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Restructuring sparks a margin revival

CTE is at a turning point, after exiting its loss-making Canada-based unit (which lost EUR 2.4 Mn in FY25). This will drive a strong margin recovery from the current 8.4%. With restructuring in progress and more high-margin Built-to-Spec work, profitability is set to improve significantly over the next two years. Management targets 13–15% EBITDA margin at a consolidated level, supported by mix improvement, cost discipline and operating leverage.

CTE’s core Built-to-Spec business (INR 886 Cr order book) is gaining strategic relevance through high-tech programs, such as DRDO’s Virupaksha radar, which could lead to ~INR 1,000 Cr revenue in long-term orders linked to Su-30 MKI and other platforms. The company is also participating in triservices programs (INR 200–500 Cr) and expanding capacity via INR 40 crore capex. With recurring EMS revenues and strong domain presence in radar, EW and satellite electronics, CTE is well-positioned to ride India's growing defence and space capex wave.

View & valuation: In light of the recent development, we are optimistic on margin improvement. Accordingly, we revise our FY26/FY27E EPS estimates upward by 1.4%/7.8%, respectively. We now project CTE’s Revenue/EBITDA/PAT to expand at a CAGR of 19%/29%/51%, over FY26– 28E. Valuing the stock at 30x of an average EPS of FY27–28E, we revise our target price to INR 2,570 (earlier INR 2,050) and upgrade our rating to ADD (from SELL).

Revenue in line with expectations, beat on margin

* Revenue for Q1FY26 up 11.2% YoY & down 25.9% QoQ at INR 2,734 Mn (vs CIE Est. INR 2,733 Mn)

* EBIDTA for Q1FY26 up 46.3% YoY and down 45.3% QoQ at INR 227 Mn (vs CIE Est. INR 204 Mn). The EBITDA margin stood at 8.6%, improved by 212bps YoY (vs CIE Est. of 7.5%)

* PAT for Q1FY26 came at INR 45 Mn (vs CIE Est. INR 22 Mn). PAT margin improved by 331bps YoY, reaching 1.7% (vs CIE Est. 0.8%)

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