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HDFC Securities Institutional Equities
Union budget FY25 earmarked a 7% YoY increase in capex, roads, railways, defence, and water to be key beneficiaries:
Union Government focus on infra asset creation has been the key theme driving capex. Capital goods companies are benefitting from the pick-up in government and private capex and India's big push to manufacturing.
The real estate upcycle is aiding private capex; hospitality recovery augurs well. Geopolitical compulsions and resultant re-alignment in the supply chain, sustainability initiatives, etc., are driving incremental investments towards India alongside the government rolling out conducive policies like Production linked incentive/concessional tax rate to promote investments.
We are seeing major MNC companies undertake new capacity build-outs in traditional segments as well as new opportunities like clean energy/automation.
This expansion is being envisaged for catering to export and local demand. Given 75%+ capacity utilisation, a stable pricing environment augurs well for profitability.
We expect engineering, procurement and construction/infra universe revenue/Ebitda/profit after tax to grow 15.0/18.2/24.8% YoY to Rs 225.9/33.4/14.1 billion, with Ebitda margin at 14.8% (40 bps YoY).
In capital goods, revenue/Ebitda/PAT are expected to grow by 15.1/28.5/31% YoY to Rs 928.7/105.7/62.7 billion, with Ebitda margin at 11.8% (118 bps YoY).
The valuation of core EPC/infra universe (excluding IRB Infra) is at ~12.5/10 time FY25/26E core EPS and it is still far from the long-term mean of 15 times, offering a favourable risk-reward.
We roll over our earnings estimate to Mar-26E.
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