Whalesbook
### Execution Becomes the Key Differentiator
The narrative in India's capital goods sector has fundamentally shifted from the accumulation of orders to the critical metric of execution. While the broader capital expenditure cycle remains a strong tailwind, particularly in infrastructure, power, and industrial domains, the true measure of success now lies in a company's ability to translate large order backlogs into completed projects efficiently and profitably. This emphasis on delivery and astute cost management is increasingly distinguishing market leaders from their peers, even those boasting substantial order books.
### Earnings Recovery and Market Performance
The earnings recovery is now clearly visible in reported financial figures, moving beyond management commentary. Larsen & Toubro (L&T) reported a 10% year-on-year (YoY) revenue growth to ₹67,984 crore and a 16% net profit increase to ₹4,687 crore for Q2 FY26, driven by robust order inflows that surged 45% to ₹6.7 trillion. The company is actively expanding into emerging areas such as renewables, green ammonia, and semiconductors, although infrastructure execution faced minor delays due to monsoon patterns. Over the past year, L&T's share price has seen a modest increase of approximately 7%.
Siemens India posted a 16% YoY revenue increase to ₹5,171 crore for Q4 FY25, largely supported by its infrastructure and rail divisions. However, net profit declined to ₹485 crore, impacted by its Digital Industries segment and costs associated with a business demerger. Order intake rose 21% to ₹20,000 crore, bolstered by strategic investments in new manufacturing facilities. The company's share price has experienced a decline of around 8% over the last year.
ABB India's revenue grew 14% YoY to ₹3,311 crore in Q3 FY26, fueled by stronger execution in its Electrification and Motion segments. Despite a 13% increase in base orders, net profit saw a slight dip to ₹409 crore due to margin pressures arising from a less favorable product mix and intensified competition. The company maintains a significant order backlog of approximately ₹9,900 crore, providing solid revenue visibility. In the past year, ABB India's stock has underperformed, falling by approximately 25.8%.
Cummins India delivered a robust September quarter in FY26, with revenue climbing 28% YoY to ₹3,122 crore and profit after tax surging 42% to ₹638 crore. This growth was predominantly driven by strong power generation demand, significantly boosted by data center projects which accounted for about 40% of segment sales. While domestic and export sales saw healthy growth, the company cautioned of potential moderation in the second half of FY26 due to increasing competition and softening international demand. Cummins India's stock has seen a considerable rally of approximately 36.1% over the past year.
### Valuations Demand Scrutiny
While the sector's fundamental recovery is evident, current valuations present a notable challenge for investors. Larsen & Toubro currently trades with a Price-to-Earnings (P/E) ratio around 32.0 to 36.1, trading near its three-year median EV/EBITDA, reflecting its consistent operational performance. Siemens India and Cummins India, however, are trading at considerably higher multiples, with P/E ratios ranging from 44.3 to 61.2 for Siemens and 47.3 to 55.2 for Cummins India, well above their historical medians. This suggests that much of the anticipated earnings recovery is already priced into their shares. ABB India, despite a high absolute P/E, trades below its three-year median EV/EBITDA, supported by a strong Return on Capital Employed (ROCE) of nearly 39%.
The broader economic environment, as of January 2026, indicates sustained government focus on public capital expenditure, particularly in infrastructure and green transition projects, maintaining a GDP contribution of 3.4%. Reforms like GST 2.0 and tax relief measures are aimed at stimulating domestic demand. Monetary policy has also pivoted towards supporting credit growth, with repo rates reduced and liquidity measures in place. However, the sector's performance going forward will hinge on consistent project execution and margin stability. Any slippage in delivery or cost pressures could erode investor confidence, especially at current elevated valuations, necessitating a selective approach that prioritizes fundamental strength over momentum alone.