CG Power capacity expansion supports growth despite weaker quarterly results

Investment View and Valuation

Motilal Oswal Financial Services retained its Buy rating on CG Power and Industrial Solutions in its July 24, 2026 result update, while reducing its FY27E and FY28E estimates by 3% and 4%, respectively, after weaker-than-expected Q1 FY27 execution. The broker expects the company to benefit from transformer, switchgear and circuit-breaker capacity additions in Power Systems, price increases and a gradual demand recovery in Industrial Systems, and lower CG-SEMI losses by FY28.

The revised target price is Rs 975, compared with Rs 990 previously, versus the report CMP of Rs 866. The target is based on a sum-of-the-parts valuation, including a 58x multiple for Power Systems, a 55x multiple for Industrial Systems—representing a 10% discount to ABB—and discounted cash flow valuation for OSAT benefits expected from FY28.

Q1 FY27 Financial Performance

CG Power reported consolidated Q1 FY27 revenue of Rs 32.8 billion, up 14% year on year but 5% below Motilal Oswal's estimate. Gross margin expanded 60 basis points year on year to 30.8%, broadly in line with the broker's 31.0% expectation.

Higher other expenses limited EBITDA growth to 4% year on year at Rs 4 billion, representing a 13% miss versus the estimate. EBITDA margin declined 110 basis points to 12.1%, compared with the 13.2% estimate. Reported PAT increased 16% year on year to Rs 3 billion, 7% below estimate, as higher-than-expected other income partly cushioned the impact of lower revenue and margins.

Power Systems: Strong Order Book and Capacity Expansion

Power Systems revenue grew 31% year on year to Rs 14 billion, broadly in line with the estimate. Segment EBIT margin improved 260 basis points to 23.2%, ahead of the broker's 22.2% estimate, supported by execution and operating leverage.

Q1 FY27 order inflow was Rs 31.1 billion, down 11% year on year because Q1 FY26 included a roughly Rs 6.5 billion PGCIL order. Excluding this order, inflow grew 9%. The Power Systems order book reached Rs 144.3 billion, up 60% year on year.

Motilal Oswal sees a healthy bid pipeline across domestic transmission and distribution, utilities, renewables, data centres and exports. It does not see pricing pressure despite industry capacity additions. Transformer capacity is currently about 75,000 MVA, with an additional 45,000 MVA planned in phases over the next 12 to 14 months.

Industrial Systems: Pricing Supports Recovery

Industrial Systems revenue grew 6% year on year to Rs 17.9 billion, aided by double-digit growth in Motors. EBIT margin declined 260 basis points to 7.6%. The margin was affected by a one-time provision of roughly Rs 200 million for railways, pre-operating costs at GG Tronics and break-even profitability in Consumer Durables. Excluding the provision, the margin was about 8.7%.

Motors demand remained healthy across cement, metals and mining, and original equipment manufacturer segments. CG Power implemented an additional 5% price increase in Q1 FY27 following a 17% increase in the prior year.

Motilal Oswal expects GG Tronics Kavach deliveries to begin from Q2 FY27 after validation trials and regulatory approvals. The broker models Industrial Systems order inflow and revenue CAGR of 12% and 8%, respectively, over FY26 to FY29E, with EBIT margin improving to 8%, 9% and 10.5% in FY27E, FY28E and FY29E.

Semiconductor and EHV Capacity Expansion

Phase 1 of the Sanand OSAT facility has begun commercial production, while Phase 2 remains targeted for commissioning by FY27-end. Near-term profitability is expected to remain under pressure from investment in talent, technology and ecosystem development.

The broker expects higher OSAT utilisation and customer additions to improve operating leverage, with semiconductor EBITDA break-even from FY28. Axiro is growing its design business at a healthy double-digit rate, has a strong order pipeline and is expanding beyond RF and Satcom into power electronics.

CG Power also commissioned Phase 2 of its Nashik EHV switchgear facility, increasing EHV circuit-breaker capacity by about 80%, from 9,000 to 16,200 units annually.

Consolidated Outlook and Valuation Metrics

Motilal Oswal forecasts total order inflow CAGR of 11% and consolidated revenue, EBITDA and PAT CAGR of 25%, 33% and 28%, respectively, over FY26 to FY29E. It forecasts EBITDA margins of 13.7% in FY27E, 15.1% in FY28E and 15.9% in FY29E.

Key Risks

• Slower transmission and distribution capital expenditure.
• Higher commodity prices.
• Weak motor demand.
• CG Power's limited OSAT experience.