PL Capital, a prominent brokerage, anticipates a strong second quarter performance for the capital goods companies under its coverage in fiscal year 2027 (Q2FY27). This positive outlook is primarily fueled by vigorous execution within transmission and distribution (T&D)-focused product companies, industrial machinery firms, and the defence sector.
Revenue and EBITDA Growth Expectations
The brokerage projects a year-on-year (YoY) revenue growth of 12.2 percent and an EBITDA increase of 12 percent for the sector. Excluding Larsen & Toubro (L&T), these figures are even higher, at 17.6 percent and 19.4 percent respectively. However, PL Capital notes that T&D-focused engineering, procurement, and construction (EPC) players may experience slower execution and lower revenue recognition due to supply-chain disruptions, potentially linked to the Middle East conflict.
Key Investment Segments and Top Picks
PL Capital maintains a constructive stance on segments attracting sustained investment, specifically highlighting transmission, data centers, and defence. The brokerage has named Bharat Electronics, GE Vernova T&D India, and Cummins India as its top stock picks within the sector.
Robust Order Inflows Across Industries
Order inflows are expected to remain strong across various segments, including power T&D, buildings and factories, hydrocarbons, energy transition, metals, data centers, and general infrastructure. In Q2FY27, L&T reported significant order inflows of approximately Rs 1.4 lakh crore, largely driven by three ultra-mega hydrocarbon projects in the Middle East.
Other notable order inflows include KEC International with about Rs 3,600 crore and Kalpataru Projects International with around Rs 9,500 crore, spanning domestic and export markets across power T&D, buildings, factories, oil and gas, and residential projects.
Defence Sector Activity
While defence order activity was somewhat subdued in Q2FY27, with Bharat Electronics reporting inflows of roughly Rs 3,340 crore for optics, radar, fuzes, and avionics, PL Capital remains optimistic about the medium-term pipeline. This optimism is supported by Defence Acquisition Council (DAC) approvals totaling approximately Rs 1.6 lakh crore in FY27 and increasing private-sector involvement in missile production.
Sector-Specific Performance Drivers
- T&D and Machinery: T&D-related product companies are projected to see about 29 percent YoY growth, spearheaded by GE Vernova T&D India (36 percent) and Hitachi Energy India (51 percent), benefiting from domestic demand and robust order book execution.
- Industrial Machinery: This segment is expected to report around 14 percent revenue growth, driven by domestic demand, though partially offset by weaker exports. Margins may contract YoY due to higher raw material and freight costs, but sequential improvement is anticipated as price hikes take effect.
- EPC, Consumables, and Defence: Project companies are likely to achieve moderate revenue growth of about 9 percent YoY (14 percent excluding L&T), with execution hampered by supply disruptions. Industrial consumables may grow by 8 percent, and defence companies by 18 percent, both supported by order-book execution. BEML secured significant orders worth about Rs 5,800 crore, including Rs 5,400 crore for high-speed rail systems for the Mumbai-Ahmedabad corridor.
Updated Price Targets and Ratings
PL Capital has issued fresh ratings and target prices for several companies:
'Buy' Rating
- Engineers India: Target Price Rs 297
- GE Vernova T&D India: Target Price Rs 5,928
- Hindustan Aeronautics (HAL): Target Price Rs 5,795
- KEC International: Target Price Rs 451
- Kirloskar Pneumatic: Target Price Rs 856
- Larsen & Toubro (L&T): Target Price Rs 4,425
- Praj Industries: Target Price Rs 390
- Siemens Energy: Target Price Rs 3,655
- Solar Industries: Target Price Rs 23,124
'Accumulate' Rating
- Apar Industries: Target Price Rs 14,720
- Bharat Electronics (BEL): Target Price Rs 452
- BEML: Target Price Rs 2,011
- Elgi Equipments: Target Price Rs 638
- Grindwell Norton: Target Price Rs 2,113
- Harsha Engineers: Target Price Rs 462
- Ingersoll-Rand: Target Price Rs 5,029
- Kalpataru Projects International: Target Price Rs 1,472
- Voltamp Transformers: Target Price Rs 11,003
'Hold' Rating
- ABB India: Target Price Rs 6,944
- Carborundum Universal: Target Price Rs 1,072
- Hitachi Energy India: Target Price Rs 34,026
- Cummins India: Target Price Rs 5,323
- Siemens: Target Price Rs 3,831
- Triveni Turbine: Target Price Rs 615
'Reduce' Rating
- BHEL: Target Price Rs 368
- Thermax: Target Price Rs 3,952