Q4 Results Beat Expectations, Transformer Capacity Expansion Boosts Export Growth

Overview

Nomura Securities releases research report reviewing CG Power & Industrial Solutions FY26 Q4 performance. The report shows that the company achieved strong growth in order inflow, revenue, and profit during the quarter, particularly in the Power Systems segment which benefited from efficient execution and operating leverage, leading to significant margin improvement. Given the strong performance and export potential from future capacity expansion, Nomura raises FY2028 EBITDA forecast by 6%, maintains 'Buy' rating, and raises target price from INR 820 to INR 920.

Core views

Performance broadly beat expectations, margins improved significantly. In FY26 Q4, the company's consolidated order inflows reached INR 53.4 billion, up 40% YoY, exceeding Nomura's expectations by 11%. Revenue reached INR 34.4 billion, up 25% YoY. With effective cost control and economies of scale, EBITDA margin expanded 95 bps YoY to 13.6%, driving EBITDA to INR 4.7 billion, up 35% YoY. Net profit attributable to parent was INR 3.7 billion, up 34% YoY. Power Systems (PS) became the core growth engine. The segment saw order, revenue, and EBIT growth of 72%, 50%, and 70% YoY respectively. EBIT margin improved significantly by 287 bps to 23.8%. The company's order book stands at INR 126 billion, providing solid backing for future growth. More critically, to meet global demand especially from data centers in the US, the company advanced and raised its transformer capacity expansion target from the originally planned 85GVA in FY2028 to 110GVA by end of 2026 (originally 75GVA). Additionally, INR 7.5 billion in greenfield capital expenditure will enhance its competitiveness in Gas Insulated Switchgear (GIS), helping expand into domestic and international markets. Industrial Systems (IS) recovering steadily, semiconductor business progressing well. Industrial Systems revenue grew slightly by 2%, but motor business achieved double-digit growth through a cumulative price increase of 17.5% over past few quarters. Facing increased competition in railway tenders, the company adopted a selective order-taking strategy, focusing on high-value service businesses and high-efficiency motors (IE3+), expecting this segment's performance to gradually recover. Regarding semiconductors, subsidiary CGSEMI has received financial support agreement from India Semiconductor Mission (ISM). As of March 31, 2026, it received INR 6 billion grant, with Outsourced Semiconductor Assembly and Test (OSAT) facility construction proceeding according to plan. Valuation increase reflects export potential. Nomura used Sum-of-the-parts (SOTP) valuation method, raising P/E multiple for FY2028 EPS from 55x to 60x to reflect higher export potential after capacity expansion. Specifically, Industrial Systems and Power Systems business valuation contribution is INR 840/share, OSAT business valuation contribution is INR 80/share, totaling target price INR 920.

Analysis framework

Nomura's analytical logic follows a path of 'Performance Verification - Driver Breakdown - Future Capacity and Order Matching - Valuation Reassessment'. First, by comparing actual financial report data with market expectations, confirming the company's short-term profitability outperformance, particularly validating the effectiveness of operating leverage through margin expansion. Second, deeply breaking down two core business segments, identifying Power Systems as the current main growth driver, and focusing on matching its capacity expansion plans with global market demand (such as US data centers), which is the key basis for adjusting long-term growth expectations. Finally, at the valuation level, not only adjusting earnings forecasts but also reflecting the company's structural transformation from a local manufacturer to a global exporter by increasing valuation multiples, using Sum-of-the-parts (SOTP) methodology for differentiated pricing of business segments with different growth characteristics.

Methodology notes

• Valuation MethodSOTP Sum-of-the-parts Valuation

  SOTP Sum-of-the-parts Valuation

  Valuing each of the company's different business segments (such as Power Systems, Industrial Systems, Semiconductors) separately and summing them up. Suitable for companies where business segments have diverse growth logic and risk characteristics, allowing more accurate reflection of value across parts.

• Industry/Industrial Analysis FrameworkSupply and Demand Framework

  Supply and Demand Framework

  Analyzing the gap between global supply constraints and demand explosion (such as data center construction) for specific products (such as transformers, GIS). The report points out that global power equipment demand is strong while supply is limited; the company's capacity expansion exactly fills this gap, supporting high growth and high valuation.

• Company Fundamentals and Financial FrameworkOperating/Financial Leverage Analysis

  Operating/Financial Leverage Analysis

  Focusing on how revenue growth converts to faster profit growth. The report emphasizes that in the Power Systems segment, EBIT grew 70% alongside 50% revenue growth, with significant margin improvement, reflecting substantial economies of scale and release of operating leverage.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• CG Power & Industrial Solutions (CGPOWER.NS)

  Direct beneficiary subject, core logic is Power Systems capacity expansion meeting global data center demand and semiconductor business policy dividend.

  Strengths

  Power Systems orders full, margins rising rapidly; secured huge government subsidies supporting semiconductor business; export capability validated.

  Weaknesses

  Industrial Systems segment facing railway tender competition pressure, growth relatively flat.

  Comparison

  Compared to peers, it possesses first-mover advantage in high-end transformer manufacturing and breakthrough with overseas clients.

  Risks

  Slowing T&D capital expenditure; Raw material price increases eroding margins.

Key data

• FY26 Q4 Order InflowINR 53.4 BillionUp 40% YoY, up 22% QoQ, exceeding Nomura's expectations by 11%
• FY26 Q4 RevenueINR 34.4 BillionUp 25% YoY, met expectations
• FY26 Q4 EBITDA Margin13.6%Expanded 95 bps YoY, expanded 104 bps QoQ
• FY26 Q4 Net ProfitINR 3.7 BillionUp 34% YoY, exceeding Nomura's expectations by 1%
• Transformer Capacity Target110 GVAPlanned to be achieved by end of 2026, previously 85 GVA in FY2028
• US Data Center Export OrderINR 9 BillionLargest single export contract in company history, delivery period 12-20 months

Impact & implications

The report believes CG Power is at a critical stage of transforming from a local leader to a global participant. Significant expansion of transformer capacity and securing large US data center orders prove its products possess international competitiveness, which will open long-term growth ceilings and lift valuation levels. Meanwhile, government financial support for the semiconductor OSAT business reduces capital expenditure pressure, laying the foundation for future incremental business. For investors, the company has strong short-term performance certainty and dual catalysts for export volume growth and semiconductor business landing in the medium to long term.

Risks

• Slowing Transmission & Distribution (T&D) Capital Expenditure
• Raw Material Price Increases

What to watch

• Progress of transformer capacity expansion and overseas order delivery status
• Market share changes in Industrial Systems segment regarding railway and service businesses
• Construction progress and commercialization timeline of Semiconductor OSAT facilities