Motilal Oswal believes that valuation re-rating for the sector is still some time away and will be driven only after a meaningful outperformance of capex, order inflows, and margins. The brokerage prefer players that have a well-balanced revenue mix, control over margins, and the ability to maintain or improve their growth profile going forward, and maintains its preference for L&T, ABB, and Cummins in the large-cap industrial space and Bharat Electronics in the defense space.
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Motilal Oswal Report
During Q4 FY25, Defense and Transmission emerged as key growth drivers for order inflows in the sector. However, a broad-based revival in order inflows was notably absent, especially from central government and private sector players. Defense sector approvals from the Defence Acquisition Council and continued focus from the Ministry of Defence emphasized the intent of the government on the Make-in-India initiative and expedited finalization of large-scale platforms.
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This ensures sustainable, long-term revenue growth for defense players. For genset players, as highlighted in our recent note, demand has started recovering sequentially, but it is still lower than last year owing to the high base led by prebuying.
Hence, revenue growth of genset players will be driven by the pricing trajectory.
For our coverage universe, we expect revenue growth of 16% YoY and PAT growth of 6% YoY. We believe that valuation re-rating for the sector is still some time away and will be driven only after a meaningful outperformance of capex, order inflows, and margins.
We prefer players that have a well-balanced revenue mix, control over margins, and the ability to maintain or improve their growth profile going forward. We maintain our preference for L&T, ABB, and Cummins in the large-cap industrial space and Bharat Electronics in the defense space.
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