Companies in Indian Railway Sector to Benefit from Strong Order Backlog: Report
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Synopsis
According to an ICRA report, firms in the Indian railway sector are projected to see a revenue growth of 5% in FY2026, mainly driven by wagon manufacturers. The order book for these entities has shown strong growth, while construction firms will experience more modest gains.
Key Takeaways
- Revenue growth of 5% expected in FY2026.
- Wagon manufacturers lead growth expectations.
- Order book-to-income ratio increased to 2.77 times.
- Capital outlay for Indian Railways rose by 130%.
- Entities focused on EPC and wagons show a 24% CAGR.
New Delhi, April 14 (NationPress) The revenue generated by firms in the Indian railway industry is anticipated to grow at a moderate pace of 5 percent in FY2026. This growth is primarily fueled by strong expectations from wagon manufacturers, although construction firms serving the railway sector are projected to experience more subdued growth, as indicated by an ICRA report released on Monday.
The weighted average profit margins are expected to stay robust at approximately 12 percent for FY2026, backed by operational leverage advantages and the assumption of stable input costs, according to the report.
Over the years, the Union government has taken various initiatives and made significant investments in transportation infrastructure to lower logistics expenses, shorten transit durations, and enhance connectivity. There has been a consistent emphasis on upgrading railway infrastructure (including track safety standards) and improving passenger experiences (such as station facilities and rolling stock), which is evident from the ongoing healthy allocation in the budgetary framework.
Thanks to the significant budgetary support for rolling stock and track infrastructure over the past five years, the order books for companies involved in Engineering, Procurement, and Construction (EPC) and wagon manufacturing have shown strong growth.
The report highlights that the order book-to-income ratio increased to 2.77 times in FY2024 from 1.33 times in FY2015, providing strong medium-term revenue visibility.
Overall, the capital expenditure for Indian Railways has surged by 130 percent over the last five years, reaching Rs. 2.52 lakh crore in the FY2026 budget estimate (BE). However, the budgetary support has only seen a modest increase of 2 percent during the FY2024 – FY2026BE period.
Suprio Banerjee, Vice President at ICRA Ltd, stated: “According to ICRA’s analysis, entities fulfilling the demands for wagons, track infrastructure, electrification, and safety components have experienced a healthy compounded annual growth rate (CAGR) of 24 percent over the three years ending in FY2024.”
“The revenue trajectory for the sector is likely to be propelled by EPC and wagon manufacturing entities, given the substantial nature of the projects they undertake, while the margin structure for the sector will primarily be supported by service-oriented entities related to ticketing and logistics,” Banerjee added.
He further noted that although competition in the railway segment has intensified significantly in recent years, particularly in the EPC segment, the credit profiles of entities serving the Indian railway sector will continue to benefit from operational leverage and a favorable receivables cycle.
