Capital Goods Sector Update : Inflows jump 18%; Summer not so hot in Q1 By Elara Capital
Inflows jump 18%; Summer not so hot in Q1
Capital goods (CG) companies (ex-L&T) posted 18% YoY growth in order inflows in Q1FY26 (excluding large High Voltage Direct Current [HVDC] order for Bhadla-Fatehpur won by BHEL-Hitachi for which value is not quantified) with defence inflows growing 15% YoY. Our capital goods coverage universe is set to clock in 6% sales growth (unadjusted Siemens Energy in base) while consumer durables may see a decline, constricting robust growth in electricals and electronics, with overall growth at 20% YoY. We prefer Zen Technologies, Amber Enterprises, Kaynes Technology, RITES, Hindustan Aeronautics, Eureka Forbes, and KEI Industries.
Q1 inflows rise 18% YoY to ~INR 276bn: Major capital goods companies, excluding L&T (LT IN), have announced cumulative orders worth of INR 276bn in Q1FY26, up 18% YoY (excluding large HVDC order for Bhadla-Fatehpur won by BHEL-Hitachi for which value is not quantified). Defence firms inflows grew 15% YoY to INR 78bn while CG inflows rose 19% YoY to INR 198bn. Orders were led by power generation, transmission & distribution (T&D), defence, and Engineering Procurement & Construction (EPC).
Revenue growth of 6% in Q1FY26E: We expect our capital goods coverage universe sales growth of 6% YoY in Q1FY26E based on healthy industrial demand and execution-backed by robust backlog. ABB India (ABB IN) Q2CY25E revenue may grow 10% YoY on execution of healthy backlog. Siemens (SIEM IN) Q3FY25E revenue (ex-energy) may rise by 18% YoY but unadjusted revenue may fall by 18% YoY. Thermax (TMX IN) revenue may rise 12% on better execution in industrials products and green solutions. Cummins (KKC IN) revenue could increase 9% YoY on higher realization from CPCB 4+ gensets. KEI Industries (KEII IN) sales may grow 16% YoY on robust infra demand in cables & wires (C&W) along with an uptick in copper prices. BEML (BEML IN) revenue may rise 6%, due to the slowdown in railway orders execution while RITES (RITE IN) sales could inch up by 2% YoY on better execution of larger orderbook. KEC International (KECI IN) revenue may grow 11% YoY, led by healthy demand.
Within the defence space, Bharat Dynamics (BDL IN) sales may spike 60% YoY on resolved supply chain issues, Garden Reach Shipbuilders & Engineers (GRSE IN) revenue may go up 35% YoY as it rides the peak in its bell-curve phase execution, and Zen Technologies (ZEN IN) revenue would be up 10% led by robust execution. Bharat Electronics (BHE IN) sales may grow 12% YoY due to large orderbook and HNAL revenue would be up 8% YoY, due to higher Repairs and Overhaul (ROH) and increased manufacturing. We prefer Zen Technologies, RITES, and Hindustan Aeronautics.
Early Monsoon may constrict overall growth for durables; EMS would continue to post growth: Consumer electricals, durables, and electronics firms may see 20% YoY sales growth in Q1FY26E, led by electronics and C&W, as room air conditioners (RAC) and cooling companies are set for a stiff Q1 due to an early Monsoon. Voltas (VOLT IN) revenue may fall 14% YoY. Amber Enterprises (AMBER IN) revenue may grow 10%, led by the surge in the electronics division. Kaynes Technology (KAYNES IN) revenue may jump 45% on healthy industrial demand and robust orderbook. Dixon Technologies (DIXON IN) revenue may surge 67% YoY on robust growth in mobiles & new acquisition. V-Guard (VGRD IN) revenue may go up 7%, led by electricals. Havells India (HAVL IN) revenue could rise 6% YoY, as healthy C&W would be offset by Lloyd and ECD. Polycab (POLYCAB IN) revenue could go up 22%, led by robust C&W demand. Crompton Greaves Consumer (CROMPTON IN) revenue may grow 3%. Eureka Forbes (EUREKAFO IN) revenue may increase 11%, led by higher volume growth. We prefer Amber Enterprises, Kaynes Technology, Eureka Forbes, and KEI Industries.
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