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The march of capital goods
Key messages
Indian capital goods sector* revenue seen up 10-12% this fiscal, compared with 14-16% in fiscal 2023
- The sector has seen a strong order book, steady inflow of fresh orders, and improved execution in the past two fiscals
- Impetus from higher commodity prices, as well as rising government and private-sector spend, will drive growth
- The sector had been stagnant in the past decade, before growing by a strong 19% in fiscal 2022
Operating margin to improve 50-75 basis points (bps) to 10.5-11% this fiscal and remain steady next fiscal
- Improved execution, better coverage of overheads, and moderating raw material prices provide support
Credit risk profiles of capital goods players to remain stable
- Healthy cash generation given better operating leverage, will support higher capex and working capital needs
- Modest debt addition to enable debt metrics to sustain at comfortable levels for the portfolio rated by CRISIL Ratings
*Includes original equipment manufacturers (OEMs) and engineering, procurement and construction (EPC) companies, excluding road and civil construction companies)
Analytica