Capital goods sector to gain from renewable energy and T&D expansion, says ICRA; forecasts 18% profit growth

Domestic credit rating agency ICRA remains bullish on India's capital goods sector, driven by strong capacity additions in the power sector, particularly in renewable energy and transmission & distribution. It also believes that the growing capacity expansion in data centers bodes well for domestic capital goods companies.

According to the agency, the power sector, a key end-user industry for the capital goods segment, is set to witness significant capital expenditure of approximately ₹25 lakh crore over the next five years. This investment will be directed toward capacity additions in renewable and thermal power generation, strengthening the transmission & distribution network, and enhancing storage capacity.

Furthermore, capacity expansion in the cement sector remains robust, with over 40 MTPA expected to be added in FY2026, while data center capacity is projected to double by FY2027. Additionally, refinery capacity expansions, along with growth in real estate and infrastructure, are likely to provide a strong boost to the capital goods industry.

Girishkumar Kadam, Senior Vice President and Group Head, Corporate Ratings, ICRA Ltd., said, "Sustained investments in end-user industries, strong capacity additions in renewable power, and high capital expenditure in transmission & distribution infrastructure bode well for the capital goods industry's demand prospects. The order book position of ICRA’s sample set of companies is at an all-time high, growing at a healthy CAGR of 19%, reaching ₹1,41,000 crore as of September 30, 2024.”

Moreover, the budgetary allocation for government capital expenditure has been increased to ₹11.2 lakh crore for FY2026. Along with planned capacity additions in the cement, steel, and oil & gas sectors, this is expected to keep the order book strong.

"The healthy order book of capital goods companies, particularly those catering to the power sector, is expected to drive revenue growth of 13-15% for FY2026. This, in turn, is projected to result in a median operating profit growth of 16-18% for ICRA’s sample set in FY2026. Since this surpasses ICRA's benchmark for an outlook change, we are revising our outlook to positive," Kadam reiterated.

Forecasts 13-15% revenue growth for capital goods companies

Amid expectations of strong capacity additions in the power, transmission & distribution (T&D), data center, and cement sectors, ICRA anticipates continued revenue growth for capital goods companies. The agency’s analysis of 17 leading listed entities—which account for approximately 55% of the industry’s total revenue—suggests that the sector will maintain healthy revenue growth of around 13-15% for FY2025 and FY2026 even after witnessing a strong compounded annual growth rate (CAGR) of around 20% over the last three years. 

Furthermore, profit margins are expected to expand, with ICRA forecasting a median operating profit growth of 16-18% for FY2026. 

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