CG Power and Industrial Solutions (NSE: CGPOWER)

1. What ₹879 implies

A DCF answers "what is it worth?" with our assumptions. A reverse DCF asks the opposite: which assumptions make today's price fair? We hold revenue growth and free-cash-flow margin constant for ten years from the FY26 base (₹12,418 Cr), apply our 14.8% WACC and 6% terminal growth, and solve for the combinations that reach ₹879.

Where we differ from the Street

*Revenue CAGR for ten years at a 12% FCFF margin, at our 14.8% WACC, that would justify each target. Sources: MarketScreener consensus, 1 Oct 2026; Kotak Securities PCG summary of KIE's Q1 FY27 update, 27 Jul 2026; author's model.

2. The business: two engines and a start-up

Power Systems (41% of FY26 revenue). Transformers, switchgear and related products for utilities, renewables and data centres. Revenue grew 46% to ₹5,138 Cr in FY26 and 31% in Q1 FY27; EBITDA margin rose to 22.6% (24.1% in Q1). The segment backlog was ₹14,434 Cr at 30 June 2026 (+59%), about 2.8x FY26 segment revenue. Transformer capacity rose from about 18,000 MVA to 65,000 MVA in a year, and a greenfield plant adds 25,000–30,000 MVA. In January 2026 CG won its largest-ever order, ₹900 Cr of power transformers for a US hyperscale data centre. Exports are still only about 5% of revenue.

Industrial Systems (54%). Motors, drives and railway equipment. Standalone segment revenue grew 6% to ₹6,197 Cr; motors grew double digits, half from price and half from volume. EBITDA margin fell from 12.8% to 10.6% on commodity costs and competitive railway pricing, even after motor price increases of 17.5% over three to four quarters. Q1 FY27 growth was 6% again, at a 9.6% margin after a ₹20 Cr railway provision. CG holds about 38–39% of the low-tension motor market.

Semiconductors (4%). An OSAT (assembly and test) business at Sanand, Gujarat. The G1 plant (0.5 million units a day) was inaugurated in August 2025 and began commercial production on 4 July 2026; G2 is due by the end of 2026 (14.5 million units a day). The ₹7,584 Cr project carries ₹4,901 Cr of central and state capital assistance. FY26 revenue was ₹503 Cr; the segment cost ₹111 Cr in FY26 and ₹43 Cr (132 bps of margin) in Q1 FY27 alone.

3. Cash conversion: the weak link

Profit growth has not turned into cash. Receivables rose ₹912 Cr in FY26 as Power Systems, which sells on 90–100-day credit, became a larger share of revenue. Capex rose to 6% of revenue. Operating working capital rose from 16 to 24 days. (Screener's 70 days for FY26 counts ₹1,580 Cr of fixed deposits, mostly QIP money, as working capital; we exclude them.) Our forecast assumes conversion recovers: FCFF margin rises from 2.8% in FY27E to 6.5% in FY31E. That is well short of the 12% the price requires.

Source: Screener.in (C-MOTS data), FY26 annual report.

4. Forecasts: updated for Q1 FY27

We build revenue by segment, then derive margins, capex and working capital down to free cash flow. After the June 2026 quarter we cut Industrial Systems growth from 12% to 7–8% and the FY27E EBITDA margin from 13.5% to 13.0%. FY27E still assumes faster growth than Q1 delivered.

FY26A FCFF shown as reported free cash flow. Source: author's model.

Q1 FY27 check. In the June 2026 quarter, consolidated revenue grew 14.0% to ₹3,281 Cr and EBITDA (excluding other income) rose 4.2% to ₹397 Cr, a 12.1% margin. Standalone Power Systems grew 31% at a 24.1% EBITDA margin; Industrial Systems grew 6% at 9.6%, after a ₹20 Cr railway provision. Our FY27E assumes 18.6% growth and a 13.0% margin, still above Q1. Kotak called the quarter a 10–15% miss on revenue and EBITDA.

5. Valuation: DCF

The DCF is insensitive to reasonable changes in discount rate and terminal growth: every cell in the grid is below ₹150. The gap to ₹879 comes from cash flow, not discounting. Every year's FCFF would need to be about 9 times our forecast to justify the price on the same structure.

Net cash of ₹4,223 Cr is about ₹27 per share, 3% of the price. It includes ₹2,591 Cr of unspent QIP money in fixed deposits, which the FY26 annual report shows outside the cash line.

6. Valuation: peer multiples

FY26 = April 2025 to March 2026 for every company (ABB India and Siemens: sum of four quarters). Net profit excludes exceptional items, including ABB India's ₹1,442 Cr one-off gain. Net debt from the latest reported balance sheet. Prices are NSE closes on 1 Oct 2026. CG's P/E here is market cap ÷ net profit (115.5x); on EPS it is 114.8x. Source: Screener.in.

