Azad Engineering Limited (AZAD) Q1 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to the Azad Engineering Limited Q1 FY27 Earnings Conference Call. This conference call may contain forward-looking statements about the company which are based on beliefs, opinions, and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference, please signal an operator by pressing star, then zero on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Rakesh Chokhtar, Chairman and Chief Executive Officer, Azad Engineering Limited. Thank you, and over to you, sir.

Thank you. Thank you, team SGA. Good morning, everyone, and a warm welcome to our first quarter earning conference call for fiscal year 2027. Joining me today is Mr. Mishnu Walpani, our all-time director, Mr. Ronak Jarjo, our CFO, and our investor relations advisors from strategic growth advisors. Our standalone and consolidated financial results, along with our latest investor presentation, have been uploaded to the stock exchanges and our website for your reference. To start with capitalization on global industry megatrends, before we review our specific operational milestones, it is critical to look at the bountiful macroeconomic statements driving our businesses. We are currently witnessing an unprecedented, synchronized, high-growth cycle across all sectors. In the energy domain, the global push for energy security and the transition towards advanced gas turbines have triggered massive, multi-billion-dollar global equipment upgrade cycles. Concurrently, the aerospace and defense sector has experienced structural supply chain ships. Driven by a global surge in aircraft demand and an intense domestic focus on defense self-reliance. These are not short-term spikes. They represent structural multi-decade growth shifts. Because Azad has spent years securing strict OEM qualifications and building specialized heavy infrastructure, we are uniquely positioned. At the epicenter of these dual megatrends, these powerful industry tailwinds provide a strong compounding foundation that will fuel Azzard's long-term scale and audible expansion for the years to come. Now, a very historical national milestone. India's first indigenous turbojet engine. I want to begin today's call with an announcement that fills me and our entire team at Azar with immense national pride. I'm thrilled to share that Azad Engineering has successfully manufactured, assembled, and delivered India's first indigenous expandable turbojet engine to the gas turbine research establishment, DRDO, and the Ministry of Defense. As highlighted in the official press release from the MOD, jet engine technology represents one of the final frontiers of sophisticated engineering. It demands a level of extreme precision, advanced metallurgical expertise, and uncompromising manufacturing quality that is mastered by only a select handful of nations globally. For Azhar, this milestone is a profound architectural shift. We have successfully evolved from being a precision component manufacturers. into a fully integrated proportional system player. By taking up the end-to-end manufacturing, assembling, and integration of this complete engine assembly, we have moved right up the value chain. This significantly expands our total addressable market and firmly sees our position as an indefensibly trusted partner in the India's long-term aerospace and defense sovereignty. We have also been advised to prepare for a significant scale-up in production volumes once the ongoing sequence of testing is completed, which will, in turn, accelerate development across all of India's past and future critical indigenous engine programs. On the capacity expansion, another feather added the new Baker News facility. Our physical infrastructure footprint is scaling up right alongside our technical capabilities. I am proud to report that our massive multi-facility expansion roadmap at our Tunki Bolaram Industrial Park is progressing exactly as planned. Following the successful commissioning of our dedicated lines for Mitsubishi, GE Power System, and CMS Energy, we hit our next major milestone recently. In April 2026, we officially inaugurated our fourth dedicated lean manufacturing facility, a state-of-the-art 7600 square meter facility, custom-built for Baker Hughes. Operating dedicated plants represent the deepest possible level of customer integration in our industry. It creates immense operational stickiness and provides long-term multi-year supply chain visibility with global marquee OEMs. Civil construction across the remaining units at the Azaad Center of Excellence is a track to wrap up within this fiscal year. While we are undertaking a measured calibrated ramp-up across these new lines to satisfy stringent customer qualification schedules, we expect the more substantive revenue contributions to begin crystallizing in the second half of this financial year. Now, on the Q1 FI27 financial performance snapshot, our unwavering focus on operational discipline, operating efficiencies, and optimized product segment mixes has enabled us to kick off the new financial year on the strongest note ever. Looking at our standalone financial performance for Q1 FI27, and happy to mention that we have met our guidance. Revenue from operations grew by 26.8% year-on-year, reaching to INR 170.5 crores, up from 134.5 crores in Q1 F526. Reported EBITDA expanded at a faster pace of 32.1% year-on-year to arrive at INR 64 crores. Reflecting the moulding benefits of our operating leverage. EBITDA margins expanded to robust 37.6%, up from 36.1% in the same quarter last fiscal. Profit off the tax registered a healthy growth of 21.2% year on year, to stand at 36.4%, maintaining an exceptional cut margin of 21.3%. On a consolidated level, our revenues came in at 172.6 crores with an EBITDA of INR 64.4 crores and part of INR 35.2 crores. Our business segment across energy, oil and gas, and aerospace and defense continues to grow symmetrically and strictly in tandem with our long-term structural targets. On the closing outlook, very important for me to give this message, as I have mentioned this earlier, FY26 was a year of expansion, during which we undertook a wide range of foundational activities to position Azad for its next level of revenues, performance, and growth. I'm pleased to report that we have already stabilized 80% of this. Initiatives in Q1, with the remaining major activities on track for completion by mid-Q2 and full closure by Q3. Our manufacturing infrastructure is now running at full throttle, and we expect this to propel Azad into its next phase of accelerated growth from Q3 and Q4 onwards. At Azad, we have never changed regular scale at the expense of our margins. Our growth is anchored entirely against firm, long-cycle contracts, multi-year order book visibility. We do not engage in speculative expansions, backed by an incredibly strong, growing pipeline and world-class manufacturing infrastructure that is rapidly maturing. We enter the rest of FY27 with absolute clarity and complete execution confidence. We proudly reiterate our long-term annual revenue growth guidance of over 25% while maintaining our stellar industry-leading profitability profile. We remain dedicated to building a high-mote, high-resilient global precision engineering platform. I want to thank our customers, partners, and our exceptional team at Azhar for their relentless execution, and our shareholders for their continued confidence in our journey. I now hand over to our CFO, Mr. Ronak Jarju. Thank you, everyone.

