects have been awarded so far (no wins for IRB); IRB expects a few projects to be awarded over the next three months. Currently, NHAI has identified 33 projects worth ~Rs1 tn, which are expected to be bid out in the next 12-18 months.

Defense - order inflow has been weak for the year, expect inflows to pick up from 4QFY25

Paras and Zen Tech’s management indicated that the defense order inflow in 9MFY25 has been soft, but they remain hopeful of a pick-up in inflow from 4QFY25. Additionally, they highlighted while the road and rail capex has been flat this quarter, defense continues to be a strong area of focus for the government, which led to an increase in the defense budget this year. Apart from the increase in defense capex, they believe that import substitution is a much larger theme, which will be driving their topline and order book in years to come. Paras—reiterated its guidance of 40-50% growth over the medium term, with slight margin improvement, the company expects strong order inflow in the next few months. Zen Tech—it highlighted that the order inflow has been a struggle this year, but reiterated guidance of achieving Rs9 bn in revenue, with a 35% EBITDA margin in FY2025, the company expects to grow at 50%+ for the next three years due to higher defense spend on simulation and anti-drone systems. Zen recently acquired ARI, which primarily operates in marine simulation, management believes that Zen’s experience working for the army, along with ARI strong product offerings, will help it expand to naval simulation in the near term. This will open up a new avenue and will be an additional growth lever.

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