Buy Unimech Aerospace Ltd for the Target Rs 1,530 by Motilal Oswal Financial Services Ltd
Focus on precision components to expand TAM multi-fold A leading player in the global aero/MRO tooling market
Unimech Aerospace (UNIMECH) has positioned itself as a key player in the global aero engine and airframe tooling market, with its customer base comprising aero engine OEMs, airframe OEMs, and their licensees. The company manufactures specialized aero engine tools for LEAP, Pratt & Whitney and Rolls Royce engines, and airframe tools for Airbus and Boeing. UNIMECH currently serves 18 customers in this segment. Its ability to offer competitive pricing, combined with favorable tailwinds from new engine programs, and the shift in MRO demand toward Asia suggest strong growth potential. The segment contributed ~80% to its FY26 total revenue and will remain a major contributor in the medium term.
Expanding fast into precision parts and assembly markets
UNIMECH manufactures and supplies precision machined components and subsystems to OEMs in the nuclear, aerospace & defense, semiconductor, electromechanical and other emerging industries. Stronger industry penetration with high-mix and low-volume precision engineering business has been the company’s core strategy. It currently serves 17 customers in this segment. The segment contributed ~20% to its FY26 total revenue. However, this segment is expected to grow faster, considering a vast TAM.
M&A - a key to building capabilities fast
UNIMECH continues to explore inorganic expansion opportunities that align with its long-term vision of enhancing capabilities, driving innovation and expanding market reach. These partnerships enable faster market entry and improved services for its marquee European and US-based customers. After the recent acquisition of Hobel Bellows, a JV with Kanoo, and investment in Dheya Engineering, UNIMECH is further exploring opportunities to establish its manufacturing footprint in the US through acquisitions or organic growth
Robust financial outlook driven by capability-led expansions
After a flattish revenue and decline in profits on margin contraction in FY26, we expect UNIMECH to post a CAGR of 74%/83%/57% in revenue/EBITDA/PAT over FY26-28E with 35% EBITDA margin, driven by a healthy uptick in the core segments of aero tooling and precision components as well as contributions from the recently formed JV and acquisitions. RoE/RoCE (pre-tax) are also expected to expand to 16%/18% in FY28 from 9%/12% in FY26, aided by improving asset turnover and strong operating results.
Valuation and view - Initiate coverage with BUY
We initiate coverage on UNIMECH with a BUY rating and a TP of INR1,530, based on 50x FY28E EPS. We believe the company is strategically positioned to capture structural tailwinds in the aerospace & defense, energy and semiconductor equipment sectors.
Key risks:
(a) High revenue concentration on aerospace
(b) high dependency on top five customers
(c) high dependence on exports and select countries.
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