Thank you. Good morning to everybody. Now, I will take you through a comprehensive review of our financial performance, capital structure, and operating efficiency metrics for the first quarter and date June 30th, 26. As the chairman summarized, this quarter won't mark a highly successful phase of education. The financial data Demonstrate that our front-ended capacity investments are successfully translating into a scalable, highly predictable revenue line. Most importantly, we are beginning to see the true power of structural operating leverage as our asset space moves through its planned stabilization curve. Let me take you through the financial highlight and operating leverage. Our stand-alone financial performance for quarter 1 FY27 underscores our robust business momentum across both sequentials and year-on-year horizons. Top-line expansion, our stand-alone revenue from operations reached to 170.5 crore, reflecting a stellar growth of 26.8% year-on-year basis, against 134.5 crore in quarter 1 FY26. On a sequential basis, our revenue grew by 8.3% over 157.4 crore reported in quarter 4 FY26. This sequential growth highlights a steady acceleration in customer schedules and manufacturing delivery right at the start of the fiscal year. Operating leverage in EBITDA growth. Our reported EBITDA grew at an impressive pace, hitting 64 crore, representing a growth of 32.1% year-on-year basis from 48.5 crore in quarter-one FY26, and strong sequential jump of 10.9% from 57.8 crore in quarter-one FY26. Operating margin assumptions. This outpaced growth directly extended our standalone reported EBITDA margin to 37.6%. This is an expansion of 150 basis points over the 36.1% recorded in quarter 1 FY26, and solid 90 BIPs points set up from 36.7% achieved in quarter 4 FY26. This margin progress proved that our pure plane manufacturing operations are absorbing fixed corporate overhead efficiently as production scale rises, and we are confident to maintain the same in coming quarters and so. 4. Material Margin Sourcing Efficiency This expansion was heavily supported by our cost inlegization program. This reduction reflects our long-term effort to lower core manufacturing costs by onboarding domestic suppliers and increasing backward integration through R-Cup's reach. Let me take you through the analysis and variance on other income and net profitability. To evaluate our, your Core performance. Accurately, it is essential to analyze the structural change within our non-operating income segment, occurring on account of volatile foreign currency momentum, which we saw in quarter 4 at 526, because of macroeconomic environment, which is not in control of the company. The foreign currency element in other income. Other income came to 4 crore in this quarter, displaying through a sharp moderation from 9.1 crore in quarter 1 FY26, and substantial decrease from elevated 17 crore recorded in quarter 4 FY26. I must emphasize that this sequential drop is entirely a function of foreign currency dynamics. In quarter 4 FY26, other income was heavily bloated by major non-operating foreign currency gain due to macro region, as I mentioned, beyond the control of the company. In contrast, quarter 1 FI27 witnessed currency volatility that normalized the non-operational tailwind. Furthermore, our treasury income is expected to moderate, as I mentioned in last call also, as we steadily deploy our cash reserves into our active factory infrastructure and machines. Net profit metrics. Our standalone FAT grew at 21.2 year-on-year basis to IRENA 36.4 crore, up from 30 crore in quarter 1 FI26. Sequentially, net profit grew at 3.5% against 35.1 reported in quarter 4 FI26. This yield an exceptional standalone FAT margin of 21.3% basis in P.S. of 5.63 per share. On a consolidated matrix, our matrix remain equally strong. Consolidated revenue from operation grew at 25.9% year-on-year basis to close at 122.6 crores. Consolidated EBITDA. At 64.4 crore, yielding and operating margin of 37.3%. While consolidated fat trees 35.2, our e-subscries are performing precisely on track with our turnaround target, which we have set for ourselves. Now I'd like to give handover to Mr. Vishnumalpanir, who is our full-time director, to take you through the strategies. Thank you.

