Capital Goods Sector Analysis - Remain cautiously optimistic | Q2FY26

India’s capex momentum so far in FY26 has been solid, driven by front-loaded government expenditure and sustained infrastructure investments, even as private sector spending stayed muted amid global uncertainties. However, tariff-related headwinds have weighed on the broader capital goods sector, impacting order books across several listed players. We view these challenges as transient, with India’s strong fundamentals supporting a sustained medium-term growth trajectory. With supportive monetary policy and governments’ fiscal easing, along with early indicators such as record auto sales point to a revival in domestic demand, which is likely to translate into private capex with a lag.  From our coverage we prefer Inox India, Kirloskar Pneumatic (KPCL) and KSB, the former a play on LNG, KPCL a diversified compressor play and the latter a play on nuclear power capacity expansion in India.

Companies under our coverage from Auto Ancillaries sector:

KSB India:

Q3 is usually a cyclically soft quarter for KSB. We expect revenue and PAT growth of ~10% YoY, with EBITDA margins at 13.5%. We remain optimistic of NPCIL giving its approval in Q4 for the first batch of pumps already supplied by KSB which would potentially add Rs 1 bn to Q4-CY25 revenue. As a refresher, the company has in total 16 reactor coolant pumps order in its backlog (49% of total backlog) and after receipt of the approval, it will be able to deliver 4-5 new pumps every year to NPCIL recording Rs 2 bn+ in revenue annually for the next 3 years.

The Anup Engineering:

We expect a 15%+ YoY growth in Q2FY26, with EBITDA margins steady at 22.6%. However, higher effective taxes may render a flat PAT. The Q1FY26 order book and order inflow stood at Rs 6,036 mn and Rs 375 mn, respectively. These are key monitorable considering customer deferrals observed recently amid tariff-related uncertainties.  The company had recently terminated its agreement with Graham Corporation; however, this development has no bearing on its guidance of 15–20%.

ESAB India:

We estimate revenue growth of 10% and PAT growth of 11%, while EBITDA margin likely to remain around 16.8%. The company has seen growth slowdown over the last one year impacted by overall capex spending moderation in the country and this quarter may also turn out to be a seasonally weak quarter as welding activities slows down during monsoon.

Inox India:

We expect revenue and PAT to grow at 16% and 22% YoY, with EBITDA margin of 22.4% vs 20.8% in Q2-FY25. The Q1FY26 order book of Rs 14.5 bn provides healthy revenue visibility. The company is expected to secure orders for kegs from global alcoholic beverage companies in the near-term as well as an order from ISRO for its third satellite space station by March 2026, which would further boost its backlog. This along with secular trends in adoption of LNG as a transport fuel are near-term growth triggers.

Kirloskar Pneumatic:

We expect revenue to grow by 14% yoy supported by large slippages from last quarter, continued traction from deliveries of Tezcatlipoca and Khione compressors. Margins are expected to contract by 341bps to 18.3%, impacted by a mix of low margin order in the gas processing segment. Closing order book, demand for air compressors and status of deliveries for refrigeration will be key monitorable.

JNK India Ltd:

We expect revenue to grow by 32% yoy supported by large slippages from last quarter and change in revenue recognition policy starting Q2FY26. Although some of the large orders of HPCL and Reliance will only be completed in 2HFY26, the new revenue recognition policy should spread the revenue based on cost incurred. However, we expect margins to remain weak due to execution of legacy orders. Details on the new Rs1bn domestic order and other order finalization in pipeline, will be key monitorable.

Sector Analysis by

• Mohit Surana - Senior Research Analyst, Institutional Equities
• Sahil Sanghvi - Research Analyst, Institutional Equities

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