Whalesbook
Capital Goods Sector Outlook
Elara Capital anticipates a significant boost for India's capital goods sector, projecting a 10 percent year-on-year revenue increase for its coverage universe in the third quarter of the financial year 2025-26 (Q3FY26). This optimistic outlook is underpinned by sustained healthy industrial demand and strong operational execution across the industry.
Major players are expected to contribute to this growth. ABB India's revenue is forecast to climb by 9 percent, primarily fueled by robust performance in its electrification segment. Siemens is projected to see a 12 percent revenue rise. Companies like Thermax and Cummins are each expected to achieve 6 percent revenue growth, though Thermax faces headwinds from muted execution in industrial infrastructure, and Cummins is up against a high comparable base from the previous year.
Stronger individual performances are anticipated from KEI Industries, with a projected 31 percent revenue jump driven by high infrastructure demand in cables and wires, further supported by rising copper prices. KEC International is likely to post a 14 percent year-on-year revenue increase, benefiting from healthy transmission and distribution project execution. Elara Capital estimates the overall capital goods universe will achieve 12 percent sales growth for the quarter.
Order Inflow Trends
Despite positive revenue outlooks for some, order inflows present a mixed picture. Elara Capital noted a notable 20 percent year-on-year decline in order inflows for its capital goods companies, excluding Larsen & Toubro. The defence sector saw a steeper fall of 52 percent, largely due to a substantial order booked by Hindustan Aeronautics in the corresponding quarter last year.
Adjusting for significant orders received by BHEL in the current quarter and Hindustan Aeronautics in the prior year, overall order inflows for the universe were down by 6 percent year-on-year. This trend suggests potential caution for companies heavily reliant on new order acquisition.
Consumer Electricals and Durables Performance
In contrast, the consumer electricals, durables, and electronics segment is expected to show exceptional strength, with Elara Capital projecting a 22 percent year-on-year sales growth. This segment is primarily led by growth in electronics and electronics manufacturing services (EMS).
Room air conditioner manufacturers are anticipated to witness a moderate recovery compared to the previous quarter, even amidst higher channel inventories and the upcoming implementation of new Bureau of Energy Efficiency norms. Voltas, however, is expected to see its revenue decline by 6 percent year-on-year. Amber Enterprises may post a modest 2 percent growth, driven by its strong electronics segment, while Kaynes Technology is poised for a substantial 48 percent revenue surge, backed by a robust order book and strong industrial demand. Dixon Technologies is projected to report an 11 percent increase, supported by growth in mobile phones and recent acquisitions.
Preferred Stock Picks
Based on these projections, Elara Capital has identified several preferred stocks. In the capital goods space, the brokerage favors BEML, Zen Technologies, Amber Enterprises, Kaynes Technology, RITES, Bharat Electronics, Eureka Forbes, and KEI Industries. For the consumer electricals and electronics sector, its top picks include Amber Enterprises, Kaynes Technology, Dixon Technologies, and Eureka Forbes.
Impact
This report provides valuable forward-looking insights for investors tracking the capital goods and consumer durables sectors. The projected revenue growth in capital goods, driven by industrial activity, suggests potential upside for related stocks. However, the decline in order inflows warrants attention for certain companies. The strong performance anticipated in consumer electronics and durables highlights consumer spending resilience. Investors can use this analysis to assess company-specific performance drivers and potential risks.
Impact Rating: 7/10
Difficult Terms Explained
- YoY (Year-on-Year): A comparison of financial metrics over a specific period in one year to the same period in the previous year.
- Q3FY26: The third quarter of the Indian Financial Year 2025-26, typically covering October to December 2025.
- Electrification Segment: Refers to business activities related to electrical systems, power distribution, and automation equipment.
- High Base: When a company's performance in the current period is compared to a period in the previous year that already showed exceptionally high growth or results, making the current year's growth appear lower in percentage terms.
- Infrastructure Demand: Demand for materials, services, and construction related to public works like roads, bridges, power grids, and railways.
- Copper Prices: The market cost of copper, a key commodity used in electrical wiring and components, influencing the cost of production for many companies.
- Transmission and Distribution (T&D): Refers to the infrastructure and processes involved in transmitting electricity from power generation sources to consumers and distributing it within local areas.
- Order Inflows: The total value of new orders received by a company during a specific period.
- Electronics Manufacturing Services (EMS): Companies that design and manufacture electronic products on behalf of other companies.
- Channel Inventories: The amount of goods a manufacturer has supplied to its distributors or retailers that have not yet been sold to the end consumer.
- Bureau of Energy Efficiency (BEE) norms: Regulations set by the Indian government to promote energy efficiency in appliances and equipment.