Thank you, Ronak, and good morning, everyone. The Chairman, Mr. Chokdar, spoke about what 22nd of July meant to the nation. Our CFO, Mr. Jaju, has given you the critical numbers that drove this quarter. Let me give you the corporate view, because from where we sit, the delivery of an engine was much more than a successful engineering milestone. It is a permanent upgrade in Azad's market positioning. Three things that changed on 22nd of July. First, we moved up the value chain, global value chain. By managing end-to-end integration and balancing of a complete propulsion system, we have broken out of the traditional component supplier tier. We have proven that Azad can act as a primary technology integration partner for any of the global OEMs or defense needs of. Second, the moats got deeper. Azad was placed within a highly exclusive tier of global manufacturers capable of executing complete defense assemblies. The regulatory qualification and technical barriers to entry here are immense, and they protect our business from standard competitive pressures. Third thing that changed was our addressable market expanded. This successful execution opens long-cycle monetization opportunities across domestic defense programs and international aerospace supply chains as well. In effect, an entirely new structural growth engine for Azad happened on that day. Now, let me connect that to what we built. Our physical expansion at Tunky Bolaram Industrial Park is governed by a strict risk-free... Mitigated asset model. We do not build speculative capacity, speculative capacity. We build dedicated customer-aligned infrastructure. This quarter, our new 7,600 square meter facility for Baker Hughes commenced operations. Following the same deployment model, we have proven with each of our other customers, namely Mitsubishi, GE Steam Power, and Siemens Energy. Why does this model matter so much to us? Because once a global marquee OEM integrates a dedicated, qualified facility into their primary supply chain, shifting that business carries a huge switching cost. This is what operational stickiness means in our industry, and this is what gives us exceptional multi-year revenue and volume visibility. And we are facing this expansion with discipline. Civil construction for the remaining units at the new plant, Azhar Center of Excellence, is on track to wrap by the end of this financial year. Machine installations are being executed in modular, back-to-back phases, aligned strictly with the roadmap of our customers. You also see the strategy coming live in the numbers that we delivered this quarter. On a consolidated basis, our revenue from operations grew by 25.9% year-on-year to about 172.6 crores, driven by steady delivery schedules and strong operational execution across all our facilities. Aerospace and defense also registered one of the highest growth acceleration, up approximately about 38.4% year on year, reflecting our increased share of wallet with some global aviation majors and initial tailwinds from our advanced propulsion and defense system vulnerabilities. And our energy and oil and gas vertical also grew. By 21.6% driven by a healthy demand across gas turbine components and operational launch of a new customer dedicated production lines. Acceleration where we are investing, resilience where we establish. This is what we are shaping. Let me close by a section. And with the long view, because Adar's operating engine is designed to compound value over long cycles. By scaling multiple customer-dedicated plants within a single centralized geography, we are capturing significant operational synergies. This structure lets us expand operating leverage rapidly. We have built an infrastructure that is incredibly difficult to replicate. Our technological modes across sectors are widening and getting deeper. Our customer relationships are structurally locked in, and our execution framework is fully geared to deliver steady, high-margin growth for years and to stay firm on the guidance that we've communicated in the long term. With that, I would like to end our speech, and we would be happy to take questions from everybody. Thank you.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to please use handsets while asking a question. Ladies and gentlemen, we will now wait for a moment while the question queue assembles. Our first question comes from the line of Vikas Singh with ICICI Securities. Please go ahead.

Good morning, sir, and thank you for the opportunity. And first of all, very congratulations on your turbojet engine. So, my question related to the Turbojet engines only. So, how is the roadmap now once you have delivered the first, I believe that you need to deliver four or five different prototypes and then it will go to testing phase, etc. So, could you give us some timeline that how many years down the line or months down the line this would actually translate into the orders to us?

Yeah, okay. Thanks, Vikas. This is Rankos. So finally, yes, we have delivered the need of the need of the hour of the country. We have delivered this engine, which have been currently being imported by, you know, other OEMs. India is importing, MOD is importing these engines for the. Platforms, multi-platforms are using. So it was very indeed a very bright moment while we delivered this engine, and the GTRE, especially the DG, she herself was here to receive this engine, and it was a very, very bright moment for us. So, on the note, what we know, you know, it's limited what we know as being an only program. They don't share much of an open things, but what they have been told us now. This engine is under testing. The next phase of this is going to go on the weapon. I think in next four to six weeks is what we know. Okay, these are just a timeline which we heard about it. We have no base for it or we have nothing in return or something. So this is the next test we'll go on the testing on the weapon, which is four to six weeks away. And probably with that, there will be a certification will happen, and it's good to go for production. So this is not some year's story. It's a few months' story. So this is what you have told, and we have been guided to prepare for mass.

Not at that. In newer plant location, we would have only three plants. dedicated player or utilized for the other customers. How should we look at if this engine comes in, which you would dedicate one check to this engine, or it would get it done by the existing segment? And my second part of the question largely related to, for your growth beyond F529, you need to plan the next phase of capex now. So, if you could give us some highlight, that's how is our planning, because market size is still pretty large, and now the domestic engine manufacturing is also getting added in your core.

