Order inflows up 19%, government capex running ahead of last year’s pace, thermal upcycle intact, transformer availability improving
The West Asia conflict has been the single most disruptive variable in India’s capital goods sector through FY27 — affecting EPC companies with Middle East exposure, pushing commodity prices higher and slowing project execution in affected geographies. And yet the underlying order inflow data tells a story of structural health that the disruption has not fundamentally altered.
“Order inflows remained robust, growing 19.2% YoY, supported by sustained private capex momentum,” a 360 One Capital report states — with ABB up 49.6% and Siemens up 16.5% year-on-year in order intake. The cycle is intact. The execution is being disrupted. Those are two very different problems.
The Quarter
Revenue for the 360 One Capital goods universe grew 9.3% year-on-year in Q1FY27 — a reasonable outcome given the operating environment. Siemens Energy, APAR Industries and Voltamp Transformers stood out with strong revenue growth, each benefiting from robust demand for electrification equipment in a market where the power sector capex cycle is in full swing. EPC companies — KEC International and Larsen and Toubro — bore the brunt of the Middle East disruption, with execution affected by the ongoing conflict in their high-exposure regions.
EBITDA and PAT told a divergent story. “EBITDA and PAT for our coverage universe grew a modest 2.2% YoY and 12.8% YoY, respectively, with lower interest expenses, driven by deleveraging, enabling PAT to grow materially faster than EBITDA,” the report notes. EBITDA margins contracted 69 basis points year-on-year as war-related commodity inflation remained a headwind across the portfolio. The margin compression is real but the pace of deleveraging across the sector — driving interest cost reduction — has provided meaningful PAT support even as operating margins face pressure.
The Order Inflow Story
The 19.2% year-on-year order inflow growth is broad-based in a way that matters — it is not being driven by one mega-order or one sector. “Demand remained broad-based across infrastructure, residential real estate, quick commerce, mining, food and beverages, pharmaceuticals and data centres, indicating healthy underlying investment activity,” the report states. This is the characteristic of a genuine private capex recovery rather than a lumpy government-driven ordering cycle — diverse end-markets, multiple decision-makers, sustainable momentum.
The data centre opportunity deserves specific mention — it appears in the demand driver list alongside traditional categories, signalling that the AI and cloud infrastructure buildout is beginning to show up in order pipelines for industrial electrical equipment across the capital goods supply chain. Quick commerce is another non-obvious demand source — the warehouse and cold chain infrastructure behind India’s hyperlocal delivery boom requires significant electrical and mechanical equipment investment.
Government Capex
The public investment side of the equation provides additional comfort. “Government capex execution remains healthy, with 28% of the FY27 capex target achieved versus 24.5% in the corresponding period of FY26, with Rs 3.4 trillion spent,” the report notes — a stronger pace than the prior year at the same point, reinforcing confidence in the Rs 12.3 trillion FY27 target. The one risk to the government capex pace is also named explicitly: “Prolonged geopolitical disruptions in the Middle East could pose a near-term risk to the pace of capex deployment and project execution.”
The Thermal Upcycle
One of the structural themes that 360 One Capital emphasises is the thermal power ordering cycle — a demand driver that several investors have been tempted to dismiss given India’s renewable energy ambitions. “With states preparing fresh tenders and utilities increasingly locking in capacity through medium and long-term PPAs, we expect a multi-year thermal ordering cycle, supporting sustained visibility for power equipment suppliers,” the report states. Rising power demand and the need for reliable baseload generation — which intermittent renewables cannot provide without storage — is driving a genuine revival in thermal capacity ordering that should sustain equipment demand for years.
Transformer and GIS availability — which had been constrained by order backlogs outpacing manufacturing capacity — is improving. “Availability of key equipment, particularly transformers and GIS, has improved as OEMs have added capacity in response to strong demand,” the report notes. With further capacity additions underway, lead times are expected to normalise, easing execution bottlenecks that had been frustrating utilities and EPC companies trying to complete substations and transmission lines.
Energy Security
A less-discussed but increasingly important demand driver is bioenergy. “Energy security remains a key policy focus, with strong government support for CBG and ethanol through initiatives such as GOBARdhan and evaluation of higher ethanol blending targets,” the report states — adding that this should support sustained medium-term demand for bioenergy projects. Compressed biogas and ethanol plant equipment represent a growing order opportunity for engineering companies with process equipment capabilities, adding another demand stream beyond the power sector capex cycle.
The Valuation
The sector is trading at 36.9x one-year forward earnings against a 10-year average of 28.6x — a 29% premium to historical norms that requires either earnings delivery or multiple compression to resolve. 360 One Capital’s sector top picks are chosen with an implicit view on which companies offer the best risk-reward at current valuations given their specific positioning in the cycle.
The Six Top Picks
360 One Capital’s preferred plays cover six distinct entry points into the capital goods cycle. Larsen and Toubro is the “best capex proxy play” — the diversified engineering conglomerate with exposure to infrastructure, defence, hydrocarbon and technology. Triveni Turbine is the “industrial energy efficiency proxy” — benefiting from the growing demand for captive power and waste heat recovery systems.
Siemens Energy is the “high voltage power equipment play” — directly in the line of fire of India’s transmission capex cycle. BHEL is the “best thermal capex proxy play” — with the largest installed base in thermal equipment and the recovering order pipeline to match. Voltamp Transformers is the “ancillary to power capex” — a distribution transformer specialist benefiting from the grid buildout without the execution complexity of large EPC contracts. And Kalpataru Projects is the “T&D EPC proxy play” — an execution-focused transmission line contractor with domestic and international exposure.