INITIATING COVERAGE | Sector: Capital Goods October 01, 2025 1 Precision Machines:
A Classic Picks-and-Shovels Opportunity; Initiate “BUY” with TP of Rs. 1,090
We initiate coverage on Jyoti CNC Automation with “Buy” rating and target price of Rs. 1,090. Jyoti CNC is the third largest CNC machine supplier in India with a market share of c10%. It specializes in production of high-precision CNC lathes, vertical machining centers, horizontal machining centers and custom automation solutions. It serves various end markets including aerospace and defense, EMS, General Engineering, Autos.
Strong industrial tailwinds in A&D, EMS
Indigenization in A&D sector, increase in EV adoption, higher value addition in mobile phone manufacturing, investments into semiconductor production, testing and packing as well as pickup in component manufacturing are some of the most important industrial tailwinds in India. As per reports, the EMS industry has huge potential – requiring about 1 lakh machines over the next 5 years. Furthermore, the A&D opportunity remains very strong in Europe with significant increase in defense spending and continued increase in aircraft production.
Production of high-end machines to support import substitution theme
India’s machine tools production is expected to grow at LDD during FY23-27 and CNC machining centers production is expected to grow at L-MDD rate. Due to lack of midhigh-end indigenous CNC machines, more than 50% of consumption is reliant on imports. However, manufacturers like Jyoti CNC are focusing on manufacturing of midhigh-end machines, effectively filling up the demand-supply gap. This is likely to help increase the share of domestic CNC machines to c60% by 2027 from 54% in 2023.
Production capacity to expand to 2.5x by Jun’26
To cater to the growing demand for EMS and Aerospace and Defense, Jyoti CNC is expanding its capacity by 10,000 units to 16,000 units at a capex of Rs. 4.5bn – to be funded by debt and internal accruals. The expansion is expected to complete by Jun’26. This comes after a capacity addition of 1,600 units in Sep’24 that increased the capacity to 6,000 units.
Strengthening financials – high backlog, sustainable margins, FCF generation from FY27
Current order backlog of Rs. 44.1bn provides revenue visibility for the next 18-24 months. The financials have improved materially over the past 2 years with EBITDA margin at c27% in FY25 (FY23: 8.3%) and is likely to sustain in 25-26% range over FY26-28, with moderation in gross margins offset by operating leverage. We expect revenues to grow at CAGR of c30% through FY25-28 driven by orderbook and solid growth in EMS and A&D revenues. EPS is expected to grow at >30% CAGR during FY25-28. Positive FCF is likely to start from FY27 after completion of capacity expansion plan at a capex of Rs. 4.5bn. ROCE will further improve to c25% from FY26.
Initiate at “Buy” with target price of Rs. 1,090
We initiate on Jyoti CNC with a “Buy” recommendation and a target price of Rs. 1,090 based FY28 PE multiple of 35x. The stock currently trades at FY26/FY27/FY28 PE multiple of 46x/36x/27x. TP of Rs. 1090 implies FY26/FY27/FY28 PE multiple of 60x/46x/35x.