Yeah, because this engine itself is a big story. You know, the volumes what we have heard and what we have seen, this is... See, if it is a two-digit volume, definitely yes. We can manage with the existing capacity. You know, we have got so many buildings, shops ready for our different customers. The best part is all the capacity what we have are fungible and can manufacture these engine components also. We don't need to really add some great capacity for a two-digit volume which is there. But what we could see is not too big volume. Two digits, four digits, we don't know. So based on that, we have to do a planning. So I think in the next, you know, few weeks, we will know what exactly the volumes are. But we are prepared. We are prepared. It's two digits, three digits, or four digits. And however, this engine, what we have predicted, is definitely what we see in the coming time. But we have other commitments, we have other businesses which are in hand, and we are also, you know, having the priority to finish whatever the commitments are being given. So now main focus is to, you know, speed up the infrastructure, which is about to finish. As I mentioned, 80% of the infrastructure is now ready. The FY26 was our stabilization year. Q1 was where we started the production step by step, building by building. Q2 is what we are right now talking. The machines are, all the spindles are fully running on full throttle. And the expectations, as again I mentioned earlier, you see that Q2, everything will be settled down and the production starts coming out.

Noted. And on the Capacity Build-Up Roadmap?

Yeah, so that is all planned. If you talk about the coming years, I'll ask Vishnu to jump in this question. And what we see is major plan is from FY29, is what we have to start sketching. Already sketched, but we have to really, you know, work on it. I'll pass on this remaining answer. So, thank you, Mr. Chubhra, for this.

Because the idea for us is we build capacity based on the contracts that we have to deliver every year. Now, for us, we have been working on quite a few opportunities that are there right now at Azad, and we are evaluating what is the total need that we would need over the next five to six years, and we are doing that planning. But as for the next couple of years, Azad has built and, you know, deployed and built capacity to cater to the next couple of years in terms of where we want to grow in terms of revenue. However, you are absolutely right in spotting the fact that there are opportunities that we are working on. So we're doing a math intro only to figure out what is the capital, how much is the quantum of capital do we need and when do we actually need that. Good morning. Once that internal discussion gets closed and that loop gets closed, I think we should be able to maybe address this in the next quarter with far more accuracy, in my view. Thank you.

And, sir, if I can fit in one last question. Our mostly sales in export markets, so I presume it's a dollar denominator. So, the rupee depreciation benefits is built in above every time the margins or below, basically?

This is below the EBITDA margin. This is not built into the EBITDA margin.

No, sir. Thanks. That's all for my friend. Again, very congratulations on the engine.

Thanks, Vikas.

Thank you.

Thank you. Our next question comes on the line of Amit Dikshid with Goldman Sachs. Please go ahead.

Yeah, hi. Good morning, everyone, and thanks for the opportunity. First of all, congratulations for delivering the APGD engine. I think it's a great achievement for the company. The two questions I have is the first one is actually on the MHI contract that we got for hot section. Now, we already have given in the presentation the TAM that is for the cold section. Now, hot section typically, in my view, should have much higher TAM. So wanted to understand if you are in discussion with some of your vendors for, you know, getting more such contracts, extending the adjacency across. So just wanted to get your thoughts on this. And given the fact that, you know, some of your global peers like Homet and all have reported very excellent numbers, I mean, very significant growth. So yes, as you said, in your opening remarks, the market looked very, very promising. So how do you see, from a growth perspective, that, you know, technically we are at a low base, essentially. We have just started the IRO space part. So how do you see the growth curve for Azad growing? I mean, we have, I don't know, you mentioned that H2 onwards, the growth would be, would go to the next level. But I just wanted to understand your broad pieces on that.

Okay, Mitzi, I'll try to recollect the first question you have put. So, the first question what you asked is on the stabilization of the hot section, you know, the market. Now, as you're aware on how critical these components are, it's not, of course, the cold section itself is so tough to come. There we are. Azar is playing around with that. But in the hot section, definitely other OEMs have shown super interest and asking us when is your facility ready. The beauty, the best point is the facility what we are going to, you know, setting up what we are setting up for Mitsubishi can is exactly a model which will be utilized for other OEMs as well. And another good news I'll tell you, it's not just for the land base. It's not just for the energy. The same facility will cater to the hot section for the aviation engines as well. So, the first point is to establish this, which is, you know, around seven to eight months away from now, and then we do the qualification. While we do the qualification, we will invite the other OEMs, and to be honest, we don't need to invite, they're already here. So, that answers the thing. Any other questions you have on this, Amici?

No, no, I mean, that's fine. Just wanted to get the broad timeline, that's fine, yeah. And the B part was actually the growth that we are seeing in this market. You mentioned in your prepared remarks that both the investors are seeing excellent tailwinds. Now, as I mentioned that some of the peers, Homet and all, they have, despite being a much higher base, they have reported like 37.7% EBITDA margin, 50% EBITDA growth. So what is the growth trajectory for Azad we see? And are there any constraints that you see at, you know, your end to grow by that number?

No, no, no. Actually, it's a very valid and very nice question, Aminji. People who know what is subject, you know, they will also obviously know this is not a million story. This is all a billion story. And we also know as you could name only two or three in our names. There are only two or three players in the world who have cracked this. Azad will be the next to crack this. Once this is cracked, the league itself will change. So if we talk about Angels, that is a different league. Now we talk about this hot section, this itself is a big league. So, definitely, the market is massive, and there is a long queue of the products that are required in this field, and Azad is preparing for that. So, it's a very, very good situation now.

