Unfolding story
Azad Engineering’s (Azad) Q1FY25 performance was in line. Key points: 1) Revenue/EBITDA rose 30%/26% YoY with EBITDA margin at 33.6%; 2) other expenses rose on higher freight cost and forex losses; 3) revenue share of aerospace & defence (A&D) segment rose to 18.5% vs 7.2% YoY; and 4) order visibility of INR 33bn led by recent wins. Going ahead, we believe Azad may sustain its high earnings trajectory with recent orders and customer additions aiding future growth. Besides, the new 95,000m2 facility is likely to be ready before FY26, providing medium-term visibility on earnings accretion. Maintain BUY with DCF-based unchanged TP of INR 2,450.
Quarterly revenue on the brink of INR 1bn mark
Azad’s Q1FY25 performance met our expectations. Key points: 1) Revenue rose 30% YoY at INR 984mn while EBITDA rose 26% YoY at INR 330mn; 2) EBITDA margin at 33.6% was within the guidance of 33-35%; 3) order visibility stood at INR 33bn, compared to INR 20bn, six months ago; 4) interest cost was down 68% YoY (46% QoQ) at INR 33mn as the impact of financial instruments such as CCDs is absent; 5) A&D revenue was up 3.3x YoY at INR 182mn (18.5% of overall); and 6) exports accounted for 90.5% of total revenue, reaffirming Azad’s global footprint. Going ahead, we expect Azad to maintain its high earnings growth trajectory as oil & gas segment is likely to contribute increasingly to earnings.
Large TAM complemented by venturing into adjacent domains
FY27 TAM for key markets of A&D, energy and oil & gas was INR 1.5trn, INR 283bn and INR 730bn, respectively. The recent order wins and customer additions by Azad suggest the company has a foothold in global supply chains of almost all large OEMs. Furthermore, two important developments merit attention: 1) Secured contract for end-to-end manufacturing of ATGG engines from GTRE; and 2) well placed for the upcoming nuclear power capacity growth in India as it is the first and only Indian firm approved by EDF, France for supply of manufactured critical rotating parts for nuclear turbines.
Outlook: Long runway ahead; maintain BUY
We believe Azad stands at an interesting juncture where a massive TAM is complemented by an upcoming 95,000m2 facility. The comparison with engine products division shows that a company with 80x revenue can also record EBITDA growth of 31% and record EBITDA margin of 31.2%. Hence, we believe Azad’s journey has just begun, particularly in view of its existing customer base and potential. Besides, the adjacent opportunities in nuclear power and ATGG engines are a plus. We maintain BUY on Azad with DCF-based unchanged TP of INR 2,450.
Leave a Reply