ICRA Projects 5% Revenue Growth in FY2026 for Indian Railway Sector; Maintains Stable Sector Outlook
ICRA today announced its projection of 5% revenue growth for the Indian railway sector in FY2026, while maintaining a stable outlook for the sector. This growth will be primarily driven by strong demand for wagon manufacturers, while construction-focused segments are expected to witness moderate expansion. The sector's operating margins are likely to remain healthy at approximately 12%, supported by operating leverage benefits and stable input costs.
Over the years, the Government of India has implemented several measures and made sizable investments in transportation infrastructure to improve logistics cost, reduce transit time, and improve connectivity. There has been a sustained focus on improving railway infrastructure (track infrastructure and safety standard) and passenger experience (station amenities and rolling stock), as evident from the continued healthy allocation in the budgetary outlay. Overall, the capital outlay for the Indian Railways has increased by 130% over the previous five years to Rs. 2.52 lakh crore in FY2026 BE. However, the budgetary support has grown by modest 2% during FY2024 – FY2026BE period.
Commenting on the sector outlook, Mr. Suprio Banerjee, Vice President and Co-Group Head, Corporate Ratings, ICRA Ltd., said, “In recent years, the entities catering to Railway sector are amongst the key beneficiaries of Government of India’s strong impetus on improving connectivity and reducing logistics cost. As per ICRA’s analysis, the entities catering to the requirement of rolling stock/wagons, track infrastructure, electrification and safety components have witnessed a healthy compounded annual growth rate (CAGR) of 24% over the three years ending in FY2024. However, the revenue growth of ICRA’s sample entities catering to the Railway sector is likely to witness relatively flattish growth in FY2025e and FY2026e. In the near to medium term, the growth momentum is likely to taper down in line with a relatively broader trend in budgetary outlay towards the Railway Sector.”
The sector benefits from substantial order book strength, with the order book-to-income ratio improving to 2.77 times in FY2024 from 1.33 times in FY2015, ensuring strong revenue visibility. ICRA's analysis reveals that segments catering to rolling stock, track infrastructure, electrification and safety components have registered an impressive 24% CAGR over FY2022-FY2024.
ICRA notes that while wagon manufacturers will lead growth, EPC contractors face intensifying competition despite healthy order books. Service providers in ticketing and logistics continue to support sector profitability.
Mr. Banerjee further added, “The revenue profile for the sector is likely to be driven by EPC and wagon manufacturing entities, given the bulky nature of the projects they undertake, though the margin profile for the sector will be mainly supported by service-oriented entities related to ticketing and logistics. While competition in the railway segment has increased substantially in recent years, especially in the EPC segment, the credit profiles of entities catering to the Indian railway sector will continue to benefit from the operating leverage and the comfortable receivable cycle.”
Exhibit 1: Trend in Operating Income
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