Add Azad Engineering Ltd For Target Rs. 2,870 by Choice Institutional Equities Ltd
Capacity Expansion Complete; Growth Acceleration Ahead
Azad Engineering reported a strong Q2FY27 performance, with revenue growing 31.6% YoY to INR 187.8 Cr, marking its highest-ever quarterly revenue. We believe AZAD is entering into a key growth phase, with its capacity expansion largely complete and all six customer-dedicated facilities commissioned. We expect the gradual completion of customer qualifications and ramp-up of these facilities to drive revenue growth from Q4FY27, with full utilisation targeted by H1FY28. The management indicated that the existing installed capacity can generate annual revenue of over INR 1,300 Cr by FY28. Further, we expect the company's long-standing relationships with global OEMs and multi-year customer demand visibility to support sustained growth.
The commencement of Rolls-Royce airfoil supplies and opportunities with Pratt & Whitney and Safran could strengthen the aerospace business. Entry into higher-complexity hot-section components and defence engine assemblies offers further growth potential. We also anticipate improvement operating leverage as the new capacity scales up, supports profitability.
Revenue In Line with Estimates; Higher Costs Lead to PAT Miss
* Revenue for Q2FY27 was up 31.1% YoY and 10.6% QoQ to INR 1,909 Mn (vs CIE est. of INR 1,922 Mn)
* EBITDA was up 37.5% YoY and 12.3% QoQ to INR 723 Mn (vs CIE est. of INR 750 Mn). EBITDA margin stood at 37.9%, improved 177 bps YoY (vs CIE est. of 39.0%)
* PAT was down 5.2% YoY and 12% QoQ to INR 309 Mn (vs CIE est. of INR 390 Mn). PAT margin contracted 619 bps YoY and 417 bps QoQ to 16.2% (vs CIE est. of 20.3%)
View & Valuation:
We remain positive on Azad Engineering’s mediumterm growth prospects, supported by the ramp-up of new facilities and higher production volumes from existing customers. We expect improving capacity utilisation and operating leverage to drive earnings growth over the next few quarters. Accordingly, we revise our estimates and upgrade our rating to ADD, with an upward revision in our target price to INR 2,870 (earlier INR 2,150), valuing the stock at 50x FY29E EPS.
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SEBI Registration no.: INZ 000160131
