EPC sector to register modest growth in FY26: India Ratings

Bengaluru: India’s engineering, procurement and construction (EPC) sector is expected to see a revenue growth of 10-12 per cent year-on-year in fiscal year 2025-26 (FY26), up from an expected 8-10 per cent growth rate in the current financial year (FY25), India Ratings and Research said on Thursday.

While this shows modest improvement, the growth is nowhere near the FY22-FY24 compound annual growth rate (CAGR) of around 20 per cent, and the 30 per cent plus growth rate even earlier, the agency said.

“The central government’s own capital expenditure growth in FY26 has been scaled back to 10 per cent... with higher allocations to states and production-linked incentive (PLI) schemes to spur state and private sector spending,” said Krishan Binani, Director, Corporate Ratings at India Ratings and Research.

The growth in the next fiscal will be driven by the modest growth in public sector capex, a continued shift of states spending away from capex, and mixed trends on private capex.

The capital spending of states has also fallen short of expectations. While this is expected to recover to 14.5 per cent in FY26 (from 5.1 per cent in FY25), aided by increased capital grants by the centre, the shifted focus towards welfare spending commitments are likely to pose a downside risk.

Private sector capex has seen a rebound, but it is only for certain sectors, which is expected to sustain. Central public sector enterprises’ capex is also likely to see continued momentum, the agency said.

Within sub-sectors, power (transmission and distribution) is seen as the strongest on steady order flows and potential margin improvement. Defence is also now a priority sector due to the current geopolitical scenario.

Meanwhile, there is a deteriorating outlook on roads, highways, and railways due to flat central allocations. The disappointment will likely continue long term, though specific segments in railways may continue to perform well.

Margin growth is likely to remain challenging due to heightened competition, with one causing factor being that companies will diversify in view of a lull in awards in the larger segment of national highways, it said.