New Delhi [India], Capital goods companies are expected to achieve revenue growth of 9 to 11 percent in fiscal 2025, building on projected growth of 13 percent in fiscal 2024, according to an analysis recent from CRISIL Ratings.
In an outlook for India's capital goods sector, leading manufacturers are poised for sustained double-digit revenue growth amid robust government and private sector spending.
Key drivers of this growth include substantial investments in critical sectors such as railways (including metros), defence, and conventional and renewable energy segments.
Government spending on railways increased 28 percent year-on-year in fiscal 2024, while defense saw a commendable 10 percent increase. At the same time, conventional sectors increased their capital spending by 6 to 8 percent, and investments in renewable energy increased by an impressive 18 percent.
The strong capital spending is underlined by the capital goods industry's order books, which have grown more than 15 percent in fiscal 2024, representing 2.5 to 3.0 times its revenue. This increase in orders reflects buoyant market demand and underlines the sector's critical role in India's infrastructure development.
Highlighting the resilience of the sector, Aditya Jhaver, Director, CRISIL Ratings said, “Continued private sector capital outlays in conventional sectors (6-8 per cent increase YoY) supported by an increase in commissioning of renewable capacities (25-30 percent year-on-year increase) bode well for the prospects of capital goods companies."
It added: "Although investment in railways and defense has moderated to ~5 per cent year-on-year4 from the highs of ~20 per cent seen in the last fiscal year, metropolitan infrastructure development in multiple cities should see good traction. Net- net, we expect overall revenue growth of 9 to 11 percent for capital goods companies in this fiscal year."
Additionally, the implementation of production-linked incentive (PLI) schemes and emerging sectors such as electric vehicles and data centers are expected to further drive growth.
These sectors, which constituted approximately 10 percent of investments in fiscal year 2024, are expected to increase to 25 percent by fiscal year 2028.
Emphasizing the implications for capital goods manufacturers, Joanne Gonsalves, Associate Director, CRISIL Ratings, said: "Such higher trading intensity would require higher working capital requirements. However, the credit profile of capital goods manufacturers is likely to capital remains 'stable' as it is healthy. Moderate capital expenditures and accruals would support debt metrics."
It added: "Debt to earnings before interest, taxes, depreciation and amortization and interest coverage ratios of CRISIL-rated capital goods companies are expected to average 0.90-1 times and 9-10 times, respectively, in the short to medium term."
While the outlook remains positive, potential delays in capital expenditures by end-user industries and the industry's ability to meet evolving technology demands in emerging sectors pose monitorable risks.
In an outlook for India's capital goods sector, leading manufacturers are poised for sustained double-digit revenue growth amid robust government and private sector spending.
Key drivers of this growth include substantial investments in critical sectors such as railways (including metros), defence, and conventional and renewable energy segments.
Government spending on railways increased 28 percent year-on-year in fiscal 2024, while defense saw a commendable 10 percent increase. At the same time, conventional sectors increased their capital spending by 6 to 8 percent, and investments in renewable energy increased by an impressive 18 percent.
The strong capital spending is underlined by the capital goods industry's order books, which have grown more than 15 percent in fiscal 2024, representing 2.5 to 3.0 times its revenue. This increase in orders reflects buoyant market demand and underlines the sector's critical role in India's infrastructure development.
Highlighting the resilience of the sector, Aditya Jhaver, Director, CRISIL Ratings said, “Continued private sector capital outlays in conventional sectors (6-8 per cent increase YoY) supported by an increase in commissioning of renewable capacities (25-30 percent year-on-year increase) bode well for the prospects of capital goods companies."
It added: "Although investment in railways and defense has moderated to ~5 per cent year-on-year4 from the highs of ~20 per cent seen in the last fiscal year, metropolitan infrastructure development in multiple cities should see good traction. Net- net, we expect overall revenue growth of 9 to 11 percent for capital goods companies in this fiscal year."
Additionally, the implementation of production-linked incentive (PLI) schemes and emerging sectors such as electric vehicles and data centers are expected to further drive growth.
These sectors, which constituted approximately 10 percent of investments in fiscal year 2024, are expected to increase to 25 percent by fiscal year 2028.
Emphasizing the implications for capital goods manufacturers, Joanne Gonsalves, Associate Director, CRISIL Ratings, said: "Such higher trading intensity would require higher working capital requirements. However, the credit profile of capital goods manufacturers is likely to capital remains 'stable' as it is healthy. Moderate capital expenditures and accruals would support debt metrics."
It added: "Debt to earnings before interest, taxes, depreciation and amortization and interest coverage ratios of CRISIL-rated capital goods companies are expected to average 0.90-1 times and 9-10 times, respectively, in the short to medium term."
While the outlook remains positive, potential delays in capital expenditures by end-user industries and the industry's ability to meet evolving technology demands in emerging sectors pose monitorable risks.
