- Jefferies affirms positive outlook on India's capital goods, defence, and T&D sectors
- Power equipment firms show strong margin expansion led by operational leverage gains
- HAL target price raised to Rs 6,800, KEI Industries to Rs 6,920 on robust demand
Global brokerage firm Jefferies has reaffirmed its constructive outlook on India's capital goods, defence, and power transmission and distribution (T&D) equipment sectors. In its latest sector review, the brokerage highlighted strong operational momentum, notable margin expansion across power equipment manufacturers, and sustained structural tailwinds across defence manufacturing.
Power Equipment Leads Margin Expansion
According to Jefferies, power equipment manufacturers drove a noticeable margin uptick during the recent quarter. The expansion was primarily led by operating leverage as execution gained pace.
Hitachi Energy and Siemens Energy delivered strong performance, posting year-on-year (YoY) margin expansions between 410 and 450 basis points (bps).
Bharat Heavy Electricals Limited (BHEL) saw its operating margins turn positive on a YoY basis, benefiting from an improving execution cycle.
Commodity Pressures: While power equipment and defence players demonstrated resilience, elevated commodity prices weighed on the profitability of broader non-defence capital goods manufacturers.
Stock Ratings and Target Price Revisions
Jefferies updated its stance across key capital goods and defence names, raising target prices on several high-conviction ideas while recalibrating expectations for select counters:
- Hindustan Aeronautics (HAL): Maintained at Buy with an upgraded target price of Rs 6,800 (from Rs 6,300), driven by healthy order book visibility and long-term domestic defence indigenisation mandates.
- KEI Industries: Maintained at Buy, with the target raised to Rs 6,920 from Rs 6,150 on sustained T&D demand and infrastructure spending.
- Bharat Electronics (BEL): Rating retained at Buy, though its target price was revised downward to Rs 490 from Rs 550.
- Siemens & BHEL: Jefferies maintained a Hold on Siemens (TP raised to Rs 4,415) and an Underperform on BHEL (TP raised to Rs 270), reflecting rich valuations relative to near-term risk-reward dynamics.
Top Picks for the Sector
Jefferies remains structurally positive on Defence and T&D Equipment, citing robust tender pipelines, capacity additions in the power grid, and government capital expenditure.
The brokerage identified its top sector picks as follows:
- Siemens Energy
- Hitachi Energy
- Hindustan Aeronautics (HAL)
- Larsen & Toubro (L&T)
- KEI Industries
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