Reduce Azad Engineering Ltd for the Target Rs. 1,900 by Choice Institutional Equities
Key Conference Call Highlights
Financial Performance & Key Metrics
* FY26 Profitability: EBITDA margin of 36.9% and PAT margin of 22.4% for the full year, driven by supply chain efficiency, operational scale and backward integration
Management Guidance & Outlook
* Top-line Growth: The management guided 25%+ revenue growth for FY27, sustained on a multi-year basis, underpinned by firm customer schedules and already-qualified products
* Margin Targets: Target EBITDA margin band of 33–35%+, with upside potential from ongoing shop-floor improvements
Strategic Milestones & Product Development
* MHI Contract: Secured an 8-year, single-source contract for hot-section nozzle vane segments — a complex product previously manufactured inhouse by Mitsubishi Heavy Industries
* ATGG Engine: Nearing delivery milestone for the ATGG engine
* Aerospace Qualifications: Rolls-Royce first qualification batch expected in H2 FY27, with supply commencing Q4 FY27/early FY28; Pratt & Whitney and Safran approvals to follow sequentially
Order Backlog & Segmental Mix
* Robust Backlog: Rolling order book of ~INR 6,500 Cr (11–12x FY26 revenue), realisable over 5–6 years
* Segmental Breakdown: Backlog comprises USD 400 Mn+ from Energy, USD 200 Mn+ from Aerospace & Defence and USD 100 Mn+ from Oil & Gas
* Mix Shift Target: Energy and Oil & Gas represented ~81.5% of FY26 revenue; Aerospace & Defence crossed INR 100 Cr (~17.2%). Over five years, Energy's share is targeted at 55–60% as Aerospace & Defence and Oil & Gas scale up
Capacity Expansion & Capital Expenditure
* FY26 Capitalisation: Capitalised INR 392 Cr in assets; CWIP and capital advances increased by INR 191 Cr
* FY27 Capex: Remaining INR 180–190 Cr from QIP proceeds earmarked for new plant commissioning
* Facility Rollout: Four lean manufacturing facilities recently inaugurated, including a Baker Hughes-dedicated facility (April 2026); four additional plants under construction, targeted for commissioning by FY27-end
Working Capital & Balance Sheet Management
* Inventory Strategy: Elevated inventory levels reflect deliberate ramp-up support for newly commissioned facilities
* Cash Flow Normalisation: WIP and Inventory days targeted at ~200 days by H1 FY27, declining to 160–170 days by H2 FY27
Organisational Restructuring & Risk Management
* Human Capital: Management architecture being restructured with senior functional experts replacing outgrown internal roles to match the company's scale
* Supply Chain Integration: NADCAP approval secured for heat treatment; remaining critical special processes to be vertically integrated in-house
* Geopolitical Resilience: Minimal direct exposure to Middle East tension; operations de-risked through multi-year contracts and entrenched customer qualifications
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