ICRA assigns positive outlook on capital goods sector
Credit rating agency ICRA’s analysis of 17 leading, listed entities (accounting for around 55% of the total revenues of the industry) operating in the capital goods segment indicates prospects of continued healthy revenue growth of around 13-15% for FY2025 and FY2026. Further, the margins are expected to expand and ICRA expects median operating profit growth of around 16-18% for FY2026, even after witnessing robust growth in the last 3-4 years.
ICRA said the sustained investments in the end-user industries, especially the strong capacity additions in the renewable power space and simultaneously high capex in the transmission and distribution infrastructure bodes well for the demand prospects of the capital goods industry. The order book position of the ICRA sample set companies is at all-time high levels and is growing at a healthy pace with a CAGR of around 19%, amounting to Rs 141,000 crore as on September 30, 2024. Moreover, the budgetary allocation for the government capex has been enhanced to Rs 11.2 lakh crore for FY2026, which, along with planned capacity additions in the cement, steel, oil and gas sectors, is likely to keep the order book position elevated.
It further said power sector, which remains a key end-user industry for the capital goods segment is slated to witness significant capital expenditure estimated at about Rs 25 lakh crore over the next five-year period for capacity addition in renewable & thermal generation, as well as for strengthening of transmission & distribution network, along with storage capacity. Further, capacity expansion plans in the cement sector remain robust with the sector slated to add more than 40 MTPA capacity in FY2026, while data centre capacity is expected to be doubled by FY2027. These, along with refinery capacity expansion and growth in real estate and infrastructure are likely to provide a fillip to the capital goods industry.
