360 ONE: Thermal Cycle De-risks H2FY27 EPC Recovery

A Soft First Half Is the Base Case

360 ONE Capital's latest sector read frames the next two quarters as an execution story rather than a demand story.

India's capital goods and power equipment complex is expected to stay subdued through H1FY27, with recovery deferred to H2FY27 on the back of a multi-year thermal power ordering cycle. The headline is deliberately cautious: a soft first half is now the base case.

Revenue Growth Masks Margin Compression

Order inflows still grew 19.2 per cent year-on-year, carried by private capital expenditure across the following sectors:

- Infrastructure
- Residential real estate
- Quick commerce
- Mining
- Food and beverages
- Pharmaceuticals
- Data centres

Electrification-linked equipment demand lifted revenue for several manufacturers.

But the operating line tells a sharper story. EBITDA grew only 2.2 per cent year-on-year while profit after tax rose 12.8 per cent. The wedge came from lower interest costs on deleveraged balance sheets, not from operational leverage.

Margin Pressure and Geopolitical Risk

That divergence matters. EBITDA margins compressed 69 basis points year-on-year on higher commodity costs tied to the Middle East conflict, and engineering, procurement and construction players with regional exposure are already absorbing execution pressure.

360 ONE Capital is effectively flagging that H2 recovery is contingent on geopolitical normalisation, not on any shortfall in domestic order intake.

The Thermal Generation Cycle

The structural signal sits in thermal generation. Rising power demand — amplified by data centre load and electrification — is forcing baseload capacity decisions, and states are converting that into long-duration power purchase agreements.

360 ONE Capital expects thermal orders to remain strong for several years.

Crucially, transformer and gas-insulated switchgear availability has improved as original equipment manufacturers add capacity, which should gradually shorten lead times and unblock execution for utilities and EPC contractors.

Public Capex Provides a Buffer

On the public side, the Government of India's capital expenditure execution is running ahead of last year's pace: 28 per cent of the FY27 target of Rs 12.3 lakh crore has been achieved, against 24.5 per cent in the corresponding FY26 period, with Rs 3.4 lakh crore already spent.

That front-loading supports the achievability of the full-year target and gives H2 delivery a buffer — provided commodity and logistics disruptions do not widen.

Implications for Contractors and Suppliers

For contractors and suppliers, the implication is selective exposure. Thermal equipment manufacturers and transformer and GIS OEMs capture the multi-year order cycle; EPC firms with Middle East concentration carry the margin and execution risk.

The recovery 360 ONE Capital is describing is real, but it is a supply-chain-normalisation and de-escalation call as much as a demand call.