Great, sir.

On the margins, you can imagine, you know, these high-cost countries like U.S. and Europe are making that healthy EBITDA margins. So, definitely, what would Azad make? It's a good thing to understand. And guests.

No, great, great. That's very assuring. The second question is essentially on the working capital side. Now, in Q&A 527, we saw that there was a bit of increase in finance costs, possibly due to the working capital needs. And now, since we are in, you know, expansion mode, so I mean, I'm not asking for a timeline, but just wanted to understand that this working capital in terms of base, when we can expect it to plateau?

Yeah, this is Rana. So, from the finance cost side, if you see, I have already told. In the FY26 presentation, I have told that finance cost will go into continuous because you have a bill or discounting charges which will go into the finance cost only. So there is a betterment of the cash flow, operating cash flow, not on the financial cost side. And coming to the specific question of when it gets tapered, so we are targeting H1 around 200 days, and by H2 we are targeting in range of 160 to 180 type of days. So, this is largely back on the bill discounting facility where our current data stage, which are around 170-180 days, will go down to 90 days. That's how we look at this entire situation to be unfolded.

No, great. Very clear. Thanks, Ronak, and thanks for the chance, and all the best. Thank you.

Our next question comes from the line of Gaurav with Avendis. Please go ahead.

Thanks for the possibility. I have two questions. First one, again, on the ATTT engine. And the question is that, as you mentioned in your opening remark, that this engine required you to do, have done the metallurgy, machining, various other processes. What I understand, obviously, is that Adarab right now has machining, and now with the joint branches in place, you have the surface treatment capabilities. For the other capabilities, I'm assuming that those were outsourced or were done outside Azad. So is it possible to quantify in this engine how much of the value add was by Azad in-house and how much was done outside Azad? I don't know what is this, right?

No, but we have done everything in-house. There's nothing that we have outsourced any of the parts or something. Maybe some small washer or some we have gone with some specific requirement, which Azad's capability is not available. We have gone to GTRE and they have either done it in-house or they have, you know, got it done by their approved sources. So it's not that we have gone out somewhere except from small washers or some kind of small machining or some kind of welding operations. That's all.

All right. Okay. And the second question was on the margin. For the last two years, you're consistently doing about 37-38% EBITDA margin, which used to be about 30-35% before in the past years. Now, you continue to guide your margins around 35% level. What I'm trying to understand is that you are doing 37-38% margin when you are yet to utilize the facility. So why is the conservative guidance on the margins when there will be a little bit of opening leverage which would come by from the new facilities there?

Yes, as you can see, we are consistent covering 35+, but the guidance, what we are always, always on it and for the calculation purpose, it's always nice to use a 32-35 window. You know, of course, you can see that we have been delivering precisely going above 35, but for calculation purpose and for the guidance purpose, I think 32-35 is a good number which we are holding for since long.

Or is it possible to kind of explain what has led to this margin range shifting from 35 to 37-38% in the last one and a half year? It's all processing. You can make up with the percentage of these margins.

Yeah, it's a skill set what we are obtain on the shop floor, and this continues improvement, which not only last three years, we've been seeing since inception. I remember the days we were operating at 80-90% EBITDA, and we are now operating at this EBITDA level, so definitely there's some magic happening on the floor.

So, you mean the process engineering?

No, it's not just process. There are many factors which we should be, if at all, I would love to, you know, take it on the floor, and I would like to demonstrate what exactly lies between these margins and what all is lying, you know, from 18 to 35, 36. Why not we can see further also? So, we are trying to find where we find. We'll pick it up.

Understood. Understood. Got it. That's it from my side and all the best. Thanks, Gaurav.

Thank you. Our next question comes from the line of Subhi Gupta with Trinetra Asset Managers. Please go ahead.

Good morning, sir. First of all, congratulations on the turbojet engine. So my first question is that since we'll be looking at double-digit growth in these kind of projects moving ahead, as you just mentioned, what are the margins that we're looking at for similar projects? And second question is that we have signed a deal with Roadtrollers for a civil aircraft engine. What is the time period for that? If you could just tell me that.

Hello. Could you repeat the question number one, please?

Yeah, so I'm saying that congratulations on the Kerboj attention. Since we'll be looking at double-digit growth in similar kind of projects moving forward, so what is the margin that we're looking at for these kind of projects?

Okay. Thank you so much. Look, we have just finished. We have just made the first engine. Okay. We can never come to a costing out on the first engine. As you know, it takes a lot of time to stabilize in the production. So we have been producing the first 20 engines. So it would be appropriate for me to answer this question once we have done at least five, six engines in a row, and then we can come to a level of what we hold and how do we fare in this.

And if you could just tell me what would be the timeline for these 4-5 engines?

I think it's just, you know, not far away, 8 to 12 weeks, you can say 3 to 4 months. And it is a continuous process which we are going to see. So maybe by next call, when we see our UK, you are most welcome to visit us, and we can share more details with you here.

Okay, sir. Okay. And this is our roll-through, is the time for that?

