ISGEC Heavy Engineering FY26: Profit Collapsed on Depreciation Catch-Up

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1. At a Glance

ISGEC Heavy Engineering closed FY26 with net profit plummeting 56% to ₹109 Cr—the weakest profit in a decade. Revenue edged up 5.7% to ₹6,789 Cr, but the bottom line fell hard. The culprit: depreciation jumped to ₹278 Cr from ₹102 Cr the prior year—a catch-up from reclassifying the Philippines ethanol plant from held-for-sale to continuing operations.

Q4 FY26 brought ₹2,048 Cr in sales and ₹73 Cr net profit. The quarter was modestly stronger than Q4 FY25 (₹70 Cr profit on ₹1,744 Cr sales), but that’s a low bar. Profit before tax fell from ₹386 Cr (FY25) to ₹308 Cr (FY26)—a 20% drop on flat operational momentum.

The order book holds ₹7,904 Cr. Exports jumped to ₹1,169 Cr (22% of consolidated revenue). Yet core profitability is under stress: thin-margin projects at 4.5% EBIT still dominate the mix. The depreciation charge is a one-time wound, but the underlying business is limping.

2. Introduction

ISGEC is a 93-year-old heavy engineering company. It manufactures boilers, presses, process equipment, and steel castings. It executes turnkey EPC projects (power plants, sugar plants, pollution control systems). It owns a sugar subsidiary that produces refined sugar and ethanol.

In FY26, consolidated revenue rose 5.7% to ₹6,789 Cr. But reported net profit ₹109 Cr (down 56% from FY25’s ₹249 Cr) reflects a catastrophic depreciation charge. The underlying operational profit (PBT) fell from ₹386 Cr to ₹308 Cr—a 20% drop despite higher sales. That’s the real story.

The company guided for 7–8% revenue growth and missed at 5.7%. Management attributed the shortfall to commodity headwinds and execution delays on legacy EPC contracts that lock in fixed prices.

Two material moves occurred: (1) The Philippines subsidiary (Cavite Biofuels, a 130 KLPD ethanol plant) was reclassified from held-for-sale to continuing operations in May 2026. This wasn’t because the plant improved—it’s because the sale fell through (buyer couldn’t fund). Under accounting rules, the reclassification forced recognition of deferred depreciation: ₹176 Cr additional depreciation in FY26 vs FY25. That is the profit killer. (2) Exports nearly doubled to ₹1,169 Cr from ₹532 Cr, driven by new wins in Southeast Asia (presses) and Africa/Latin America (EPC projects).

3. Business Model: WTF Do They Even Do?

Three legs, unequal returns.

Manufacturing (37% of revenue). Presses, boilers, process equipment, pressure vessels, steel castings. Designed and built in-house. EBIT margins run 12–13% because the company controls the value chain. This segment grew 4% year-on-year in FY26. Exports are a growing piece—Southeast Asia (Vietnam, Thailand, Indonesia) are new markets for presses. Mix is shifting toward manufacturing (it was 26% in FY20, now 37%), but the pace is glacial.

Industrial Projects / EPC (50% of revenue). Turnkey execution: power plants (2,000+ MW historical capacity), sugar plants, boilers, air pollution control, wastewater treatment, civil construction, bulk material handling. Margins are wafer-thin—4.5–5.5% EBIT—because most contracts are fixed-price and loaded with commodity risk and execution lag. Management is trying to exit long-duration PSU work (120–180 day payment cycles); favoring private sector orders under 27–30 months. But legacy long-duration contracts continue to drag profitability.

Sugar & Ethanol (13% of consolidated revenue, FY26, excluding Philippines loss). Saraswati Sugar Mills (wholly owned, Yamunanagar, Haryana) produced 1.30 lakh tonnes of refined sugar in FY26 (down from 1.45 lakh in FY24 due to government quota cuts). Ethanol capacity at Saraswati expanded to 160 KLPD in FY25. Cavite Biofuels in the Philippines (130 KLPD) began commercial production mid-FY26 but is bleeding (operating loss ~₹26 Cr, management framing; accounting loss ₹295 Cr due to depreciation). Government allocation constraints in the Philippines kept ethanol dispatches thin. The original sale plan (FY26) collapsed.

Geography: 86% of FY26 consolidated revenue from India (vs 77% in FY25). Export revenue climbed from ₹532 Cr (11% in FY25) to ₹1,169 Cr (22% in FY26)—an 119% jump. Management expects this elevated export level to persist.

4. Financials Overview

Figures are consolidated, in ₹ crore.

Concall highlights (May 29, 2026):

Management separated “core” operational profit from Philippines items. Standalone PBT FY26: ₹455 Cr (+17% YoY). But ₹80 Cr came from non-operational sources. Underlying operational PBT ~₹375 Cr. Manufacturing EBIT margin held 12.46% (“within the 12–13% range we have guided for three consecutive years”). Project margin FY26: 4.58%, expected to move “closer to 5.5%” as low-margin legacy orders finish.

Export revenue FY26: ₹1,169 Cr (doubled from ₹532 Cr in FY25). Management: “We expect this increased level of exports to continue.”

Dividend: ₹6/share