Global brokerage firm Jefferies has reaffirmed its constructive outlook on India's capital goods, defence, and power transmission and distribution (T&D) equipment sectors, while IIFL Institutional Equities expects capital goods margins to recover as order books grow. According to IIFL's Renu Baid Pugalia, the April-June quarter was tough with both profits and margins under pressure, but the weakness looks temporary. The key silver lining comes from very strong inflows across short-cycle and long-cycle orders, reflecting underlying resilience in demand and management confidence in growth recovery. IIFL notes that margin hit in Q1 was expected, with cost pressures being worked through, as new orders priced more recently and presumably at better terms start moving into execution over the next couple of quarters.
As reported by Jefferies, 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. While power equipment and defence players demonstrated resilience, elevated commodity prices weighed on the profitability of broader non-defence capital goods manufacturers. IIFL's Baid expects margins to recover as new orders, priced more recently and presumably at better terms, start moving into execution over the next couple of quarters.
Jefferies updated its stance across key defence names, maintaining positive ratings while adjusting target prices based on recent developments. Hindustan Aeronautics (HAL) maintained its Buy rating with an upgraded target price of ₹6,800 (from ₹6,300), driven by visibility of a 16% EPS CAGR over FY26-30 on order-book execution. The brokerage rolled forward its valuation to 35 times price-to-earnings on a September 2028 basis. Bharat Electronics (BEL) retained its Buy rating but saw its target price revised downward to ₹490 from ₹550* due to some delays on the QRSAM (Quick Reaction Surface-to-Air Missile) order, though the company retained its FY27 margin guidance at 27%-plus. Data Patterns was maintained at Buy with a target raised to ₹5,545 from ₹6,150 on sustained T&D demand and infrastructure spending. IIFL confirmed that Bharat Electronics remains the firm's preferred pick in the space, pointing to the lead that larger system integrators have built up in order books and deliveries.
IIFL's Baid named CG Power, MTAR Technologies, L&T and Aditya Infotech (CP Plus) as preferred picks in the capital goods space, citing strong order inflows, capacity expansion and resilient demand. The mix of both short-cycle and long-cycle orders came through with demand spread across power, grid equipment, data centers, and oil and gas, which she reads as a sign of underlying strength in the capex cycle. CG Power, which has slipped below the ₹900 mark, made the list on strength of its power segment and industrial business bottoming out. MTAR Technologies was flagged citing a large US customer buying fuel-cell-based cogeneration solutions for data centers, with the stock trading around ₹7,044 during the conversation. Aditya Infotech (CP Plus) was credited with localising much of the camera value chain and having an 18-24 month head start over domestic rivals, with IIFL believing the company should deliver 40-45% revenue CAGR with margins holding around 14.5-15% mark, translating into 45-50% earnings growth over the next two years.
Despite BHEL's June-quarter order flow rising 2x YoY, led by a jump in Power segment orders, Jefferies retained an 'Underperform' rating and raised its target price to ₹270 from ₹220, with the valuation showing 38% downside to the target. The brokerage's investment thesis focuses on execution concerns, stating "We remain concerned on execution and hence would prefer to play the theme through other companies." Its assessment points to competitive pressure leading to margin decline, while BHEL's high fixed-cost base remains a concern. Jefferies expects BHEL's EBITDA margin to improve to 8.7% in FY27 from 6.9% in FY26, reaching 12.9% by FY30, though it flagged the government's renewable push may affect captive power demand.