Yeah, so I think very soon, within this quarter, I think we should be delivering the first batch of the qualification parts. It's almost finished. The first delivery is quite nearby.

Okay, so thank you and all the rest.

Thank you.

Thank you. Our next question comes from the line of Aditya Bhartia with InvestTech. Please go ahead.

Hi, good morning, team. Congratulations on a lot of positive development. My first question is on our asset base and the revenue potential from that asset base. Now, in the last one and a half odd years, we have undertaken a big KPIX plan, and including the capital WIC, I think we may end the year with maybe 1,200, 1,300-odd-clor rupees of net block, maybe around 1,500-odd-clor rupees of cross block. I just wanted to understand what will be the peak revenue generation potential from this capacity, at what utilization we may be operating in some of the earlier shifts that we have made operational, and how would you anticipate it to be ramping up?

Hi, Aditya. Vishnu here. Thank you for your question. So, Aditya, I think I will take you back to our conversation, you know, that we had two months ago. So, this entire Kibularam plan that we are building is built with a mindset of building dedicated factories for all of our customers. So, we are building eight plants there, and each of these plants would be dedicated to a certain customer, right? And what is going to happen there is each of these plants overall, and, you know, without getting into specifics at a customer level, I'd like to say that each of these plants are poised to generate at full utilization and full capacity from 150 to, let's say, about 180-odd crows, right? So that would give you a good sense of, you know, roughly about 1,200 crores out of the newer plant revenue, right? And then as and when we keep growing, based on the contrast that we have, we will keep building capacity as well. So our idea is to finish this plant from a civil construction perspective by this financial year. And then, while the plants are in our control, we're constantly going to focus on improving the utilization and capacity impact on that. Right? But we are fully, you know, fully geared up for the contracts that we're supposed to be delivering over the next two years in terms of capacity or in terms of infrastructure. So we don't have any risk from there.

Sure, sure, sure. That makes sense, Vishnu. And Vishnu, we also spoke about acceleration in revenue momentum from second half. So, is it because of maybe some qualifications that are pending for some of these new shifts, and as they happen from second half onwards, we would anticipate a much stronger revenue momentum?

Yeah, I agree with that, which is right.

Yeah, so we knew that this is a plant, okay, and maybe last two or three calls, if you couldn't recollect what I mentioned, Q4, we could up these buildings, got the machines inside, run the foundations, you know, do the Delta qualifications, and then Q1 was something we switched on a lot of machines. Production started very slowly, the qualifications were done. As we speak in Q2, those machines are now on full throttle production, ongoing right now, as we speak. Okay. And to reflect these numbers, you could see reflection from Q3 onwards, the sales, what we do. And this is exactly consistently we have been guiding the market last three, four quarters, what exactly is the status. So that's what I mean is 80% done, is these plants where the machines have been deployed, foundation done, qualification done. And these are not, this doesn't happen in one week, 10 days. You know that very well, right? So it takes a lot of time getting customers, travel plans, each and every parts being reproduced, re-qualified. So that all is done now. 80% is done now. And the production is switched on. So that's the whole reason we say that we see a major breakthrough coming next to.

Understood, understood. And instead of just looking at this one year, let's say we look at a slightly longer term picture, a three-year period, then where do you see the company's revenue number kind of settling in? Do you think that instead of this 25%, we should be looking for a much stronger growth, maybe closer to 35% on an annual basis? As we'll be having capacities, we already have certifications, we already have some decent-sized orders. So it's just about getting some of the formalities done, and we can scale up the business at a much faster pace.

Of course, of course. See, right now, the reason we are guiding 25% plus is because we know what situation we are in. As we shift to the next level, we will change this guidance. Perfect. Perfect. Okay.

Understood.

Second question is, given that a lot of our contracts will be maybe dollar denominated, do we get a big benefit out of rupee depreciation? Is it a case that this year, maybe revenues get a lift of maybe 7-8% purely on account of how forex numbers have moved? And to that extent, even if volume growth is somewhat similar to what we are speaking about, in revenue terms, we may end up doing a lot better.

See, I would say one thing is that it can be. It is not a significant number. It can be some few percentages which in large growth of this should not be really taken as a beneficiary thing or it changes the volume. Because we also import a lot of things, right? So we also import a lot of things. So it is vice versa what we see is not a major benefit VC or a major problem to VC. So we should consider this as a normal thing. Being, you know, natural, you can say it's a natural regime.

Sure. No, I'm saying from the perspective that material cost is not very high. So to that extent, we don't get significantly impacted by rupee depreciation on the cost side. But we may have a disproportionate benefit on the revenue side. So which is why I was just trying to understand that, can it really boost the revenue growth as well? Can it be an additional level from the perspective of this year, given how sharply rupee has depreciated in the last couple of months?

I think we don't look at that largely when we're looking at business growth, etc. Our revenue growth is a function of how capacity is coming up online because we know this could be a factor for a particular quarter or for a particular year, so that is not really something that we do. But you're right to mention that rupee depreciation could probably help us to an extent of 5-6%. That's true, but not that an important factor for us while we are planning our business. We don't look at it from that lever at all.

