The Indian railway industry is on the path to achieving a 5% revenue growth in FY26, according to a recent analysis by ICRA. This optimistic outlook highlights the increasing demand for wagon manufacturing as a key driver for growth, while segments focused on construction are anticipated to experience moderate development. With operating margins projected to stay robust at around 12%, the sector remains well-positioned thanks to stable input costs and operational efficiencies.

Government Initiatives Fuel Growth

In recent years, the Government of India has taken significant steps to enhance transportation infrastructure, aiming to lower logistics costs and improve connectivity. A consistent emphasis on upgrading railway infrastructure—such as track safety and passenger amenities—has resulted in a notable 130% increase in the capital outlay for Indian Railways over the past five years, reaching an impressive ₹2.52 lakh crore for FY26. However, the budgetary support during the FY2024 to FY2026 period has seen only a modest rise of 2%.

Insights from Industry Experts

Suprio Banerjee, Vice President and Co-Group Head at ICRA Ltd, stated that entities involved in manufacturing rolling stock, track infrastructure, electrification, and safety components have experienced a 24% compounded annual growth rate (CAGR) over the three years leading to FY2024. Despite this promising trend, revenue growth for ICRA’s sample entities is expected to plateau in FY25 and FY26, reflecting a broader slowdown in budgetary allocations for the railway sector.

Strong Order Book and Revenue Visibility

ICRA’s analysis indicates that the railway sector benefits from a strong order book, with the order book-to-income ratio significantly improving from 1.33 times in FY2015 to 2.77 times in FY2024. This growth ensures a clear revenue pipeline moving forward. The report also notes that segments focused on rolling stock, track infrastructure, electrification, and safety components have enjoyed a commendable 24% CAGR from FY2022 to FY2024.

Competitive Landscape and Future Prospects

While wagon manufacturers are poised to lead the growth trajectory, EPC contractors are facing increasing competition despite having healthy order books. Service providers in ticketing and logistics continue to enhance profitability within the sector. Banerjee highlighted that the revenue dynamics for the railway sector will primarily rely on EPC and wagon manufacturing entities due to the sizable nature of their projects. Conversely, the margin outlook is expected to be bolstered by service-oriented companies involved in ticketing and logistics.

In summary, while competition in the railway sector is intensifying, particularly among EPC firms, the credit profiles of entities servicing Indian Railways will likely remain strong, supported by operational leverage and a favorable receivable cycle. The future of the Indian railway sector looks promising, with strategic government investments and robust growth in demand for key components.