Isgec Heavy Engineering: Navigating Growth and Strategic Shifts in Q2 FY26

Isgec Heavy Engineering Ltd., a prominent player in India's heavy engineering sector, has reported a mixed yet strategically focused performance for the second quarter of fiscal year 2026 (Q2 FY26). The company's consolidated total income from continuing operations saw a modest 3.5% year-on-year increase, reaching INR1,725 crores. Despite this, the profit after tax (PAT) from continuing operations demonstrated a robust 15.2% year-on-year growth, underscoring underlying operational efficiencies. However, the overall consolidated PAT was significantly impacted by losses from discontinued operations, a key area of focus for management.

Segment-wise, Isgec's diversified business model continued to drive its revenue streams. The Manufacturing of Machinery & Equipment segment contributed INR666.7 crores, accounting for approximately 38.11% of the total segment revenue. Industrial Projects remained a dominant force, bringing in INR843.7 crores, or about 48.23% of the segment revenue. The Sugar & Ethanol business added INR239.1 crores, representing 13.67%. The notable improvement in consolidated profit from continuing operations was primarily attributed to enhanced profitability within the ISGEC Hitachi Zosen Limited joint venture, reflecting successful strategic partnerships and execution.

Strategic Initiatives and Future Outlook

Isgec is actively pursuing several strategic initiatives aimed at bolstering its manufacturing capabilities and expanding its market reach. A significant development is the ongoing expansion of manufacturing capacity at Bhartoli, near Yamunanagar, for the Machine Building division. This project is slated for completion by July 2026 and is projected to add INR225 crores in annual revenue. Concurrently, the company has approved an INR87 crore investment for a new facility at the Dahej SEZ, dedicated to manufacturing skids and modules, primarily targeting export customers. This investment will be rolled out in two phases, with Phase 1 expected to generate INR160 crores in annual revenue, escalating to INR275 crores upon completion of Phase 2.

Management anticipates these manufacturing expansions, along with other planned initiatives, will contribute an additional INR400 crores to manufacturing revenue, potentially pushing the annual manufacturing revenue to INR3,200-INR3,300 crores once fully operational. This forward-looking approach underscores Isgec's commitment to disciplined capital allocation and long-term growth. Furthermore, the company is incorporating a wholly-owned subsidiary in Eswatini to capitalize on an anticipated order for erection and commissioning works, signaling its intent to expand its international project footprint.

Addressing Challenges and Market Realities

Despite the positive outlook from continuing operations and strategic expansions, Isgec faced challenges, particularly concerning its discontinued operations. The planned sale of Bioeq Energy Holdings One, which includes an ethanol plant in the Philippines, did not materialize as the buyer defaulted on payments. Consequently, the company is actively exploring other options for its sale. In the interim, the Philippines ethanol plant is set to commence manufacturing operations using sugarcane feedstock in mid-December 2025, with management projecting INR470-INR480 crores in revenue and INR30-40 crores in profit for the full year from this venture.

Management also acknowledged a muted demand in the air pollution control equipment segment due to evolving government guidelines and noted temporary pricing pressures in the process equipment sector. Revenue recognition was also impacted by delays from customers unable to lift manufactured goods due to site readiness issues. However, the company's robust consolidated order book, standing at INR8,789 crores as of September 30, 2025, up 24.3% from the previous year, provides strong revenue visibility. This order book is well-diversified across various sectors and customers, mitigating risks associated with industry-specific cyclicality. The picking up of export order bookings, which typically command higher margins, is another positive indicator.

Financial Prudence and Future Confidence

Isgec's financial health is further reinforced by a reduction in consolidated net external borrowings by approximately INR180 crores over the last six months. This reflects a commitment to maintaining a healthy balance sheet and disciplined financial management. The company's leadership expressed confidence in achieving a 7-8% increase in revenue and profits for the full fiscal year 2026, driven by a growing order book and enhanced manufacturing capacities. The focus on high-margin areas like boiler businesses and international projects is expected to further improve the margin profile.

In conclusion, Isgec Heavy Engineering is demonstrating strategic clarity and disciplined execution in a dynamic market. While navigating the complexities of discontinued operations and specific sector headwinds, the company's proactive investments in capacity expansion, diversified order book, and focus on exports position it for sustained growth and improved profitability in the coming years. The management's transparent communication and strategic adjustments based on market realities instill confidence in its long-term vision.