Azad Engineering, a rising star in India’s aerospace and defence sector, is drawing investor attention with its impressive growth. As its stock nears Rs 2000, market watchers are keenly analysing its potential to surpass this mark. This article explores Azad’s strategic positioning, recent financial performance, and future prospects.
Amid India’s ambitions to become a global defence manufacturing hub, Azad’s journey mirrors industry trends of innovation, self-reliance, and expanding global partnerships. Let’s examine the factors that could propel Azad Engineering beyond Rs 2000.
Industry overview
The Indian defence manufacturing sector is rapidly growing, valued at $11 billion. It focuses on self-reliance and innovation. Moreover, the government supports this growth through various policies and initiatives. Consequently, India aims to become a global defence manufacturing hub. The sector includes aerospace, naval systems, and land systems.
Both the private and public sectors collaborate to boost production. Additionally, investments in research and development are increasing, with $1.5 billion allocated annually. The industry is adopting advanced technologies like AI and robotics. Furthermore, export opportunities are expanding, enhancing global partnerships.
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The Make in India initiative plays a crucial role. Defence manufacturing contributes significantly to India’s economy, adding $5 billion annually. The sector creates numerous job opportunities, employing over 200,000 people. It also strengthens national security. Overall, the future looks promising with continuous advancements. The industry is expected to grow to $26 billion by 2025.
Company Overview Of Azad Engineering
Azad Engineering, established in 1983 by Rakesh Chopdar, is a leading manufacturer of high-precision components for the aerospace, defence, energy, and oil & gas industries. The company specialises in producing complex, mission-critical parts such as 3D rotating airfoils and turbine blades for various types of engines. Azad has strategically positioned itself in the Energy, Nuclear, Aerospace, and Defence sectors, securing long-term contracts with major industry players.
Segment Analysis
Azad Engineering operates in several key segments. The Energy and Oil & Gas sector saw 13% growth in Q1 FY25, driven by expanded capacity. The Exports segment consistently performs well, peaking at 748.4 million rupees in Q1 FY25. The Aerospace & Defence sector is notable for recent orders from Rolls Royce and GTRE, promising further growth.
The domestic market remains steady with minor fluctuations. Lastly, the Others category contributes to the overall revenue but shows less pronounced changes. These segments collectively highlight Azad Engineering’s diverse operations and dynamic financial progression.
Revenue Mix
Order Book and Major Contracts
Azad Engineering boasts a strong order book valued at over ₹3,300 crores across its business segments. The company has secured several significant long-term contracts with industry leaders:
- Siemens Energy Global: A five-year deal to produce critical rotating parts for advanced turbine engines.
- GTRE/DRDO: A groundbreaking contract for manufacturing and assembling a turbojet engine, marking Azad’s entry into integrated propulsion systems.
- Rolls-Royce: A seven-year agreement to supply components for defence and military aircraft engines.
- Baker Hughes: Two major contracts.
- GE Vernova: Supply of complex rotating airfoils for various power industries, including nuclear and thermal.
These partnerships demonstrate Azad’s growing influence and capabilities in the global precision manufacturing sector.
Future Plans Of Azad Engineering
- Azad aims to maintain its aggressive growth trajectory, supported by a robust order book and operational excellence.
- The company is developing a new facility with 10 times the current capacity, set for completion by FY ’26. The first phase’s utilisation is already secured through existing orders and pipeline validations.
- Azad plans to broaden its product range and client base, focusing on both the defence and commercial aerospace sectors.
- The company is positioning itself to compete with established international players in precision manufacturing.
- With its current wallet share below 1% in a $28 billion total addressable market, Azad sees significant potential for expansion.
- The establishment of subsidiary Azad VTC for special processes and coatings aims to reduce dependency on external suppliers and lower job work charges.
- Through strategic acquisitions like Leo Primecomp Private Limited, Azad is enhancing its capabilities in manufacturing large-size, critical advanced technology parts.
- Quality and Consistency: The company emphasises maintaining high standards in operations to support and build upon its growth strategy.
Even though Azad Engineering’s future looks promising, certain factors may threaten its sustainability. Increased freight costs due to external disruptions can impact logistics for job work. Additionally, managing foreign exchange losses becomes crucial due to high export sales. These challenges need careful consideration to ensure long-term success.
Will Azad Engineering cross ₹2,000 mark?
ICICI Securities has given a buy rating to Azad Engineering with a target price of Rs 2450. ICICI analysts raised Azad Engineering’s target price based on the company’s expanding market presence across multiple sectors and significant order book growth. The firm’s entry into engine manufacturing, coupled with its cost efficiencies, positions it favourably against competitors.
Analysts see strong potential for Azad to increase its wallet share with existing customers and capitalise on growth opportunities in aerospace and defense. The company’s transition from a component supplier to a solutions provider further strengthens its market position. These factors collectively point to sustained high earnings growth, justifying a higher valuation in the analysts view.
Changes in Shareholding
Over the past few quarters, Azad Engineering has experienced notable changes in its shareholding pattern.
Promoters: The promoters shareholding has remained stable at 65.9% from December 2023 to June 2024. This consistency indicates a strong commitment and confidence from the founding members and key stakeholders.
Foreign Institutional Investors (FII): There has been a significant increase in FII ownership, rising from 0% in September 2023 to 9.68% by June 2024. This growth highlights a growing interest and confidence from foreign investors in Azad Engineering’s potential and performance.
Domestic Institutional Investors (DII): The shareholding by DIIs has decreased from 6.4% in December 2023 to 3.43% in June 2024. This decline indicates a reduced interest or reallocation of investments by domestic institutions.
Overall, these changes reflect a dynamic shift in the ownership structure of Azad Engineering, with increased foreign investment and a slight decrease in public and domestic institutional holdings.
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Financial Highlights Of Azad Engineering
Revenue: Experienced robust growth from ₹122.7 crores in FY21 to ₹340.8 crores in FY24, demonstrating a strong upward trend over the four-year period.
Net Profit: Surged to ₹58.6 crores in FY24, marking a substantial 589% increase from FY23’s ₹8.5 crores.
OPM: The company improved its operating profit margin from 26% in FY21 to 34% in FY24, indicating enhanced operational efficiency.
NPM: Net profit margin saw significant improvement, rising from 3.4% in FY23 to 17.2% in FY24, reflecting stronger profitability.
Debt: The net debt-to-equity ratio decreased from 1.50 in FY22 to 1.22 in FY23, suggesting improved financial leverage. In FY24, the company achieved a cash position, meaning it has more cash than debt.
Key Metrics Of Azad Engineering
Conclusion
Azad Engineering’s robust financial growth, diverse order book, and strategic expansion plans make crossing the Rs 2000 mark seem achievable. The company’s impressive revenue and profit growth, along with improving operational efficiency, indicate a business on an upward trajectory.
However, investors should be aware of potential challenges like external disruptions and foreign exchange risks. Azad’s success story highlights the opportunities in India’s evolving defence manufacturing landscape. While the Rs 2000 mark is significant, it may just be a stepping stone in Azad’s larger journey of growth and innovation. As the company expands its capabilities and market presence, it’s set to play a pivotal role in India’s aerospace and defence ambitions.
How do you view Azad Engineering’s recent advancements and market position? Do you think their innovative approach to manufacturing precision components will drive significant growth in the aerospace and defence sectors? Share your thoughts below!
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