Sure. Understood. Thank you so much, team. Wish you all the well. Thanks. Bye.

Thank you. Our next question is from the line of Kamdej Barkmar with Lotus Asset Managers.

Please go ahead. Kamlesh, your line has been unmuted. Yeah.

Thanks for the opportunity and lots of congratulations to Rakeshler and Tee for achieving the milestones. Sir, my first question is regard to your capex. Let's say like over last two years, we have done

a capex roughly around 900 or 2.

So going forward for like say 24, 23, 29, how would be our capex trend?

Yeah. Hi, Kamiliji. Sorry, I'm on mute.

So just to quickly address this. So one is our CAPEX deployment in the current plant will be to bring the balance plants up and to ramp up the existing that have been operational to add further capacity to it, right? So, over the next couple of years, whatever revenue or production output that we need, We are deploying capital in a phased manner to address that. So from a revenue perspective, we are tracking right to the contracts that we have to deliver over the next year. Right. And coming to the second question, yes, you're right to point out that there could be a larger CAPEX requirement, given that Azad is surrounded with a lot of opportunities. But this is not needed for the next couple of years for whatever guidance we've given. We need them to, you know, collect these opportunities in bag and start working on them so that this could fuel the next level of growth from Azad's perspective. There is a lot of excitement, a lot of opportunities that we're working on right now, and I think maybe in a quarter or so, we should be able to give a more, you know, a more comprehensive perspective that should probably address all of these things at a granular level.

Great. I appreciate that. And secondly, like you pointed out that you will guide in next quarter,

but can we be looking at like say

investment costings and other segments because that also is moving in a big way and there also the margins are far superior. So can that agency be look at in terms of investment and driving the further growth?

So, I mean, sorry, I have to reiterate this, but it'll be difficult to comment on what opportunities we will be going forward next. Why don't we have a meeting in person and show you the kind of opportunity we'll be working on right now. But to put our pen down on a particular opportunity to talk about it would be slightly difficult on this call. However, I can only assure you that there is a lot of work across sectors and not just one area that you mentioned. I think there are quite a few areas where there are opportunities that are getting unlocked. And given the bandwidth that we have, given the focus that we have, we will take the right calls. And we will be able to update you, you know, maybe in the coming call. And if there is a meeting that happens in Azad, we will also share, you know, the developments that are coming forward in the next few quarters.

And lastly, like I say, it may be particular to this particular quarter only, but if you see the global peers, the way they have grown, like say 25, 26 percent, and that also in dollar terms. So, were there some hiccups in terms of stabilization of new lines? Because 23-24% growth looks to be little less, given the fact that rupee depreciation has also benefited a lot.

I think we are not comparing the right things, right? These companies have been building capacities or have built capacities several decades ahead of the curve, right? And the scale at which they are operating, obviously, is very different than the scale that we are operating at. We are in the process of starting to run our spindles. Right? We are building capacity to address that. So, for us, like we also spoke in Mr. Jogda's, you know, when he was talking about the quarter, that this is the stabilization that we achieved in the last year. Foundation is being set. Now, we are in the, we are at the right point to gain an access to all of the growth drivers that are there in the industry and the tailwinds that are there. But you have, it will happen in the coming few quarters. Right? But I don't see, you know, there are no hiccups. I mean, just because a larger player in this space is growing at a certain rate does not mean we have hiccups, right? I mean, they are, you know, they do $2 billion plus a quarter, right? How much are we looking at? We have done 600 crores in the full financial year. So I think it's not right to compare.

Thank you.

Our next question comes from the line of Pratik Srivastava with Nivesh Wisdom. Please go ahead.

Yeah, thank you for the opportunity, sir. So, first of all, I think you guys are doing a great job, not just for shareholders, I think even for the country, right? And I think we are very fortunate, India is very fortunate to have a company like you. So, my question, because to build a high precision engineering company, which you guys are aspiring to do with a very high boat, requires a very special kind of talent. So, my question is on the talent, if you can sort of, because you have also been, I saw that your year on year, you know, have also gone about 42%, right, the line item of the headcount. So can you talk a bit about the talent pool which you are hiring to create such more than such high precision engineering company which can compete with the best of the world?

So thank you. Thank you for your kind words. And we really appreciate whatever you've said. Now, as you've rightly pointed out, I think this is the sector that needs extremely high engineering skills, etc. But, you know, if you look back at how Azat was built, you know, it starts right from a founder, right? We believe that every technical person can, you know, our founder was a high school dropper, and he's built the most, you know, The most advanced precision manufacturing company that India has today, right? So that culture is there everywhere in our business from the bottom to the top, right? So you would see that we have several training programs in the organization that bring in, you know, normal diploma operators. We put them through 60 to 90 days of training. He has trained people that are now training people. Right? So that culture is a continuous program. We've now built an engine of hiring roughly about 150 to 200 people every month, putting them into a 90-day tutoring program. So this is a continuous cycle. And I think, see, we think India has the talent, right? I think India just needs the right opportunity. So we are providing a platform to anybody who has. You know, who has engineering skills, and then we are upgrading them to suit our sector. They also, you know, when people are deployed in a sector, they shadow the senior resources, and then when they are ready, they get deployed on the real world. So that's why you would see that we have more people than what we actually require for our revenue, because we are also trying to create a bench strength of people that can be quickly deployed on the floor.

