Azad Engineering capacity ramp-up and turbojet programme support high-margin growth outlook

Investment View and Valuation

ICICI Securities upgraded Azad Engineering to BUY following its Q1FY27 performance update dated August 10, 2026. The brokerage sees multiple structural growth engines supporting sustained expansion in the company’s business.

Azad Engineering manufactures qualified, highly engineered, complex and mission- and life-critical components for global original equipment manufacturers across energy, aerospace and defence, and oil and gas. The company has a predominantly export-oriented business, with approximately 93% of FY26 revenue generated from exports and around 7% from domestic markets.

ICICI Direct’s target price of Rs 2,960 is based on 85 times FY28E earnings per share.

Q1FY27 Financial Performance

Azad Engineering reported healthy execution in Q1FY27, broadly in line with management guidance. Operating income increased 25.9% year on year and 6.8% quarter on quarter to Rs 172.6 crore. EBITDA rose 30.7% year on year to Rs 64.4 crore, while the EBITDA margin expanded by 138 basis points year on year to 37.3%, supported by a favourable business mix and operating leverage.

PAT grew 19.5% year on year to Rs 35.2 crore, although it declined 4.5% sequentially. Energy and Oil and Gas revenue increased 26.7% year on year to Rs 139.7 crore, while Aerospace and Defence revenue rose 24.7% year on year to Rs 29.5 crore.

Capacity Ramp-up and Margin Outlook

Management indicated that FY26 was principally a year of capacity creation and stabilisation, with approximately 80% of the initiatives stabilised. The remaining major work is expected to conclude during H2FY27, with full closure targeted by Q3FY27. A stronger revenue ramp-up is expected from Q3FY27 and Q4FY27.

Management reiterated its long-term revenue-growth guidance of more than 25% and annual EBITDA-margin guidance of 32-35%. Raw-material cost as a proportion of sales has declined through the localisation of critical materials. Employee expense increased as the company added manpower ahead of the expected production ramp-up.

Strategic Programmes and Customer Opportunities

A key strategic development was the manufacture, assembly and delivery of India’s first completely in-house indigenous turbojet engine to GTRE/DRDO and the Ministry of Defence. Management views this development as a potential progression from precision components towards complete propulsion-system integration.

The turbojet programme remains under testing, followed by airworthiness certification and production readiness. Management expected the first four to five engines within 8-12 weeks, although eventual production volumes remain uncertain. ICICI Direct treats the turbojet opportunity as long-term optionality rather than a near-term earnings assumption.

Azad Engineering also expected qualification of the first batch of Rolls-Royce parts during the current quarter. Its fourth dedicated Baker Hughes facility, inaugurated in April 2026, covers 7,600 square metres and follows facilities dedicated to Mitsubishi, GE Gas Power and Siemens Energy.

Azad Centre of Excellence

The Azad Centre of Excellence has eight customer-dedicated facilities. Each facility has potential revenue of approximately Rs 150-180 crore at full utilisation, implying an aggregate opportunity of Rs 1,200-1,440 crore. The timing of this opportunity depends on customer qualification and production schedules.

The Mitsubishi hot-section facility is expected to be ready in approximately seven to eight months and could serve both land-based gas turbines and aviation engines. ICICI Direct regards the hot-section opportunity, like the turbojet programme, as long-term optionality rather than part of its near-term earnings assumptions.

Working Capital and Operating Priorities

Working capital is expected to remain near 200 days in H1FY27 before improving to 160-180 days in H2FY27. Management aims to reduce debtor days from approximately 170-180 days to around 90 days through bill discounting.

Financial Forecasts

ICICI Direct expects revenue, EBITDA and PAT to each grow at approximately 30% CAGR over FY26-FY28E.

Key Risks

• Dependence on a limited customer base.
• Potential unavailability of raw materials.
• Substantial exposure to export markets.
• Technological change.