You missed the early signs that the capital goods rally is turning into a multi‑year earnings engine.
In Q3 FY26 the sector posted a modest 11% top‑line growth, but the real story lives in the bottom line. Margins rose to roughly 13.1% YoY, driven by operating leverage—a situation where fixed costs are spread over a larger revenue base, boosting profitability. Companies also benefited from a favorable product‑mix shift toward high‑margin transmission gear and renewable‑related equipment.
For investors, expanding margins signal that earnings are becoming less vulnerable to input‑cost volatility. Even as commodity prices surged, most firms employed hedging contracts and price‑escalation clauses to pass costs onto customers, limiting margin erosion.
Siemens Energy (ENRIN) is uniquely positioned to ride the wave of India’s power‑transmission boom. In the quarter, revenue leapt 26% YoY and the EBITDA margin widened by 200 basis points to 24.1%. EBITDA—earnings before interest, taxes, depreciation, and amortisation—measures core operating profitability, while PAT (profit after tax) captures the bottom‑line earnings after all expenses and taxes.
The firm’s order backlog swelled 38% YoY, providing a clear visibility runway into FY27‑28. Capacity additions in transformers and high‑voltage switchgear are slated to come online by FY27, enhancing operating leverage. Moreover, any potential Chinese incursion would require local certifications, a hurdle that buys Siemens time to cement market share.
Our model projects a 27% CAGR in revenue, 30% in EBITDA, and a 32% CAGR in PAT through FY28, underpinned by continued transmission spend and a re‑acceleration in generation assets.
Kirloskar Oil Engines (KOEL) has turned its focus toward higher‑margin B2B contracts, especially in low‑pressure (LHP) and high‑pressure (HHP) power generation. The quarter saw a 35% YoY revenue jump to INR 13.8 billion, with power‑gen sales up 44% and industrial sales climbing 41%.
EBITDA margin stood at 12.2%—a modest dip from the previous quarter due to higher ancillary expenses—but adjusted PAT rose to INR 1,022 million, reflecting strong bottom‑line resilience. Over the nine‑month period, the company posted 16% revenue growth and a 15% PAT uplift.
Looking ahead, we forecast a 15% revenue CAGR and a 21% PAT CAGR through FY28, driven by an improving product mix, export expansion, and a ramp‑up in defense and nuclear orders.
The Union Budget’s 11% increase in capital expenditure for FY27 is a cornerstone for sector growth. With nearly ₹6.9 trillion of approvals awaiting conversion into contracts, the backlog pipeline is set to expand dramatically. Defense spending alone is projected to rise 18%, feeding large‑ticket projects for both Siemens Energy and KOEL.
On the export front, the recently signed India‑US and India‑EU agreements have opened doors for data‑center and renewable‑infrastructure equipment abroad. This diversification reduces reliance on domestic cycles and adds a new earnings catalyst.
Competitive pressure from China remains muted. Entrants would need to establish local manufacturing footprints and navigate certification regimes, a costly and time‑consuming process that preserves pricing stability for domestic players.
Bull Case: Continued public‑capex acceleration, robust order‑backlog conversion, and expanding export markets drive revenue CAGR above 20% through FY28. Margin expansion persists as operating leverage improves and input‑cost pass‑throughs become routine.
Bear Case: A slowdown in private‑sector capex, delays in international order finalization, or a sharp commodity price shock that outpaces hedging effectiveness could compress margins and stall backlog conversion.
Strategic investors should consider scaling exposure to high‑margin transmission players like Siemens Energy while keeping a selective position in diversified manufacturers such as Kirloskar Oil Engines. Monitoring tender activity, order‑to‑cash conversion rates, and export order flow will be critical to adjusting the allocation as the FY27 cycle unfolds.