Capital Goods Q2 Results Preview - Momentum Picking Up Pace Selectively: Motilal Oswal

Motilal Oswal Report

After better-than-expected ordering in Q1 FY25, we expect Q2 FY25 ordering to improve for selective segments. Delayed decision-making in government projects and delays in the finalisation of the private sector enquiry pipeline can impact companies focused on EPC and private capex.

However, other fast-growing segments, such as data centers, transmission, electronics, and renewables, continue to boost inflows for companies.

For the genset players, as highlighted in our recent note, despite the full transition to CPCB4+ norms and a sequential decline of 10-15% in genset volumes, revenue growth will be supported by strong prices.

Overall, for the sector, we believe that strong order books provide healthy revenue visibility for companies. We expect 12% YoY growth in execution in Q2 FY25. Margins should be in a stable range given benign commodity prices, cost-saving measures and an improved product mix. As a result, we expect a ~30 bp YoY expansion in Ebitda margin for our coverage universe.

For Q2 FY25, we estimate our coverage companies to report revenue growth of 12% YoY, Ebitda growth of 15% YoY, and PAT growth of 13% YoY.

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