Government And Utility Spending Will Drive Global Grid Modernization

Key Takeaways

• Strong order growth and capacity expansion position the company to benefit from power sector investment and infrastructure modernization trends in India and abroad.
  
• Margin improvement and global diversification efforts, including ventures in semiconductors, support earnings stability and long-term profitability through new revenue streams.
  
• Ongoing margin pressures, transition costs from new semiconductor businesses, and reliance on limited sectors create earnings risks and reduce near-term profitability and diversification.

Catalysts

Provides various solutions in India and internationally.

• The company is experiencing a sharp increase in order intake (56% YoY growth in core orders, 62% YoY growth consolidated), particularly in Power Systems where demand is being driven by large government and utility spending on energy infrastructure. This is directly tied to continued acceleration in urbanization, industrialization, and national infrastructure investment, providing strong revenue visibility and supporting future revenue growth.
  
• Ongoing and planned capacity expansions in transformers and power equipment (doubling existing plant to 40,000 MVA soon, new plant under construction for 45,000 MVA, with plans for further expansion), position CG Power to capitalize on sustained grid modernization, electrification, and renewable integration trends in India and internationally, enabling higher top-line growth and improved operating leverage.
  
• Investments in advanced automation, digital solutions, and higher-value product segments are supporting margin expansion efforts, as evidenced by management's focus on price discipline, commercial excellence, and shifting away from low-margin products. These initiatives align with longer-term company growth drivers and are likely to expand net margins.
  
• The company's continued global expansion (notably in Africa and Europe), set-up of export channels and service centers, and pursuit of export opportunities in both conventional and value-added product lines leverage long-term global demand for grid upgrades and industrial automation. This diversification reduces dependency on the domestic market and supports more stable and growing earnings.
  
• Strategic investment in emerging business lines such as semiconductors (CG Semi and Axiro) aligns with global tech localization and digital transformation agendas; these businesses are expected to start contributing meaningfully from FY26–FY27, potentially enhancing earnings visibility and long-term profitability as new revenue streams mature.

CG Power and Industrial Solutions Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CG Power and Industrial Solutions's revenue will grow by 22.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.5% today to 10.4% in 3 years time.
• Analysts expect earnings to reach ₹20.3 billion (and earnings per share of ₹13.33) by about August 2028, up from ₹10.0 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₹23.7 billion in earnings, and the most bearish expecting ₹16.9 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 89.6x on those 2028 earnings, down from 105.9x today. This future PE is greater than the current PE for the GB Electrical industry at 38.2x.
• Analysts expect the number of shares outstanding to grow by 0.38% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 15.6%, as per the Simply Wall St company report.

CG Power and Industrial Solutions Future Earnings Per Share Growth

Risks

• Sustained weakness in the low-tension (LT) Motors market and ongoing negative trends in industrial indices may limit revenue growth and challenge the company's ability to maintain or improve net margins if a market rebound is delayed.
  
• Margin pressures in the Industrial segment, particularly due to exposure to railway tenders with restrictive price variation clauses and increasing commodity (raw material) costs that cannot be fully passed to customers, pose a continued risk to segment profitability and overall net earnings.
  
• The recently acquired semiconductor (Axiro and CG Semi) businesses are currently in the transition/setup phase with elevated employee and setup costs, low margins, and no material revenue contribution from new facilities until at least 2026–2027, which could drag consolidated earnings and reduce near-term profitability.
  
• Export-led growth faces execution challenges, including the need to build out international distribution, after-sales service infrastructure, and localized teams; underperformance or slow ramp-up in these channels may limit diversification, constrain revenue potential, and expose CG Power to increased competitive pressure in its domestic base.
  
• The company's future reliance on large government and infrastructure CapEx cycles creates revenue concentration risk; any delay or reversal in government policy, public sector order flows, or regulatory support for domestic manufacturing and energy transition could negatively impact long-term revenue visibility and stall margin expansion plans.

Valuation

• The analysts have a consensus price target of ₹738.75 for CG Power and Industrial Solutions based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹890.0, and the most bearish reporting a price target of just ₹556.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹195.4 billion, earnings will come to ₹20.3 billion, and it would be trading on a PE ratio of 89.6x, assuming you use a discount rate of 15.6%.
• Given the current share price of ₹674.25, the analyst price target of ₹738.75 is 8.7% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.