Growth visibility intact…
About the stock: Aeroflex Industries Limited (AERIND), incorporated in 1993, is engaged in the business of manufacturing and supply of metallic flexible flow solutions made with stainless steel
• Product range includes stainless steel corrugation products (braided and non-braided) such as hose, double interlock flexible metal hoses, composite hose, stainless steel hose assemblies, teflon/PTFE hose, fittings
• FY25 revenue Mix: ~74% from exports, ~26% from domestic markets
• Consolidated revenue of the company has grown by ~30% CAGR in the last 3 years during the period FY21-24 while EBITDA and PAT have grown by ~40% CAGR and ~79% CAGR respectively over the same period
Investment Rationale:
• Higher share of Assembly /Domestic revenues drives topline growth: The share of high margin assembly segment stood at 52% in Q4FY25 vs. 34% in Q4FY24. This reiterates the fact that the company is in the right direction to take the assembly segment share to 70% in next 2-3 years. More so the company is also incurring a capex of increasing the assembly stations from 40 to 70 by FY26E which will lead to better product mix and higher margins. On other hand, the share of domestic stood at 26% as execution related to domestic projects gained momentum in the quarter. Going ahead, with increasing domestic sales, new product development and traction through Hyd-Air engineering revenue is subject to grow at a CAGR of 21% over FY24-FY27E.
• New capex to enhance visibility in the long run: The company in Q4FY25 announced new capex plans to enhance visibility in the medium to long term. In the SS hoses segment the company after augmenting the capacity to 16.5 m metre in FY25E has further planning to add another 3.5 m metre capacity by FY26E coupled with adding of 30 new assembly stations (taking the count to 70) and automation of welding process. This will require a capex of Rs 54 crore. In the new product segment, the company is planning to put a capacity for manufacturing miniature metal bellows at a capex of Rs 23 crore. All this capex will be funded from internal accruals and drive growth over FY26E-FY27E. This capex will add revenues of over| 110 crore (at peak utilisation by FY27) and will be margin accretive as miniature metal bellows command margins of 30-35% while assemblies have 20-25% margin profile.
Rating and Target Price
• We expect the company to deliver a strong CAGR of 22.4% and 30.4% in revenues and PAT, respectively over FY25-FY27E. The lean balance sheet and strong cash flow generation will improve ROCE to 25% in FY27E from 20.5% in FY25 which will ensure the company commands rich multiple.
• We value the company at 34x FY27E EPS to arrive at a fair value of Rs 235 with a Buy Rating.
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