Rail sector revenue to grow 5% in FY26, wagon makers drive gains: Icra

The Indian railway sector is expected to see a moderate revenue growth of 5 per cent in FY'26, driven primarily by strong performance from wagon manufacturers, while construction entities in the sector may witness slower growth, an analysis by credit rating agency Icra said.

The report highlights that the weighted average operating margins for the sector will remain healthy at around 12 per cent in FY26, supported by operating leverage benefits and stable input prices.

This comes amid sustained government investments in railway infrastructure, with the capital outlay increasing by 130 per cent over the past five years to Rs 2.52 lakh crore in 2025-26 (Budget Estimates), a statement said.

However, budgetary support has grown only modestly by 2 per cent between FY2024 and FY2026, indicating a potential slowdown in funding momentum, the rating agency said.

Suprio Banerjee, Vice President and Co-Group Head, Corporate Ratings, at Icra, noted that railway sector entities have been key beneficiaries of the government's push to improve connectivity and reduce logistics costs. Over the last three years, companies involved in rolling stock, wagon manufacturing, track infrastructure, and electrification have seen a robust 24 per cent compounded annual growth rate (CAGR).

"However, the revenue growth of Icra's sample entities catering to the Railway sector is likely to witness relatively flattish growth in FY2025 and FY2026 estimates. In the near to medium term, the growth momentum is likely to taper down in line with a relatively broader trend in budgetary outlay towards the Railway Sector," Banerjee cautioned.

The order book-to-income ratio for engineering, procurement, and construction (EPC) firms and wagon manufacturers has surged to 2.77 times in FY2024 from 1.33 times in FY'15, ensuring strong revenue visibility.

Icra said while EPC and wagon manufacturing firms will drive revenue, margins are expected to be bolstered by service-oriented segments like ticketing and logistics.