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

Mumbai: India’s capital goods and defence companies are expected to report growth in the September quarter, supported by strong order books and improving demand, according to Motilal Oswal Financial Services (MOFSL).

However, high commodity prices and the continuing West Asia crisis could put pressure on costs and profit margins, the brokerage said in its Q2 FY27 results preview.

Q2 Earnings Growth Outlook

MOFSL expects companies under its coverage to record revenue growth of about 9.5 per cent, operating earnings growth of 10 per cent and profit growth of 9.8 per cent from a year earlier.

Operating margins are projected to remain broadly stable at 13 per cent. Existing orders should support execution, while price increases could partly offset higher material costs.

Large Orders Support Capital Goods Sector

Larsen & Toubro announced quarterly order inflows of around Rs 1 lakh crore, including major hydrocarbon contracts in the Middle East and orders linked to artificial intelligence infrastructure and thermal power.

KEC International announced orders of about Rs 3,600 crore, while Kalpataru Projects International secured more than Rs 9,500 crore.

Power transmission, data centres, infrastructure and private investment remain sources of demand.

Green Energy And Defence Opportunities

The Rs 1.86 lakh crore Green Energy Corridor Phase-III scheme adds visibility to transmission projects. It includes infrastructure for evacuating 135 GW of renewable energy and supporting 50 GWh of battery storage.

Defence Acquisition Council approvals reached Rs 1.62 lakh crore in FY27 so far. MOFSL expects ordering to improve as approved projects advance towards finalisation.

Missile technology transfers and greater private participation could widen opportunities for domestic manufacturers.

Commodity Costs Remain A Challenge

Copper, zinc, aluminium and steel prices remain elevated. Companies with fixed-price contracts face greater margin risks, while those able to raise prices or adjust contract pricing may cope better.

MOFSL remains positive on L&T, Cummins India, GE Vernova T&D, Kirloskar Oil Engines and Kalpataru Projects International. Bharat Electronics remains its preferred defence stock.