Margin trajectory among key triggers for CG Power and Industrial Solutions

CG Power and Industrial Solutions (CG Power) met consensus estimates with revenues of ₹2,750 crore but missed operating and net profit expectations due to rising commodity costs, one-off expense of ₹15 crore on outsourced semiconductor assembly and testing (OSAT) and low-margin railways contracts.

 

Consolidated revenue was up 26 per cent to ₹2750 crore, operating profit grew 28 per cent to ₹360 crore while net profit rose 23 per cent Y-o-Y to ₹290 crore.

 

The industrial segment and power system segments reported revenue growth at 21 per cent and 28 per cent Y-o-Y respectively.

 

The free cash flow or FCF was about ₹550 crore (standalone) and ₹800 crore for the consolidated entity.

 

Inventory days rose to 42 days versus 34 days in FY24 and receivables days rose to 74 days against 70 days in FY24.

 

Industrial segment profitability was hit by high copper prices and losses in new businesses that have not yet stabilised. But profitability improved in power systems.

 

The order book is robust at ₹10,600 crore (up 66 per cent Y-o-Y). The power systems margin for the fourth quarter of financial year 2025 (Q4FY25) was at 21 per cent, up by 250 basis points Y-o-Y and up 340 basis points Q-o-Q. The margin may sustain due to a cyclical upturn and energy transition.

 

There is on-going capex of ₹700 crore across segments. Capex is spread across low tension motors (₹330 crore), high tension motors (₹40 crore), power transformers (₹130 crore), distribution transformers (₹40 crore), and switchgears (₹160 crore). This will also boost exports. 

 

The company has recently entered the OSAT space which is a new opportunity. It has invested ₹150 crore in subsidiary CG Semi and ₹22 crore in Axiro, for FY25, these are in the semiconductor space.  A project in the subsidiary is planned in the next two years. The government will provide a subsidy of up to ₹3500 crore for the OSAT facility.

 

CG Power has acquired controlling stakes in GG Tronics (GGT) through the purchase of equity shares and compulsory convertible preferential shares for a total sum of ₹320 crore. It has entered into a definitive agreement with Renesas Electronics America for acquiring the radio frequency components business. CG Power has completed the acquisition of Axiro, which should generate revenue from Q1FY26.

 

It has signed a long-term (LT) agreement with Kinet Railway Solutions for supply of railway products for eight years (propulsion kits with motors, transformers, etc.) for 10 Vande Bharat train sets. The order is worth ₹450 crore. A separate 35-year maintenance cum service agreement (MSA) with the Indian Railways is part of this. The company will receive orders on an annual basis, with the first eight trainsets, valued at ₹400 crore, to be supplied in the first year.

 

In motors, CG Power has gained market share.

 

Management highlighted the market for motors shrank by 4 per cent Y-o-Y but it grew by 12 per cent, increasing domestic market share. The management expects to return to earlier margins in industrials by FY26-end.

 

Management targets consolidated operating profit margins (OPM) in the 14-15 per cent band. The cyclical upturn and structural growth in power may push growth including exports. This could be a long-term (4-5 year) growth opportunity.

 

Rising cost of copper led to margin pressures along with a large share of low-margin railway orders. A better inflow mix will improve OPMs in FY26 while LT agreement with Kinet for Vande Bharat offers better revenue visibility. The consumer business is being revamped for long-term growth with a new business head. The two focus categories are pumps and fans, with plans to also launch air coolers and water heaters. Management aims to become a top five players in the next five years. The semicon investments in CG Semi & Axiro did hurt OPMs in FY25, but profits from Renesas’ radio frequency business will help to offset these setting-up costs.

 

Working capital stress and tight margins are areas of concern while exports scale-up could improve margins. These are key monitorables.