Capital Goods Sector Update : Inflows spike in Q1; consumer remains robust by Elara Capital
Order inflows of major capital goods companies (ex-L&T) have surged by 53% YoY in Q1FY27 on account of large thermal power Engineering, Procurement and Construction (EPC) order worth INR 210bn awarded to BHEL. Adjusted order inflows (ex-large BHEL order) fell 22% YoY, with defence order inflows down by 17% YoY given delay in awarding of large tenders, such as quick response surface-to-air missile (QRSAM), Project-75I (P75I), and Next Generation Corvettes (NGC). We expect our capital goods universe to post 11% YoY revenue growth and consumer electricals & durables universe to clock 19% YoY growth in Q1FY27E. Durables companies may witness healthy top-line growth, due to a robust Summer demand and low base; however, margin is likely to remain under pressure amid heightened commodity prices and increased competition. We prefer BEML (BEML IN), Bharat Electronics (BHE IN), Solar Industries (SOIL IN), Amber Enterprises (AMBER IN), LG Electronics (LGEL IN), and Hindustan Aeronautics (HNAL IN) in the sector.
Q1 inflows up 53% YoY at INR 491bn:
Major capital goods companies, excluding L&T, announced cumulative orders worth INR 491bn, up 53% YoY, led by a large order worth INR 210bn received by BHEL. Defence inflows fell 17% YoY at INR 61bn, due to delay in order finalization for large tenders, such as QRSAM, P75I, and NGC. Power transmission and distribution (T&D) order inflows remain flat YoY, due to the slowdown in orders from the Middle East due to the West Asia war.
Q1FY27E revenue to grow 11%:
We expect our capital goods universe to post a revenue growth of 11% YoY in Q1FY27E, given healthy orderbook and steady execution. ABB India (ABB IN) Q2CY26E revenue may remain flat YoY, due to slower execution. Siemens (SIEM IN) Q1FY27E revenue may rise by 5% YoY, led by smart infra and digital industries. Thermax (TMX IN) revenue may rise 12% YoY on healthy execution in industrial products. Cummins (KKC IN) revenue may rise 8% YoY, led by domestic powergen and distribution. KEII revenue growth may grow to 18% YoY, led by price hikes in cables and wires (C&W) along with volume growth. BEML (BEML IN) revenue may remain flat while RITE revenue could grow 10% YoY, led by healthy execution across consultancy and turnkey orders. KEC International (KECI IN) revenue may grow 7% YoY, led by T&D
Within the defence space, Bharat Dynamics (BDL IN) sales may skyrocket 2.8x YoY on execution spillover from Q4FY26. Garden Reach Shipbuilders & Engineers (GRSE IN) revenue may rise 22% YoY. Bharat Electronics (BHE IN) sales may grow 18% on low base; HNAL revenue up 9% YoY, led by repair and overhaul (ROH) and spares. We expect ZEN revenue to slip 6%, due to the execution cycle while Solar Industries (SOIL IN) revenue to rise 28% YoY, led by strong defence and export orders execution. We prefer BEML, BHE, SOIL, HNAL, and BDL
Robust growth likely in durables and electricals; EMS momentum to continue:
Consumer electricals, durables, and electronics firms may see 19% YoY sales growth in Q1FY27E. We expect the room air conditioner (RAC) market to rise in the mid-double digits, due to robust Summer demand. However, commodity inflation, currency volatility, and competitive intensity may keep margin under pressure. Voltas (VOLT IN) revenue may surge 28% YoY and LG Electronics (LGEL IN) may grow 21% on healthy demand for RAC. AMBER revenue may grow 26%, led by a surge in RAC and electronics. KAYNES revenue may jump 30%, led by healthy execution of a robust orderbook. Dixon Technologies (DIXON IN) revenue may jump 10% YoY due to higher average selling price (ASP) growth. V-Guard (VGRD IN) revenue may rise 14% and Havells India (HAVL IN) revenue may rise 11% YoY, led by cooling products and wires. Polycab (POLYCAB IN) revenue may spike 28%, led by growth across cables & wires (C&W), fast moving electrical goods (FMEG) and EPC. Crompton Greaves Consumer (CROMPTON IN) revenue may grow 14%, led by price hikes and volume growth in fans. EUREKAFO revenue may rise 14%. We prefer AMBER, LGEL and EUREKAFO in our coverage universe.
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