Capital Goods And Defence Gain Order Firepower, Higher Costs Squeeze Margin Outlook: MOFSL

Mumbai has received an outlook from Motilal Oswal Financial Services (MOFSL) about the performance of India’s capital goods and defence companies in the September quarter. The brokerage anticipates growth due to robust order books and increasing demand. However, it warns that high commodity prices and the ongoing West Asia crisis might cause pressure on costs and profit margins.

MOFSL forecasts a revenue growth of about 9.5 percent, operating earnings growth of 10 percent, and profit growth of 9.8 percent compared to the previous year. Operating margins are expected to stay relatively stable at 13 percent. Existing orders should aid in execution, and price hikes may help to offset the higher material costs.

Larsen & Toubro indicated quarterly order inflows of around Rs 1 lakh crore, which include significant hydrocarbon contracts in the Middle East and orders associated with artificial intelligence infrastructure and thermal power. KEC International has announced orders worth about Rs 3,600 crore, while Kalpataru Projects International has secured more than Rs 9,500 crore. Power transmission, data centres, infrastructure, and private investment are identified as sources of demand.

MOFSL also highlights the potential benefits from the Rs 1.86 lakh crore Green Energy Corridor Phase-III scheme, which includes infrastructure for transmitting 135 GW of renewable energy and supporting 50 GWh of battery storage. In the defence sector, Defence Acquisition Council approvals have reached Rs 1.62 lakh crore so far in FY27.

MOFSL expects ordering to improve as these approved projects move toward finalization. Opportunities for domestic manufacturers could grow with missile technology transfers and increased private participation.

However, commodity costs are still a challenge, with copper, zinc, aluminium, and steel prices remaining elevated. Companies with fixed-price contracts might face greater margin risks, while those who can increase prices or adjust contract pricing may fare better. MOFSL has identified L&T, Cummins India, GE Vernova T&D, Kirloskar Oil Engines, and Kalpataru Projects International as positive stocks. Bharat Electronics is also considered the preferred defence stock by the brokerage.