Industrials (Q3FY26 Results Preview): Domestic ordering early cycle recovery

NHAI awarding key for road players; all focus on budget: In 9MFY26, we haven’t seen any pick-up in road awards as NHAI ordering remains subpar. Award pipeline remains on paper with BOT at 20%, EPC 10%, and HAM 70%. The only silver lining is bids are not getting postponed and are getting finalized. We believe the upcoming budget could provide increased allocation considering the weak awards in FY26 (till Nov 2025) stood at 1951kms (vs. 7,538 kms in FY25) and construction stood at 4,621 kms (till Nov 2025; vs. 10,660 kms). NHAI has taken measures to strengthen bidding criteria and increase entry barriers (net worth-based bidding capacity) to keep frivolous bidders out. JJM working capital releases has now started with pick-up expected from Q4FY26, which shall help NWC easing for players. Other segments like private real estate, mining and urban infra projects witnessed pick-up in awarding in 9MFY26. We expect FY26 NHAI ordering to be back-ended at INR 500bn. Road/diversified EPC players have increased their participation in non-road segments like solar, BESS, transmission TBCB, railways, river interlinking, etc. to sustain growth. Private capex is expected to remain selective in high-growth areas such as renewables, transmission, data centres, and semiconductors. Cyclically, the EPC players are sitting on favorable risk reward, with lowest order inflow, lowest valuation multiple, and muted growth expectations. We believe that any recovery in ordering will help sector multiple and earnings re-rating.

Capital goods, pick-up in private capex awaited, T&D going strong: Investments in the renewable power sector are emerging as a big decadal theme alongside defense and local manufacturing. HVDC ordering is expected to remain robust, supported by a pipeline of INR 0.8trn which is expected to be awarded over the next two years. The momentum is also visible with the T&D awards won by several non-road players. This OIs shall be split between EPC (45%) and Equipment players (55%). BESS demand continues to be strong amid focus on localization of battery manufacturing and mandatory clubbing of BESS with solar in tender awarding. MNCs have undertaken new capacity buildouts in traditional segments and new opportunities like clean energy/automation. This expansion is seen as catering to export and local demand.

Earnings trend YoY/QoQ: We expect EPC/infra universe revenue/EBITDA/PAT to decline -6.7/-8.8/-62.5% YoY to INR 170.3/23/9.3bn, with EBITDA margin at 13.5% (-0.3/+0.2bps YoY/QoQ). In capital goods, revenue/EBITDA/PAT are expected to grow/decline by +15.6/+20.2/+17.7% YoY to INR 1050.1/113.4/70bn, with EBITDA margin at 10.8% (+41.2/+19bps YoY/QoQ). The valuation of core EPC/infra is at 21.6/18/15.4x FY26/27/28E core EPS. For capital goods, the valuation for FY26/27/28E stands at 44.3/35.7/29.3x.

Non roads share increasing, good for diversification: Roads ordering has significantly slowed down over FY24/25/9MFY26. This was the key driver of ordering, contributing 50-60% yearly inflows for EPC companies. Muted ordering led to a miss in growth guidance and valuation de-rating. Diversification initiatives are already visible and are now paramount to maintaining the growth trajectory and new drivers like solar, BESS, river interlinking, MDO, and T&D present an opportunity to make up for the loss in order inflows from roads.

Recommendations and stock picks: We expect a favorable risk-reward, with EPC sector at cyclically low valuation. One can add strong balance sheet plays as (1) ordering remains robust in renewables, T&D, buildings, and revival is expected in water & railways, roads; (2) asset monetization is fructifying; (3) balance sheets are strong and NWC days stable; and (4) cash flow generation is likely to improve. LT, Cummins India, and Kalpataru are our top picks in the capital goods space. In the infra space, we like HG, PNC, and NCC.

Disclaimer : This content is only for informational purpose. It does not make any recommendation to act or invest. Do not make any investment based solely on the recommendations given here as these recommendations are not based on your unique risk tolerance and investment objectives. 

Source: HDFC Securities Institutional Equities

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