June 25, 2024
1 min read

India’s Capex Fuels Capital Goods Surge

Revenue growth momentum for capital good players will also be supported by investments in production-linked incentive (PLI)-driven schemes…reports Asian Lite news

Led by continued significant government outlays towards railways (including metros), defence and renewable sectors, capital goods makers are likely to see revenue rise 9-11 per cent in fiscal 2025, a report showed on Monday.

Operating margin could moderate 80-100 basis points to 12-13 per cent in FY25 as the market scenario continues to be highly competitive and exports, which offer higher margins, remain sluggish, even as prices of raw material (mainly steel, copper, and aluminium) are stable, according to report by CRISIL Ratings.

That said, modest capital expenditure (capex) and continuing lower reliance on debt will support credit profiles, it added.

“Private sectors’ continued capital outlays in conventional sectors (6-8 per cent, year-on-year rise) supported by a ramp-up in commissioning of renewable capacities (25-30 per cent YoY rise) augur well for prospects of capital goods companies,” said Aditya Jhaver, Director, CRISIL Ratings.

Although investment towards railways and defence has moderated to 5 per cent YoY from the highs of 20 per cent seen last fiscal, the development of metro infrastructure in multiple cities should see good traction.

“Net-net, we expect 9-11 per cent overall revenue growth for capital goods companies this fiscal,” said Jhaver.

Revenue growth momentum for capital good players will also be supported by investments in production-linked incentive (PLI)-driven schemes as well as in emerging sectors like electric vehicles and data centres wherein growth opportunities could arise in terms of providing automation, digitalisation services, and setting up of charging networks.

“These sectors (PLI-driven schemes and emerging sectors), which accounted for 10 per cent of investments in fiscal 2024 are expected to rise to 25 per cent by fiscal 2028,” the report mentioned.

According to Joanne Gonsalves, Associate Director, CRISIL Ratings, the credit profile of capital goods manufacturers is likely to remain “stable”, as healthy accruals and moderate capital spending would support debt metrics.

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