Revenue of railway sector companies expected to grow at moderate pace of 5% in FY26: ICRA

New Delhi: The revenue of companies operating in the Indian railway sector is expected to grow at a moderate pace of 5 per cent in the financial year 2025-26 (FY26), according to a recent analysis by ratings agency ICRA.

The growth will be largely driven by strong demand in the wagon manufacturing segment.

ICRA noted that while wagon manufacturers are expected to witness robust expansion, construction companies involved in railway-related infrastructure projects may see relatively slower growth.

It said "revenues of the entities operating in the Indian railway sector are expected to expand at a moderate rate of 5 per cent in FY2026, primarily driven by robust growth expectations from Wagon manufacturers".

Despite the moderate growth outlook, the sector's profitability is likely to remain strong. The weighted average operating margin is estimated to stay healthy at around 12 per cent in FY26. This will be supported by operating leverage benefits and expectations of stable input prices.

The report highlighted the government's continued focus on boosting the railway sector through increased investment and reforms. Over the past several years, the Government of India has made substantial investments in transport infrastructure to reduce logistics costs, shorten transit times, and enhance overall connectivity.

There has also been a consistent push to improve railway infrastructure, including tracks and safety standards, along with better passenger facilities such as upgraded stations and modern rolling stock.

This commitment is evident in the significant rise in capital outlay for Indian Railways, which has increased by 130 per cent over the past five years, reaching Rs 2.52 lakh crore in the Budget Estimates (BE) for FY26. However, the budgetary support component of this outlay has grown only modestly--by 2 per cent--between FY24 and FY26 BE.

The analysis noted that thanks to sustained investments, companies engaged in Engineering, Procurement and Construction (EPC) and wagon manufacturing have seen a strong buildup in their order books. The order book-to-income ratio for such companies increased from 1.33 times in FY2015 to 2.77 times in FY2024.

This indicates solid revenue visibility for the medium term, giving the sector a stable outlook despite the moderate growth rate projected for FY26.