Shares of CG Power and Industrial Solutions Ltd, a flagship company of the Murugappa Group, witnessed a sharp fall of over 8% on May 6, 2025, after the company announced its financial results for the January-March quarter (Q4 FY24). Despite strong growth in revenue and profits, the market reacted negatively, primarily due to margin contraction and cautious investor sentiment.

Revenue sees 26% year-on-year jump

In the March quarter, CG Power reported a total revenue of ₹2,753 crore, registering a robust 26% increase from ₹2,192 crore in the same quarter last year. This growth was attributed to strong demand across its business verticals, especially in the industrial and automation segments, which continued to perform well amidst a healthy order environment.

Profit rises, but margins come under pressure

The company's net profit for Q4 stood at ₹272 crore, reflecting a 16% year-on-year rise compared to ₹234 crore reported in Q4 of the previous year. Similarly, EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) rose by 22%, reaching ₹347 crore against ₹284 crore a year ago.

However, what concerned investors was the EBITDA margin, which contracted by 40 basis points year-on-year to 12.6%, compared to 13% last year. Particularly, the industrial segment's EBIT margin declined to 11% from 13%, indicating pressure on profitability despite top-line growth.

Market reaction: Stock plunges over 7%

Following the Q4 earnings announcement, the stock of CG Power dropped 7.57% intraday to hit a low of ₹587 on the NSE. This marked a sharp reaction from the market, driven by concerns over margin erosion and profit sustainability in a competitive landscape.

So far in 2025, CG Power’s stock has declined over 20%, underperforming broader market indices. This sell-off underscores investor apprehension about the company’s ability to maintain margins despite solid order flows and revenue growth.

Strong order intake and backlog

One of the key positives from the earnings report was CG Power’s robust order book. The company reported an order intake of ₹3,650 crore during Q4, representing a 20% growth year-on-year. More importantly, the unexecuted order backlog stood at ₹9,909 crore as of March 31, 2025, which is 58% higher YoY.

This significant backlog provides strong revenue visibility for upcoming quarters and positions the company well for sustained business growth. It also reflects healthy demand across domestic and export markets, particularly in segments like industrial systems, automation solutions, and transformers.

Free cash flow remains healthy

For the March quarter, CG Power generated ₹202 crore in free cash flow, reflecting the company’s strong operational efficiency and prudent working capital management. The free cash generation also underlines CG Power’s capacity to fund its future investments and reward shareholders through dividends and buybacks.

Dividend payout supports investor returns

Earlier in March 2025, CG Power had declared an interim dividend of ₹199 crore, translating to ₹1.3 per share. This move was aimed at rewarding shareholders amidst growing profits and reflected the company’s confidence in its balance sheet strength and earnings trajectory.

Despite the fall in margins, the company continues to maintain a strong financial profile, supported by rising orders, increasing cash flows, and consistent dividend payouts.

Key Highlights and Performance Summary:

• Revenue (Q4 FY24): ₹2,753 crore, up 26% YoY

• Net Profit (Q4 FY24): ₹272 crore, up 16% YoY

• EBITDA: ₹347 crore, up 22% YoY

• EBITDA Margin: 12.6%, down from 13% YoY

• Industrial Segment EBIT Margin: 11%, down from 13% YoY

• Free Cash Flow: ₹202 crore

• Order Intake: ₹3,650 crore, up 20% YoY

• Order Backlog: ₹9,909 crore, up 58% YoY

• Dividend Declared: ₹1.3/share (₹199 crore total payout)

• Share Performance (2025): Down over 20% YTD, -7.57% on May 6

Investor concerns cloud short-term outlook

While CG Power has delivered consistent revenue and profit growth, investor concerns around margin contraction, stock performance, and sector competitiveness appear to be weighing heavily on its market valuation. The muted response to a strong operational performance may also be due to already high expectations built into the stock price earlier in the year.

Going forward, investors are likely to closely monitor how the company manages input costs, maintains margins, and executes its expanding order book amid macroeconomic volatility.

Outlook: Solid fundamentals, but market sentiment cautious

In the long-term, CG Power remains well-positioned within the industrial and power solutions domain. With a robust order backlog, healthy cash flows, and strategic backing from the Murugappa Group, the company is expected to continue growing.

However, market sentiment in the short-term remains cautious, especially due to the recent stock decline and profitability pressures. Investors may look for improvements in margin resilience and execution efficiency in the coming quarters to regain confidence.

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