Thank you, sir. Thank you, sir.

Thank you for the opportunity, and again, all the very best to you in future, sir.

Thank you. Our next question comes from the line of Basant Bansal with NBG Investment. Please go ahead.

Yeah, thank you, team. I have a couple of questions on the P&L side. So, while I see this raw material cost, so last year it was around 12% raw material cost to save. And now it is 5%. So can you help me understand what is attributed to this? And is it a sustainable kind of development? Similarly, the employee cost has increased from 29 crore to around 42 crore. So, you know, can you also explain this what has led to such increase? And so is the case with other expenses.

Sure. I will take you through the two-line item what you have asked me. First, coming to the consumption part, consumption part has two things. One is the raw material cost, and other is the process content of the WIP, what is there in the inventory. So, raw material, what we are buying till last year are more or less imported, and as I told you over previous call also, we have tried to get two means qualified in India, Sunflag and Star Wars, for few of the critical raw material grid, where we are getting the benefit of the cost for 1-1 last year. We have helped them to get qualified with the giants like GE and the Siemens, not for India, but for the global supply chain picture. So there we are getting the benefit of the price benefit and also transportation cost benefits. These are the local supplies which have very less transportation cost compared to a global transportation cost when we import these materials from overseas, which is around 4 to 5 percent type of situation. So that is one result. The other lever is also the process content, because historically we are changing our lower sales, and now the quarter we have closed with 170 crores, but we are changing a larger quarter in the coming month, as Mr. Chairman and Mr. Vishnu has also mentioned in their latest questions and their speech. So that, to put together, has to... I also mentioned in the previous questions that we don't require that much of manpower to cater to the sales what we are doing. This is for the future sales what we are targeting in quarter three, quarter four. Our WIP cycles are around 90 to 120 days and we have to keep the inventory in place to cater to the quarter three and quarter four sales where all the spindles are running for quarter three and quarter four. So that's why you see an employee cost on the face elevated, which will be normalized by coming in quarter three and four, and the objection will go down over a period of time.

I'm going to ask you this.

Expenses, if you see as a percentage of sales is more or less stable, I don't think it has increased. The major cost that includes are the power cost, tool cost, stores, maintenance, and the job work which we do the outsourcing are the four or five major heading to that. You can go to the schedule of FI26 once it's published to the annual report, and if you have any further questions on that, more than happy to discuss.

Okay. Now, the other question, which is.

Thank you. This is Vishnu here.

Also, you know, the same. So while we are looking at Thank you. Imagine what we are attempting to achieve as an organization, our team put together. We are building factories at the same time, ramping up capacities in some, hiring people, training people, growing and catering to all contracts, you know. So this is a really large execution thing, and for us, you know, we are trying to do everything right. So, from our perspective, We have all the opportunities. I think it's just about stretching all of these things together. We have the right customers in the sector. We cannot have better customers. All the customers that are noteworthy in the sector are with us. We have the best long-term contracts which give us visibility over five, seven, eight years. We have capital. We have capability and we have consistently proven that we can deliver over time. So I think it's all there. It's just about achieving each of these things. All of these things have to work together for us to achieve all the milestones that we set out. So that in my view is, I wouldn't see it's a challenge, but it's something that we are all aggressively focusing on. And I mean, this is a thing that every organization has to go through, right, when they're scaling up. So we are attempting to do that in our own way.

Yeah, I understand. And the last question from my side is, what is your hedging policy to hedge your, you know, export receivables?

Sorry, I haven't, I didn't hear your question correctly. Can you repeat that, please?

Yeah, yeah, sure. My question is that since you have, you know, export, so what is your hedging policy to hedge your export receivables?

Yeah. To do that, we have some foreign currency loan, which will make it a natural hedge. And as I mentioned that we are going for bill discount in line. So the moment we book the sales, we get the bill discount in the future. That will help us to take the natural hedge direction going forward by quarter three and quarter four.

Okay. So that covers your entire export. So you have a natural hedge to cover your entire export.

Entire, entire, entire. Entirely, it will be aged by quarter four type of time. We have all the build-up counting questions that it will be used.

Okay. Thank you. Thank you, Vivo. Thank you. That's all from my side.

Thank you. Ladies and gentlemen, we will take that as a last question for today. I would now like to hand the conference over to the management for closing comments.

Over to you, gentlemen. Hello. Yeah.

So we'd like to thank everyone on behalf of Azad Engineering, our chairman, our board of directors, and all of us in the team. We'd like to thank everyone for joining us today and for your continued trust. We're excited about the phase that Azad Engineering is in. The quarter you've seen and the milestone on 22nd of July tells you where we are headed. From this point, we're only looking upwards and onwards. Thank you again. We look forward to speaking with you in the next quarter. Thank you.

On behalf of AZA, the Engineering Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.