At the peer median, CG is worth ₹656 on P/E and ₹707 on EV/EBITDA, ₹682 on average. CG grows faster than ABB India and Siemens but slower than GE Vernova T&D. Hitachi Energy, the closest match on growth, trades at the highest multiples. On the latest twelve months to June 2026, peer medians are 68x EV/EBITDA and 90x P/E, valuing CG at ₹733 (−17%).

We use the median because Bharat Bijlee, a small-cap motors company at 6.5x EV/EBITDA, would distort the mean. Peer multiples tell us what CG is worth if the whole sector stays at today's levels. They do not show that today's levels are justified, which is what the reverse DCF tests.

7. Target price and rating

Method	₹/share	Weight
DCF	122	50%
Peer multiples	682	50%
Target price	402
Downside from ₹879	−54%

Rating rule: BUY at 15% upside or more, SELL at 10% downside or more, HOLD otherwise. The blended target gives SELL. So do the DCF alone (−86%) and peer multiples alone (−22%, or −17% on trailing twelve months to June 2026), so the call does not depend on the weighting.

8. Commodity sensitivity

Raw materials were 69% of FY26 revenue (materials consumed plus traded goods, less inventory build, from the annual report). Copper (27%) and electrical steel (24%) shares of material come from IEEMA's price-variation formulas, which index contract prices: copper 32 and CRGO 27 of 84 material points for power transformers; copper 26 and steel 27 of 82 for LT motors. We weight them by an estimated business mix (CG does not disclose sub-segments).

• Copper +10%: −94 bps of EBITDA margin, −₹139 Cr or 7% of FY27E EBITDA.
• Steel +10%: −83 bps. Both +10%: −177 bps.
• Pass-through differs by business. Transformers and large projects carry price-variation clauses. Motors rely on list-price increases, which lag costs.

9. Risks to our SELL rating

• Faster order conversion and exports. More data-centre and US grid orders could lift Power Systems growth above our 30% for FY27E. Exports are only about 5% of revenue, so the upside from a successful push is large.
• Semiconductor success. With ₹4,901 Cr of government capital support, G2 could turn the semiconductor business profitable earlier and at larger scale than we model.
• Margin expansion. Power Systems already earned 24.1% in Q1 FY27. If the mix shifts faster, group margins could pass our 14.5% ceiling.
• Sector multiples stay high or expand. Our peer-based value assumes 65x EV/EBITDA persists. Sustained flows into Indian power-equipment stocks could keep the price far above fundamental value for a long time.
• Lower interest rates. The 10-year yield is at a two-year high. A fall would raise the DCF value, though at an 11% WACC the price still needs 25% growth for a decade.

Risks that would strengthen the SELL case: receivables keep outgrowing revenue, so cash conversion stays below 50% of EBITDA; commodity inflation outpaces motor price increases, as in FY26; semiconductor losses last longer or need more capital.

Appendix A: what verification changed

Every placeholder was checked against a primary source before we set the rating, and the forecast was re-checked against the June 2026 quarter. These checks moved the answer:

The model is rebuilt independently in Python (cgpower_analysis.py): the DCF, the WACC × growth table, the reverse-DCF grid and the commodity grid all match Excel exactly.

Appendix B: methodology notes

• Discounting: end-of-year cash flows from 31 March 2026. Rolling forward to the 1 October 2026 valuation date would raise the DCF value by about 6%, to roughly ₹129; this does not change the rating.
• Minority interest: the DCF does not deduct ₹228 Cr of non-controlling interest (about ₹1.4 per share).
• Peer cash: peer net debt uses Screener's cash and investments lines, which can miss deposits held elsewhere (as CG's did). Missed peer cash would lower peer EV/EBITDA by a few turns at most; P/E is unaffected.
• Segments: Power Systems revenue is the company's standalone segment figure. Industrial Systems includes subsidiaries (₹6,747 Cr consolidated vs ₹6,197 Cr standalone). A ₹30 Cr balancing item is held flat.
• Auditor change: S.R. Batliboi & Associates said it would resign as statutory auditor from 14 August 2026 so that CG uses the same audit network as its parent, Tube Investments of India, whose auditor rotates out after ten years (Q1 FY27 press release). We read it as group alignment, not an accounting signal.

Sources

• CG Power FY26 annual report (BSE filing): consolidated balance sheet, cash flow statement, notes 7, 11, 13–15 and 56.
• CG Power Q4 FY26 press release and earnings call transcript, 6 May 2026; Q1 FY27 press release, 24 July 2026.
• IEEMA price-variation circulars: power and distribution transformers (Nos. 140 and 142, November 2021); AC/DC rotating machinery (No. 33, November 2022).
• MarketScreener analyst consensus, 1 October 2026; Kotak Securities PCG summary of Kotak Institutional Equities' Q1 FY27 update, 27 July 2026.
• Screener.in (C-MOTS data): CG Power and peer financials, quarterly results and price history, accessed 30 Sep and 4 Oct 2026.
• Yahoo Finance weekly adjusted closes, CGPOWER.NS and ^NSEI, Oct 2024 to Sep 2026 (beta); Trading Economics, India 10-year bond yield, 1 Oct 2026.